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The Affordable Care Act: Considerations for Medical Equipment Financing

Date: Aug 06, 2013 @ 07:00 AM
Filed Under: Medical Equipment

Although the Patient Protection and Affordable Care Act of 2010 (ACA or the Act) is still in the early stages of implementation, it has already begun to drive extensive changes within the health care field. Providers and insurers are working to implement the required changes, the outcomes of which will not be clear for several years. Health care organizations are proceeding carefully, uncertain of how the Affordable Care Act will ultimately affect them.

The improving, but still challenging, economic environment is compounding the uncertainty. The recession and resulting unemployment have reduced patient volumes over the past several years. And due to the vast size of government spending on medical care, it seems inevitable that health care will be a target in the deficit reduction plan.

How the ACA is Changing the Health Care Industry

The Affordable Care Act was enacted in 2010 with the seemingly competing goals of improving the quality and affordability of health coverage across the United States, while simultaneously reducing costs for both individuals and the government. To achieve these strategic initiatives, the Act provides a number of ways to increase coverage (and affordability) for patients, including mandates, subsidies, and insurance exchanges. The reform aims to improve the quality and affordability of care via tightened regulations, increased competition, and streamlined delivery. If the Act works as intended, the Congressional Budget Office has predicted that the Affordable Care Act will lower future government deficits and Medicare spending. 

One provision of the Affordable Care Act, referred to as “guaranteed issue,” will require insurers to provide health insurance to any person, regardless of any pre-existing conditions. The legislation also calls for Health Insurance Exchanges in every state that are expected to be offering plans to the public as early as October 1, 2013, according to the Congressional Budget Office. These exchanges will vary from state to state, and are causing significant changes within the insurance industry. Although the exact plans being offered at the exchanges are still unclear, the expansion in both private insurance and Medicare seems very likely to come to fruition.

How Will the Affordable Care Act Affect Medical Equipment Financing?

This current environment of slow economic recovery and increased legislation in health care means that the medical equipment marketplace is more complex than it has ever been. To effectively serve health care customers in the wake of the Affordable Care Act, it is more important than ever for leasing providers to take the time to thoroughly research and understand the complexities and challenges facing customers, in order to avoid a misstep. As the Act is rolled out over the next several years, there are many specific considerations for medical equipment lessors to be aware of:

The Challenges to Equipment Leasing

  • Reimbursement Rate Vagueness: Uncertainty around future reimbursement rates has caused some hospitals to put all new equipment acquisitions on hold until they have a better sense of how the changes will affect their bottom lines.
  • Cost Cutting Measures: The legislation’s focus on cost-cutting may also drive physician groups and hospitals to cancel new equipment purchases for fear that the acquisition costs will drive up their cost of care.
  • Additional Credit Diligence: The recent cuts in reimbursement rates and recession-driven reductions in patient volumes may negatively affect the credit strength of some hospitals.
  • Delays Due to M&A: Provider consolidation may slow the equipment purchasing process as organizations integrate their existing systems and processes.
  • Specialized Care on the Rise: Demand for new equipment within individual institutions may decline as providers move toward specialization and reduce the range of equipment they use.
  • Medicare/Medicaid Insecurity:  A lack of clarity around reductions and changes to Medicare and Medicaid Disproportionate Share Hospital payments in the Affordable Care Act may cause hospitals currently receiving these payments to postpone equipment acquisitions.
  • Stark Law Ambiguity: Doubt about current exceptions in the Stark Law has caused some providers to halt new equipment acquisitions. If any exceptions are narrowed or eliminated, demand for certain types of equipment may decline.

The Opportunities for Equipment Financing

Despite the challenges, we still believe that medical equipment leasing is beneficial to hospitals, health systems, and other health care organizations, and that the medical equipment lessors who truly take the time to understand the considerations in the industry will be able to continue serving it. 

What is more, we believe that some outcomes of the Affordable Care Act will have a positive impact on hospitals’ financial positions, making them more favorable to lessors. For example, access to affordable insurance will reduce focus and spending on collections from self-pay patients, saving providers time and money. Additionally, Medicaid expansion is likely to improve financial performance for most providers and could spur increased utilization by previously uninsured patients. As medical equipment lessors, an improved financial position of hospitals would be a positive change. A stronger position is good news on all fronts: for the hospitals, for the patients, and for the health care equipment leasing industry.

Beyond that, the benefits of leasing medical equipment for customers still remain. As always, better, faster, newer equipment continues to transform patient care – enabling quicker and more accurate diagnoses and treatment. 

The Benefits of Leasing Medical Equipment Include:

  • Maximized Cash Flow: Leasing involves consistent, fixed payments, allowing hospitals to acquire equipment without large cash outlays.
  • Low, Fixed-Rate Financing: Leasing provides a low cost source of capital, delivering an alternate source of funds that complements standard bank lines of credit.
  • Benefit From Residuals: The residual value of the leased medical equipment will result in low financing rates.
  • Strategic Equipment Acquisition: Leasing improves a hospital’s access to the newest technology, allowing the organization to seamlessly replace, upgrade or add to equipment systems during the lease or at the end of the lease term.  

Preparing for Implementation

In anticipation of the implementation of the Affordable Care Act, companies should be taking steps to train their staff about the details of the change. To undertake that kind of commitment, it is crucial for leasing providers to gain thorough knowledge of the industry, its language, and its changing dynamics. Deep and wide expertise in the health care vertical will help the medical equipment leasing industry during this new era of tremendous change.

Despite the challenges, we remain optimistic about the changes underway. As the Affordable Care Act drives provider consolidation, integration and improved communication, health care providers must reduce costs. Medical equipment advances continue at a rapid pace and patients demand access to the procedures made possible by these cutting-edge technologies. Health care providers will need finance partners who are deeply committed to the industry and have spent the time to thoroughly understand it in order to help them take full advantage of these technologies while keeping costs in check.

First American Equipment Finance
This article has been prepared for Equipment Finance Advisor by First American Equipment Finance.
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