Medical practices are in a technology-driven field, and they need to continually upgrade their equipment and software in order to stay competitive. The tricky part is that upgrading medical technology is expensive.
A single piece of equipment or a comprehensive system can run into hundreds of thousands of dollars. Most practice owners understand how important this is, but the practicalities of upgrading in a way that won’t break the budget can be difficult to pin down.
The Cost of Modernization
The first issue with modernizing medical practices is that equipment purchases are not just about the price tag. Sure, the latest digital imaging equipment might cost $200,000. But there are installation and implementation costs. There are cost factors related to staff training, integration with existing software and record keeping systems, and ongoing maintenance contracts. The actual cost of implementation often ends up being twice the purchase price.
Then there is the technological factor. Equipment that was state of the art five or even three years ago needs to be replaced. Electronic medical records systems have lifespans, as do diagnostic tools that patients have come to expect after getting used to seeing them other medical practices. Practices that fail to keep up with these upgrades start losing patients.
Unfortunately, most medical practices operate on tight margins. They can generate a lot of income through insurance reimbursements, but that money only comes in periodically. Staff wages, rent, supply and demand costs, and malpractice insurance need to be paid on a regular basis. Finding $150,000 to $300,000 for equipment purchases isn’t a simple case of looking in the right place.
How the Most Successful Practices Handle Large Expenses
The practices with the most sophisticated understanding of business treat technology equipment purchases differently from other operating expenses. They usually maintain a rolling three-to-five-year replacement schedule, which means they are always budgeting for a major piece of equipment to be replaced every one to two years instead of trying to find half a million dollars all at once.
Even with operational devices, smart practice owners understand that the cost of replacement can be a killer if they’re unprepared for it. They typically space replacements out by keeping track of how long certain systems last, rotating when expenses occur, and adjusting their schedule for modern developments in practice technology.
What happens if an unexpected equipment failure occurs? Certain equipment might be critical for day-to-day operations. In cases where money comes in on an unpredictable schedule, finding financing that understands these realities might be necessary. Many practice owners consider capital for medical practices rather than small business loans that don’t factor in how health-related businesses work.
A sizeable number of practices set aside a percentage (usually 10 to 20%) of their income each month for medical equipment investments. This works well for routine operating costs, but other purchases or upgrades can sink this strategy. Equipment like an MRI machine can’t afford to wait while the practice scrambles to save funds.
Timing Replacement for Upgrades
The worst time for an office to make a large purchase is when they are reacting to an emergency. The pressure can lead to bad decisions and last-minute negotiations that don’t bear fruit. Instead of waiting for operating expenses to break down and become unmanageable, office managers should do it when they still have some functional value left.
Several benefits come with this strategy. First, the office has sufficient time to conduct research on the best purchases currently available and vendors who sell them. Second, personnel have adequate time to properly analyze their options without pressure and negotiate the best deal possible. Lastly, there is also plenty of time for staff training before replacing old systems.
Some practices conduct major software upgrades when they are preparing to expand or when they are adding new services into their offerings. If a practice with one location is opening a second location, it makes sense for them to invest in an operating system that works in both locations.
If they’re adding a new specialization or patient type, they invest in office systems that help them with this new potential source of income. This strategy makes sense because these transitions provide several timeframes for financing payments.
How Financing Gets Paid Back
Most operational practices use some form of financing when purchasing a new piece of software or equipment. Commercial loans can come with monthly payments that seem manageable if you don’t take irregular income flows into account. It is common for private loans to be repaid from managing funds coming in from visits.
A good practice owner can calculate how much revenue needs to be generated by a certain piece of equipment to see if it makes sense to purchase it now or later. This is done by factoring the costs of the equipment into the per-patient revenue. For example, if an office is expecting to pay $240,000 for an upgrade, which they expect to last around eight years, they would need to pay back $30,000 per year or $2500 monthly.
Calculating how many patients visit each month gives the owner an idea of how much each patient visit is worth toward paying off the debt. This calculation helps determine if focusing on upgrading or potentially growing another source of income would be most beneficial.
Some office upgrades are more profitable than others and help repay debts faster than others. Some computerized patient’s management systems make it possible for offices to pay staff less when collecting and managing information through their brand-new electronic files saves them so much time.
Seeking Loans with Favorable Terms
The most successful practices leverage loans that provide favorable terms instead of generic private loans without factoring in office needs or specifications. Monthly projections may look good on paper but become tricky when other factors affecting actual monthly revenues are considered.
Smart office owners build investment costs into monthly calculations. For example, $20k per month may look doable, but what happens when debts roll in unexpectedly because patients file claims late? Focusing on avoiding any additional fees forced by re-filed insurance policies should have better returns.
Why is this important? Upgrade calculations influence revenue calculations. New tools may attract more patients or make it possible for the same office personnel to provide services previously unavailable. These calculations factor into whether there’s room for improving office income or bringing in more patients first before upgrading current systems.
And although it may not factor directly into paying back investment costs, newer technology keeps employees satisfied and prevents them from leaving the office environment out of boredom or frustration with outdated technology that they’re forced to use on patients.
Other Efficiency Boosts
New technology contributes quantifiable efficiency metrics like:
- Time saved on entering paper files
- Full appointments spreadsheet not needing regular checking
- Increased time available for interactions with patients rather than website navigation assists
- Resources also help streamline efficiency on less visible metrics like:
- Decreased time spent on invoice generation
- Consolidated appointment reminders
- Accurate notes added automatically
Newer offices regard debt related to upgraded equipment costs as “part of the cost of doing business.” The most efficient office managers still maintain a working relationship with the companies providing them a loan in case there’s a need for negotiation in subsequent months.
They avoid loan plans that don’t scale well during busy seasons but become burdensome during quiet periods with limited income flow (and yet staff expenses need payment). They also track results related to what they owe over the long haul; if an upgrade makes monetary sense, then it’s been a good decision.
Office managers may also consider consistent upgrades part of cultivating an environment employees want to work in rather than considering alternatives with smaller technologies and more patients per personnel ratio.
They also see upgrades as guiding lights: having systems people want to work with instead of resent (historically accurate view toward hierarchal figures like CEOs).
Medical technology will keep advancing as it changes every component of how physicians diagnose their patients’ issues and document these problems over several visits. The most successful employees seek strategies needed for adapting small details while staying clinically immersive throughout their sessions with patients who need results integrated into their lives rapidly.
Conclusion
In this fast-moving field, all stakeholders seem highly aware of and focused on how everyone involved lacks time and needs suggestions regarding upgrading current practices rather than continuing utilizing the past decade’s toolset, leaving room for significant side conversations instead of assisting their patients accurately and immediately.
The main question remains how these doctors can invest in upgrading their systems while still operating within comfortable parameters as far as cash flow is concerned? Asking a friend about certain loan options wouldn’t hurt; even better results may occur by going through new vendors focused on med-tech advancements rather than relying on popular trends from high schools or children’s television shows.
