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Business Advisor: Shopping Smart for Capital Equipment
Yes, it's possible to upgrade your ORs without breaking the bank.
Corrie Massey
Publish Date: July 9, 2015   |  Tags:   Business Advisor
best price PRICE CUT There's always room to work a big-ticket contract to your advantage.

Is it time to replace that worn-out piece of equipment that biomed has been patching together for months? Did your doctors come back from conferences with that gleam of desire in their eyes for a new gotta-have-it toy? Here are some ways to ensure you get the equipment you need while avoiding big-time costs.

Calculate the return on investment (ROI). Run reports of CPT codes associated with the use of equipment to see exactly how many cases surgeons have historically performed. You should also be able to obtain the average reimbursement per case from your business office. If you're a new center, ask your physicians to provide CPT reports, because they've certainly billed professional codes for procedures performed at other facilities.

My surgeons recently requested a holmium laser. During a recent analysis of kidney stone cases, I included treatment of kidney, ureteral and bladder stones in the mix, multiplied the total number of cases performed last year by the Medicare maximum reimbursement rate (leaving out commercial payors) and divided it in half to get an expected (and extremely conservative) ROI. Based on the number of cases performed, the cost for a $50,000 holmium laser was still easily covered with 1 year of cases. One additional note: Make sure you also calculate the cost of disposables in your ROI analysis, so there aren't issues with other aspects of your budget.

Trial contracts. Does one of your general surgeons want the latest 3D video technology? Do your ophthalmologists want new microscopes? You can set up long-term trials for these pieces of equipment with equipment manufacturers. Start with the reps you currently work with. Depending on your history with them and their companies, along with the capital spending in question, they might work with you to put equipment on site for an "extended trial." Don't forget to negotiate the cost of disposables and accompanying instruments into the trial period.

Lease agreements. Either the selling vendors or the third-party finance companies can broker these. Lease agreements typically last for a specified term with a monthly payment attached. At the end of the lease, you've paid off the equipment or you're on the hook for a balloon payment that's smaller than the original purchase price. The upside of a lease agreement is that you don't have to front all the money to get a costly piece of equipment. The downside is that if your surgeon leaves your center or changes his mind about needing the equipment, you're likely stuck with the payments.

When negotiating lease agreements for equipment, make sure you have stable surgeons with a proven track record of performance. Do an extensive on-site trial and include as many other surgeons in the decision as you can. That way, if one changes their mind, you have others that will likely continue to use the equipment.

Disposable agreements. New equipment purchases often come with a line of disposables or instruments required to use them. In the case of the holmium laser, the company I worked with offered a 3-year deal in which 50% of what we spent on specified disposables over that time was credited toward the purchase price of the laser. At the end of the 3 years, if I have a balance owed on the laser, I'll have a balloon payment due. From my ROI analysis, I knew that even if I spent zero dollars on any of those disposables, 3 years' worth of cases would be more than enough to pay for that laser at full cost. The disposables that were included in the deal weren't just laser fibers, but also a lot of urology and gynecology supplies that I'm going to buy anyway. Paying for disposables can be a great way to pay down capital costs and get a new piece of equipment that will generate more case volume.

Leverage interest in other products. That rep who has been pestering you every week for 2 months about his new device just so happens to be the rep for the equipment your doctor saw at his last conference. Take a deep breath and engage the rep. You can't guarantee the surgeons will like, or even try, the new device, but you can offer to host a luncheon during which the rep introduces his new product — in exchange of course for an extended trial, cost savings or disposables for the equipment you want to buy. By exposing your physicians to the rep's product, you can grease the negotiating wheels to get the best deal possible for your facility.

Trade-ins and demo models. If your surgeons are willing to take last year's model at a steep discount, your reps may have some trade-ins or demo models available at a significantly reduced price. Let's say your gastro doctors have been using 160 series Olympus colonoscopes for years. Even an upgrade to the 180 series will be a remarkable improvement. Sure, the 190 series would be top of the line, but if you aren't budgeted for that much expense, a middle ground might be more palatable for your bottom line, while still giving your physicians the improvements in visibility and technology they want. When approaching your physicians about this middle-of-the-road approach to upgrades, ensure they're all on board. If they balk at not having the latest and greatest, it may be worth the extra expense to upgrade fully and preserve physician satisfaction.

Negotiate, negotiate, negotiate. Never take a vendor's first price as final. There's always room to negotiate a lower purchase price, a longer warranty period — including specified quantity of disposables — or a longer term to pay. Always read the fine print of a contract and make sure there is nothing in it that makes you uncomfortable. If you don't feel savvy enough to wade through the sales jargon, find someone who is, so your facility is aware of the conditions and adequately protected.