10 proven strategies for reducing equipment costs: cutting costs is a way of life in health care. Given the pressure to squeeze out savings wherever possible, senior financial executives would do well to put into practice a number of tried and true strategies for saving money when acquiring and financing equipment and software

Healthcare Financial Management, May, 2005 by Richard J. Henley, Martin A. Zimmerman

Strategy #4:

Develop a detailed bid document for the manufacturer. This document should spell out your requirements so that you receive comparable bids. It isn't enough to specify a particular piece of equipment. You should also specify clinical applications and detailed configurations to ensure that the bid reflects your organization's requirements.

Other terms also should be clearly established, such as the annual rate of increase in maintenance fees. It is usually more efficient to negotiate the maintenance costs separately, because different personnel are involved.

Financing Strategies

In negotiating the financing, share your business objectives with a preferred list of financing sources that can be counted on to recommend alternatives in addition to quoting on the specified financing. The difference is in the details, so it pays to analyze both quantitative and qualitative factors, as well as to create standardized lease documents and avoid any unhappy surprises in the fine print.

Strategy #5:

State your business objectives clearly in the request for proposal. Your financing sources can offer their best solutions when they understand your total financing needs, rather than just one piece of the picture. For example, do you need to outfit a new radiology wing or just replace your CT scanner? Do you need financing for the equipment alone or for leasehold improvements as well?

Scale is important. For large capital projects that have lasting value, financing with tax- exempt bonds may be the best route. But such financing comes at the cost of significant management time and front-end expense, as well as the substantially higher legal fees usually associated with such transactions. Using tax-exempt financing for equipment does not make much sense for many institutions.

You might want to allow several options in the financing bid, such as lease term, fixed rate or variable rate, or end-of-term options, but be specific enough so that you will receive "apples to-apples" bids. Be sure to cover upgrades, prepayment charges, and other considerations that are likely to minimize costs in the future.

Strategy #6:

Establish preferred financing sources. These should be sources from which you regularly solicit bids, including the manufacturer, your bank, and several independent leasing companies. It can also be to your advantage to include a new financing source periodically to be sure everyone remains competitive and continues to develop new options.

Strategy #7:

Ask your financing sources to recommend alternatives. You can access creative ideas and transaction structures simply by asking for them--in addition to requesting a quote on the financing you have specified.

Your financing source can tell you whether the terms you have specified are best for the purpose at hand. Lessors and banks that specialize in financing healthcare equipment have considerable experience with the expected useful life of various assets. Providers tend to gravitate toward five-year financing for equipment, but shorter terms usually have a lower rate and always cost less in total interest charges.