The San Antonio ASC in Upland, Calif., will make 60 monthly payments of $654.50 on its new anesthesia machine. When the vendor-sponsored financing package expires in 2010, the surgical center will have paid $39,270 for an anesthesia machine that lists for $36,000. Not a bad deal, if director of nursing and chief negotiator Susan Dievendorf, RN, says so herself.

She bargained for no money down and two years of included biannual preventive maintenance. Instead of accepting a stripped-down machine, Ms. Dievendorf insisted on a souped-up version. The vendor wanted to charge extra for the anesthetic gas hoses, oxygen flowmeter and vacuum assembly and regulator. But Ms. Dievendorf stood firm and shoehorned those items into the lease-financing deal. Perhaps best of all, her facility got new capital equipment for a very manageable monthly payment. The vendor gave her the choice of paying off the machine in 36 months at $871.50 per month, 48 months at $742 per month or 60 months. Ms. Dievendorf opted to spread out the payments as much as possible, paying less over a longer period - which is easier on the budget and mindful of a rainy day.

"Because we haven't overextended ourselves, we'll always have the option to add a new piece of equipment or an emergency replacement," says Ms. Dievendorf. "For us, it's important to pay the lowest amount each month because things are always breaking."

Case in point: Her refurbished blanket warmer recently stopped warming blankets. It would have cost more to fix than to replace. So, hello, new (and unplanned-for) blanket warmer.

Ms. Dievendorf arranged for her anesthesiologists to trial the machine she settled on as well as a competitor's for a week each. After all, she says, you can strike the best financing deal, but if your physicians don't like the equipment, what's the use? Plus, she asked her facility's financial manager to review the lease-financing contract with a fine-toothed comb.

As Owen Owens, Sovereign Healthcare's director of operations for Arizona, knows, you can't look at your financing contract too closely. He found three ticking time bombs buried in the fine print of the clauses in his GI endoscopy tower contract.

• One would have made the vendor the sole and exclusive provider of all medical equipment repairs required by the entire facility.
• Another would have let the vendor sell, assign or transfer the financing agreement at any time.
• A third would have let the vendor start charging the facility's credit card ("an accountant's nightmare," says Mr. Owens).

"I just crossed each one out, initialed [the contract] and sent it back," he says. "The vendor was happy to exclude these from the agreement."

His advice: If you don't like your contract, don't sign it. Change it freely. "It's a starting point for conversation, not the end-all or do-all," says Mr. Owens.

From a borrower's perspective
"It's always a good idea to use other people's money rather than pay cash for a piece of equipment that won't give you an immediate return on investment," says M.J. Klimas, senior vice president for healthcare equipment finance at Banc of America Leasing.

Whether you look to national lenders, vendors or your local bank to finance capital equipment, you're in a good position today, say the experts and administrators we talked to.

"Healthcare continues to be a strong focus now for lenders and banks. More resources and staff are being devoted to this sector," says Ken Seip, a vice president with CitiCapital Healthcare/Energy Finance.

To you, the borrower, that means you have multiple avenues, both local and national, through which to source your financing. Many lenders are offering attractive rates and terms.

"We don't have many competitors, but they're all tough," says Peter Myhre, the president of MarCap Corporation, which specializes in financing for ambulatory surgery centers. "A handful of national players like the surgery market and local banks are very aggressive in the market. The cost of capital [interest rates] remains very competitive."

Mr. Seip's advice: Work with a lender that is familiar with healthcare and, specifically, has provided financing to other surgical facilities. Interview the financing source, says Mr. Myhre. Know when it last financed a surgery center and how many it financed within the last year.

Even if you don't have the exact breakdown of capital you'll need, start the process early, say experts. "Lenders do the best possible to accommodate last-minute financing needs, but starting early allows more time to best fit your needs with the right financing," says Mr. Seip. Start the process at least 90 days and no fewer than 30 days before you need funding, says Mr. Myhre

Depending on the size and scope of the financing request, a lender may require you to provide historical financial information, a pro forma and justification for the need of the new equipment or expansion. "Be prepared to provide this information and answer any questions as best as possible," says Mr. Seip.

"The more detailed you can get, the more comfort we'll have as a lender," says Ms. Klimas.

"Financing is not like leasing a car. There's some complexity to it," says Mr. Myhre. "From due diligence to credit approval, understand the process so you can monitor how well it's going."

