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Diagnosing the Medical Equipment Rental Market

Date: Sep 01, 2016 @ 07:00 AM
Filed Under: Medical Equipment

I was recently asked if the medical equipment rental market was continuing to grow as I had mentioned in an article written for Equipment Finance Advisor in October 2015. With my company celebrating 25 years in the medical equipment leasing and rental market, I have seen significant changes through both industries. The equipment rental market has stayed very active and to follow are some of my thoughts regarding the current rental environment and potential for the future.

When hospitals, emergency centers, or other providers need capital equipment they often use renting as a means to acquire equipment they need when purchase or lease options are not available or approved. I believe there is confusion as to what the demand for rental programs may be, as well as why there’s a need for rental offerings and why it’s a popular choice for many healthcare providers.

Why End-Users Choose to Rent

First, we must ask why the end user chooses to rent. Rental provides hospital budget flexibility and is often used to supplement equipment that may be within a 12 to 18 month replacement cycle. In this scenario, the facility may need additional devices or need to replace equipment requiring repair. Rental options may provide a better choice than purchasing older generations of devices that the facility knows it will soon replace.

Availability of current versions of equipment, as well as parts to repair or maintain older devices, is another reason that facilities choose to rent versus buy or lease. With the modern integration of devices, the task of repairing devices can be quite challenging and require significant training of the providers’ staff or costly service contracts. This is yet another reason some chose to rent. It can be more convenient and cost effective to simply call the rental provider and have replacement units delivered.

Another impact of integrated medical devices is that the number of recalls by equipment manufacturers seems to be increasing. This often results in the need for short-term rental devices until the issues are resolved. Peak need (short term) rentals are sometimes requested when the healthcare system is attempting to standardize devices used in multiple sites. Renting while deciding on the best technology choices, and determining if purchase or lease is the best acquisition method, allows the standardization to move forward without investment in multiple technologies. Peak need rentals also accommodate special patient needs such as bariatric beds for the severely obese or pediatric settings that are not standard on all respiratory devices.

Medical device manufacturers continue to introduce new technologies, features, and integration capability. This may or may not be within the budgeted replacement cycle of providers. Vendors provide “new and better” equipment as a way to meet both patient and clinician satisfaction. This may provide a competitive advantage to attract better physicians and new patients, therefore increasing the desire to have the best available. However, this thinking generally conflicts with budgetary planning. Rental options may offer a solution for some facilities.

The trend toward mergers, acquisitions, and affiliations has continued throughout healthcare in the United States. Many CFOs and other senior leaders see conservation of capital as a way to improve how facilities view their financial health. The strategic desire to either merge, affiliate or acquire other care sites often drives the need to keep assets off the books and cash in hand. This makes equipment rental an attractive option versus spending capital. With rental established in many hospitals’ operation protocols, in addition to meeting equipment demands or high census, this has become an accepted method of convenience used to allow an easier way to redirect capital to other areas.

Customers find that the ability to have the rental company bear the costs of delivery, insurance and repair is not only convenient but also eliminates obsolescence concerns. If new technology comes to market, they can return the current inventory without cancelation or other costs. For hospitals that strive to have the latest technology, this flexibility can be invaluable.

The DRG (Diagnosis-Related Group) prospective payment plan is fundamentally based on hospitals having a sufficient and defined pool of resources to utilize in the care of specific medical conditions. When the demand from patients increases to the point where the needed equipment to care for the patients exceeds that threshold, the need for rental equipment exists. If the facility does not have the necessary equipment they face the choice of declining the admission and redirecting the patient or renting to prevent the loss of revenue from that patient. Would you approve a $2,000 operating expense that could prevent the loss of $20,000 in revenue? In my opinion, that is the strongest reason that providers choose to rent equipment.

Expectations From Rental Providers

To get a better understanding of the rental industry, you must understand what the typical rental customer expects from a rental provider. These expectations include: personal accredited representation, 24-7 services (including delivery, setup, removal, on-site maintenance or substitution for units requiring maintenance), up-to-date preventative maintenance documentation (PM certifications), access to current and past versions of equipment and software, staff knowledgeable enough to educate clinicians and biomed as needed, and assistance in locating devices not in the rental companies’ current inventory. These rental expectations, if done well, give providers added equipment flexibility.

Impact of the Affordable Care Act

It was difficult for all parties to predict the impact that the Affordable Care Act would have on providers, device manufacturers or financial services providers. While not an expert (by any means) on what “Obama Care” has or will mean to all of us, my personal observations are that under the ACA there has been an increase in services by healthcare providers which has not resulted in inpatient care. Rather, the emergency room has seen increases; therefore, the demand for ER devices have grown. These devices are often rented, since the future need is not known. The reimbursement question appears to be an ongoing uncertainty. Mergers, acquisitions, and affiliations for care providers have definitely continued to increase since the introduction of ACA. This may be one of the primary reasons that CFOs and other healthcare leaders remain in the cash conservation mode, and in turn, helping to drive the rental market.

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Comments From Our Members

Kimberly Esposito
Thank you for an interesting article addressing the medical equipment rental market. Lessors often do not consider the temporary stopgap equipment needs of medical facilities.
10.4.2016 @ 9:24 AM
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