How to Cost-Justify a New Piece of Equipment


Your capital equipment budget keeps shrinking, but your major equipment keeps getting older.

Today's rapid advances in medical technology create a continuous need to acquire and replace capital equipment. Here's how to make a convincing argument that your facility can't afford to pass up the purchase.

Justification guidelines
The most complex, excruciating decisions most facility mangers must face are those involved with capital equipment purchases. "Will the medical staff support it?" "Will the economy stay good?" "Can we afford to add more debt?" "Should we transfer or sell existing equipment?"

Beyond all else, capital purchases represent an act of faith, a belief that the future will be as promising as the present, together with a commitment to making the future happen.

Part of determining whether a capital purchase is a good strategic fit for your center is to assess whether the technology adds value to your partners and/or investors. Preparing a quality financial analysis remains the most critical part of the business case because, in most cases, a proposal will not get approved if it doesn't meet the company's approval criteria for acceptable financial performance. Here are a few things to consider:

  • Ensure that the new technology is aligned with the center's long-term strategic goals and objectives.
  • List all the costs and benefits (tangible and intangible).
  • Quantify as many of the costs and benefits as possible.
  • Perform a net present value (NPV) analysis, using the costs and benefits you've identified.
  • If the NPV is positive, accept the purchase. If the NPV is negative, do not scrap the proposal (yet). You may need to place greater emphasis on the intangible benefits.
  • Estimate the value of all the intangible (remaining) costs and benefits.

Time value of money
Many traditional financial analysis techniques employed by facility managers such as payback period and return on investment (ROI) fail to take the time value of money into consideration. Although they are both useful tools in the financial analysis of investment decisions, their exclusive use can result in faulty decisions such as the acceptance of projects that lose money and the rejection of projects that may represent significant financial advantages. Analytical techniques such as NPV that take the time value of money into account are called discounted cash flow methods.

How We Justified the Cost of a Mammotome Breast Biopsy System

The low reimbursements of both screening and diagnostic mammography have caused breast imaging to be labeled as an economic "loss leader" in many facilities. Ultrasound-assisted breast biopsies, however, is a fairly new procedure that is relatively well reimbursed as compared to mammography, and can easily be adapted to a surgery center environment. The Surgery Center of Mesquite viewed this trend toward ultrasound-assisted breast biopsies as an opportunity, so we set out to justify the cost of the Mammotome breast biopsy system.

Revenue Code


 Open Surgical
 Biopsy 19125



Pharmacy (Lidocaine, etc.)
Pathology (Surg. Path IV)
Pathology Excisional Open Biopsy
Sterotactic Localization
Diagnostic X-ray of specimen
Ultrasonic Guidance
Unilateral Mammogram (Post Procedure)
Echography Breast (Image Doc.)
Needle Core Biopsy with Image Guidance
Percutaneous Vacuum Assisted Biopsy
Excisional Biopsy w/out wire localization
Excisional Biopsy with wire localization
Preoperative placement of needle loc. Wire
Wire Localization
Tissue Marker Placement

 $        621.50
 $          84.40
 $        310.75

  CPT 76942-TC
  CPT 76090-TC
  CPT 76645-TC

  CPT 19103

 $           55.00
 $           38.00
 $           38.00
 $         433.00


Supplies paid by Medicare
11 - Guage Micromark II Tissue Marker


  CPT 99070

 $          24.88

         Total Reimbursement
         Cost Per Case

 $     1,016.65
 $        931.71

 $        588.88
 $        404.20

Contribution Margin/Case

Total Profit Realized
Per Procedure

 $          84.94

 $        184.68

# of Cases Per Month     Input # Cases Per Month = 40

 Monthly Profit
 $     3,397.60

 Monthly Profit
 $     7,387.20

Annual Profit Less Professional Fee
Profit Realized After Two Years
Profit Realized After Three Years

 $   40,771.20
 $   81,542.40
 $ 122,313.60

 $   88,648.80
 $ 177,297.60
 $ 265,946.40

Hospital outpatient reimbursement from Medicare for this procedure is based on the Hospital Outpatient Prospective Payment System (Federal Register, November 13, 2000).
Reimbursement from Private Payers is applied on a bill-by-bill basis, based on the hospital's reasonable costs.
*Source: Milliman and Robertson Ambulatory Surgery Guidelines, 1997 (extrapolated data to 2000)

Fundamental to your success
Cost justifying capital equipment is a function few can claim as a full-time responsibility. It is a function, however, that is simply too important to not aggressively manage. Just like knowing your company's vision or guiding principles, having a well thought-out process (that is understood by all employees) for examining capital project decisions is fundamental to the future success of your business.

In the words of Henry Ford: "If you need a machine and don't buy it, you pay for it without getting it."