Consolidating debt
Your local bank may be able to offer a package of banking and financing services at attractive terms. When administrator Debbie Hall, RN, MBA, joined the Cheyenne Surgical Center in Cheyenne, Wyo. (see "Wyoming Surgery Center Overcomes Rocky Start," April 2006, page 14), in October 2003, she inherited 10 different capital equipment leases with different rates and schedules and terms. The leases were worth more than $1 million.

"It was unbelievable," she says. "Pretty much every piece of equipment had its own lease. We were having the hardest time keeping them straight. Just making sure the proper amounts were going to the principal and interest was a full-time job."

Her goal: Consolidate the debt, roll it all into one bundle, not just to save money but to simplify as well - for her, five physician-owners and a corporate partner. She set out to find the lowest interest rate, increase the ASC's operating margin and increase the size of the distribution checks. She shopped for financing at four local banks, basing her choice as much on the interest rate as her relationship with the bank representative. Because you'll be working through the details of the contract, you'll need to become fast friends with this person, says Ms. Hall.

Today, with a five-year payment schedule, the facility is profitable and able to make distributions to its owners. And next time the ASC buys equipment, who do you think Ms. Hall will call? "The bank's willing to work with us so we keep it all in one payment," she says. "Streamlining the payables and simplifying the financial picture has given us peace of mind."

While banks generally compete on rates, surgical center financing companies compete on both rates and terms, says Mr. Myhre. You'll notice more companies offering longer term financing and piggybacking working capital loans onto equipment financing deals. If you're looking to finance a single piece of equipment, take a look at your financing needs over the next year or so, says Mr. Seip. Offering a lender a larger transaction as an "equipment line" may get you stronger financing terms.

Pay as you go
Pay-per-use financing is an option that lets you pay off a capital equipment lease by purchasing a predetermined volume of disposables to be used with the piece of equipment (see "Making Cost-per-case Financing Work for You," September 2005, page 71). Proponents like Mike Pankey, RN, MBA, say this is a good way to align your expenses with your revenues.

Mr. Pankey, the administrator of the Ambulatory Surgery Center of Spartanburg in South Carolina, had a long list of wishes when he acquired new arthroscopy equipment, including high definition monitors, and one demand: It had to be a budget-neutral buy. His solution? He moved money from his medical supplies budget toward the capital lease.

It works like this. On the books, it appears that Mr. Pankey is paying less for his med supplies than he had been. In reality, he's paying the same. The difference is how the manufacturer is allocating the money - some goes toward the supplies and the rest goes toward the per-use lease. Instead of paying $55 for every anchor, he's now paying $40 and a $15 per-use fee on the new arthro equipment.

In exchange, the manufacturer receives an exclusive purchasing arrangment with its implants, imaging equipment and arthroscopy pumps - not to mention a new line of business. Mr. Pankey signed a three-year lease and converted to the manufacturer's electrosurgery wands ($140 apiece, but on paper he's paying $125; $15 goes to the per-use lease).

Mr. Pankey worked out a similar budget-neutral deal to replace his 10-year-old phaco machine with a new model. The phaco machine manufacturer is discounting its IOLs, packs and other supplies and applying the difference toward the five-year pay-per-use lease, which is valued at $150,000. Instead of paying $75 for each I/A tip, Mr. Pankey is paying $45 per tip; $30 goes toward the per-use lease. Instead of paying $120 per procedure pack and $140 per IOL, he's paying $90 and $120, respectively; and $50 goes toward the per-use lease. As part of the deal, the ASC uses the company's disposables exclusively.

"My implant costs went up $8 a case, but I got $100,000 worth of new equipment," says Mr. Pankey. "It's creative bucket shifting. The dollar amount I'm paying at the end of the day is same as it was before, but look at what I'm getting out of it."

Did we mention that his bonus is tied to his med-supply costs? At month's end, when the surgery center reconciles its invoices, it appears as if it has lowered its med supply costs. "Instead of making it look like you're spending the same as before, you can break out that difference between what the lease costs and put it in the lease category instead of medical supplies," says Kim Price, RN, clinical director of the Ambulatory Surgery Center of Spartanburg.

Mr. Owens negotiated an upgrade in his three-year pay-per-use phaco machine lease: If the manufacturer releases a new machine, he has the option to trade out the technology at no expense. He also negotiated a cancellation clause: If for any reason his surgeons become dissatisfied with the equipment, he can return it for a fee that's slightly higher than what he's paying per month.

It's your call
As you can see, today's competitive financing market and the many creative ways to structure a deal could make adding that new piece of capital equipment to your OR easier on your budget than before.