Should You Lease Your Practice’s Medical Equipment?

Running a practice often requires cutting-edge technologies and innovations, including machines like cardiac monitors, autoclaves, electrocardiograms and more. Having this equipment on hand keeps healthcare facilities relevant and helps provide the best possible patient care. But the cost of owning all of these technologies may be more than a practice can (or should) spend.

Whether leasing medical equipment generates the best return on investment depends on the terms of the lease, the size of a practice and the services it provides. And certainly, one size does not fit all. As reported in a study by MD Magazine, only about one-third of medical equipment is typically paid for directly. The rest is either financed or leased by most practices.

The Benefits of Leasing Medical Equipment

Healthcare professionals and their practices often experience a range of benefits from renting advanced equipment instead of buying it.

Lower Up-Front Costs

Leasing medical equipment requires a smaller initial investment compared to purchasing outright, since medical equipment loans often involve a hefty down payment. This helps conserve the practice’s capital. Such financial flexibility allows your practice to allocate funds to other critical areas, such as staffing or marketing.

Flexibility

Lease payments and contract terms can sometimes be customized to fit your practice’s budget and needs, providing greater financial flexibility. Additionally, leases can often be renegotiated or renewed to better accommodate changes in your business circumstances.

Technology Upgrades

Healthcare industry technology evolves quickly, sometimes rendering newer machines outdated before their lifespan is up. Leasing medical equipment allows you to keep up with rapid advancements by easily upgrading at the end of the lease term. This helps your practice remain competitive by offering the latest treatments to patients.

Tax Advantages

Your practice can see tax benefits from renting medical equipment as well. A lease’s monthly payments are typically considered a business expense and can be fully deducted on your practice’s tax return. This reduces taxable income and can provide significant tax savings over time.

The lease deduction matches the expenditure and is not subject to the timing issues and limitations related to bonus depreciation and Section 179 deductions. (See below for more information on these.)

Maintenance and Repairs

Repairs for advanced equipment can add up quickly. And if you delay the services because you have to save for maintenance and repairs, it puts that machine out of commission — to the detriment of your patients.

Many lease agreements include provisions for maintenance and repairs, which means the leasing company handles these issues. This reduces downtime and eliminates unexpected repair costs, ensuring your practice’s operations run smoothly.

Now that you know the benefits, consider these key factors before leasing medical equipment at your practice.

Your Business Model and Practice Specialty

If you have a small practice, it may be more financially sound to lease medical equipment. Leases provide predictable, month-to-month expenses — good for small practices without the capital to buy equipment outright.

Additionally, your practice might only want to make a short-term commitment up front to make sure the equipment provides a return on investment before committing to buying. For example, setting up an x-ray room can cost anywhere from $75,000 to $95,000. Depending on your business model and your other services, this might be an unrealistic expense for your practice.

Yet leasing the same high-quality x-ray equipment may cost only $1,000 per month (depending on the lease’s terms and your credit history). What’s more, you might be able to apply your payments toward owning the equipment at the end of the lease or replacing it with the latest version.

By examining your business model, you can determine the medical equipment and payment arrangement that fit within your budget and practice.

Also think about the purpose of your practice. That X-ray machine might seem exciting, but is it necessary for your clientele? If yours is an orthopedics practice, the answer might be yes. For a general healthcare provider, however, it probably isn’t a good spend.

Qualifying for Section 179 Deductions

Another aspect to consider is that all leasing expenses are 100% tax deductible for businesses. But if it’s a capital lease (leading to your ultimate ownership of the equipment) or you purchase the equipment outright, Section 179 applies. This allows you to deduct all or part of the cost of your equipment in the year you place it in service instead of over time.

Let’s again use the example of the x-ray machine. Rather than writing off a certain amount per month for your new medical equipment, you can deduct the entire price of the lease from your gross income, thereby decreasing your tax liability. (Remember, there’s an annual limit for Section 179 deductions in any given tax year and other limitations.)

Still, the value of the Section 179 deduction requires that you purchased the medical equipment outright. So make sure your device qualifies under the tax code as there are certain requirements in order to take Section 179. If the practice is unable to take this deduction, it might be feasible to deduct the cost through normal or bonus depreciation (discussed below).

Bonus Depreciation

Similar to the Section 179 deduction, bonus depreciation helps you get more of your tax benefit at once instead of spreading it over multiple years. Bonus depreciation is currently a depreciation deduction of 60% for 2024 of the cost and is not limited to the amount of fixed assets you acquire during the year or a specific dollar amount.

However, it also has certain requirements that can limit applicability. And once again, the lease must transfer ownership of the equipment to you or you must buy it outright for the equipment to qualify for bonus depreciation.

Keep in mind this temporary rate is only in effect through the 2024 tax year. Barring an extension, the bonus depreciation rate will drop to 40% in 2025 and 20% in 2026.

Considering Maintenance and Upkeep

A final consideration in purchasing or leasing medical equipment is the need for maintenance and updates. No matter the quality of the machine, your equipment will occasionally break down or need repairs.

As we mentioned above, a lease agreement for medical equipment generally covers updates and repairs. However, this means modifying the equipment is usually forbidden — even if you know for sure how to fix it yourself. So if the maintenance worker can’t get there quickly, you could be set back days, weeks or even months with out-of-service medical equipment.

Buying the equipment gives you the freedom to make repairs or customize it (assuming someone on your staff has the skills required). However, having a designated maintenance crew on call for leased equipment makes more sense for smaller practices.

Ultimately, the decision to buy or lease medical equipment depends on the financial terms available, the payments you can afford, and the needs of your practice. If you do rent, examine lease terms to make sure maintenance and updates are covered. And have a healthcare CPA, who can guide you through the pros and cons of each option.

By examining your business model, credit history, taxes and options for upkeep, your practice can determine whether it is financially and strategically viable to own equipment.

All content provided in this article is for informational purposes only. Matters discussed in this article are subject to change. For up-to-date information on this subject please contact a James Moore professional. James Moore will not be held responsible for any claim, loss, damage or inconvenience caused as a result of any information within these pages or any information accessed through this site.