Initial capital outlays for buying equipment can be hefty. Leasing often presents an economical alternative.

"Leasing allows you to cut costs or make a profit from the first day or soon into the life of the asset as opposed to laying out cash up front," Zimmerman said. "Another benefit of a lease is that you can switch some of the risk of obsolescence from the lessee to the lessor and that happens by reducing the term of the lease to the expected useful life of the asset and obtaining a lower interest rate in lieu of ownership."


Your Second Choice: Fair Market Value or Dollar Buyout Lease?

In a true lease, the hospital or imaging center has the option at the end to buy the equipment, return it or renew the lease.

"At the end of a true lease you don't own the equipment instead you have an option to purchase it at fair market value," said Alan Ross, executive sales officer, All Points Capital (Capital One). "The problem, just as in automobiles, is that fair market value to one party is not necessarily fair market value to the other. When you have a CT scanner that occupies a room, has wires, cables, and digital information systems, it's worth more to the hospital than it is to the wholesale market so it's a negotiation in which the lessor comes out ahead."

That's important, though it's also true that lessors assume risks in their estimates of fair market value since medical technology changes so rapidly.

Fair market value is determined by what a buyer would actually pay for the equipment on the open market. (See DOTmed's Blue Book Price Guide in this issue for examples of auction prices of medical equipment. However, note that the maximum value of a piece of equipment is demonstrated when the equipment is in place and operational.)

"Let's say that a piece of equipment will be worth 25 percent [of its purchase price at the end of a lease]. We estimate based on the best information we have today what the resale will be on three-year-old, comparable medical equipment,"
said Max Frodge, President, Ambassador Financial, Inc., Carmel, IN. "We then structure a leasing solution that allows the customer to use that $100,000 asset for three years and have an option to return it, purchase it, or extend the lease. If they choose to buy it, it's incumbent on me to demonstrate what fair market value is but I might only be able to demonstrate that the true fair market value is 15 percent, in which case that becomes the purchase price. It is a market-driven scenario and it's risky."

Another popular type of lease is a dollar buyout (known as a lease/purchase or capital lease because it can't come out of the operating budget). The leasing company owns the equipment till the end of the term when the lessee has the option of acquiring the equipment for one dollar. The intent here is really a loan. The reasons to choose a dollar buyout lease over a direct loan pertain to accounting and tax benefits and liabilities. With a dollar purchase option, as with a loan, the obligations show up on the books as a note payable. However, with a true lease (fair market value) generally that liability is not entered on the hospital's balance sheet.

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