Michael Myers Vice President, Healthcare

Medical Equipment
Acquisition, Financing and Disposition:
An Investor/Lessor Perspective
Michael Myers
Vice President, Healthcare
Introduction
Mike Myers – Vice President,
Healthcare
30 years of healthcare and
finance experience
Experts and Investors
In
Healthcare Technology
Agenda
1
Importance of
Technology
2
High-Tech Equipment
Market
3
User Focused
Equipment Cycle
Planning
Disposition
Financing
Buying
“Technology will never again move as slowly
as it does today.”
Akio Morita, founder of Sony, 1984
Moore’s Law
Managing Technology in Hospitals
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Highly regulated
Multiple constituencies
Technology intensive
Technologically complex
Little control over a key
resource
Why Technology Matters The Technological Imperative
Imaging
Physical Connection
Clinical
Laboratory
IT
Healthcare
Provider
Patient
Capital Spend
Top Areas of Spend
Imaging
Clinical
Laboratory
IT
Healthcare
#1 Information Technology
#2 Diagnostic Imaging
#3 Clinical Laboratory
Changing Equipment
Marketplace
-Digital Revolution1960’s
1970’s
1980’s
1990’s
2000’s
2010’s
• Plain film X-ray
• CT
• MRI
• PACS
• PET/CT
• PET/MR
• Fluoro
• Ultrasound
• Digital X-ray
• PET
• SPECT/CT
• 7T MRI
• Gamma camera
• Lab analyzer
• Laparoscopy
• Lithotripter
• 3T MRI
• Proton accelerator
• LINAC
• Open MRI
• Networks
• Spectral CT
• Patient monitor
• Dual energy
• Telemedicine
• Wearables
• Teleradiology
• Gamma knife
LINAC
• Smart infusion
pump
• Surgical laser
• Robotics
• Pyxis
• LASIK
CT Scanner
Evolution Technology
2nd Generation
Head Scanner
Prototype
EMI Head Scanner
GE
Lightspeed
GE 8800
GE 9800
CT Scanner Evolution
Price
Ship Date
Today’s List $$
Model
Original Prices
1973
EMI Mark I (head)
$350,000
$950,000
1976
EMI 5005 (whole body)
$500,000
$1,250,000
1978
GE 7800
$700,000
$1,650,000
1980
GE 8800
$850,000
$1,880,000
1984
GE 9800
$950,000
$1,875,000
1988
GE Highlight
$1,100,000
$1,925,000
1990
GE Advantage
$1,000,000
$1,650,000
1992
Picker Slip Ring
$1,200,000
$1,870,000
1993
Siemens Spiral CT
$1,300,000
$1,960,000
1995
Siemens Multi-slice
$1,500,000
$2,130,000
2005
Siemens Dual Source
$2,000,000
$2,100,000
Equipment Markets Today
Discounting /
Maintenance &
Service Bundles
Replacement
Market
Opaque Pricing
Financing
Driving Sales
Manufacturers’ Pricing Strategies
“List Price”
Bundling
Upgrades
Captive
Finance
Companies
Managing the Process
Equipment
Planning
Market
Intelligence
Price
Watch
Financial
Strategies
Asset
Disposition
Equipment Planning
Strategic Equipment Plan
Department
(local)
Clinical Requirements
and User Preferences
Enterprise
(Global)
Costs, Revenue and
Depreciations
?
Appropriate level
of Technology
Market Intelligence & What to Pay
Traditional
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Physicians
Vendors (Captive Lessors)
Purchasing
Department
New
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GPO’s
Equipment planners
ECRI or MD Buyline
Independent leasing
companies
Market Intelligence & What to Pay
Traditional
• Physicians
• Vendors (Captive
Lessors)
• Purchasing
Department
Supplemented
• GPO’s
• Equipment
planners
• ECRI or MD
Buyline
Meridian
Healthcare
• Portfolio
Analysis
• Purchase
Visibility
• Transaction
Volume
• 3rd Party
Research
Pricing Strategies
1) Competing Vendors
2) Technological Fit
3) Consider Used
4) Challenge the GPO
5) Existing Asset Value
Everybody Has an Axe to Grind
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Vendors (and captive lessors)
MD’s
Purchasing
Department heads
GPO’s
Equipment planners
ECRI – MD Buyline
Independent lessors
Financial Strategies
Cash
Bonds
Bank debt
Capital Lease
Fair Market
Value Lease
Fee Per “??”
Rental
Lease or
Rental Bundled
with Supplies
Lease vs. Buy
Buy
Capital Lease
• Cash
• Debt
• Bonds
• Buy Equivalent
• Faster / Simpler
than a Bank Loan
Operating Lease
(FMV)
• Pay for a Period
of Use
• "Off" or "On"
Balance sheet
• Residual
Assumption
• Debt Rate
• Term
Evaluating FMV Lease Proposals
Understanding the
“Rate”
• Implicit rate
• All in rate
• Residual “caps”
Special conditions that
impact cost
• Evergreen extensions
• Interim rent
• Purchase “option” that
is really a “call”
• ABC Rider
• Fees
Example
Assumptions
Equipment:
Medical Need:
Other Need:
Useful Life:
Technology Life Cycle:
Expected Cost:
Financing Alternatives:
Assumed Incremental Borrowing Rate:
64 Slice CT Scanner
General CT Plus Medium Volume Cardiac
MD Retention
5 To 6 Years
Leading Edge Year 2 Of 5-6 Year Cycle
$900,000
5 Year Capital Lease Vs. 5 Year FMV Lease
5% Taxable
Economics
5 Year Capital Lease vs. Operating Lease
Capital Lease
FMV Lease
•Monthly Payment = $16,913
•Monthly Payment = $14,377
•Total rents = $1,014,777
•Total rents = $862,592
•Service (4 yrs.) = $340,000
•Service (4 yrs.) = $340,000
•Freight = $15,000
•Freight = $15,000
•De-installation = $5,000
•De-installation = $5,000
•TCO = $1,374,777
•TCO = $1,222,592
•Accounting – same as purchase
•Accounting – off balance sheet
Break even residual = $152,185 (17%)
BUT…
What if?
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Tax-exempt lease available
Need to replace the CT before 5 years
Need the CT longer than 5 years
Use 3rd party service
New Models of Healthcare
Require
New Models of Financing
• Software as a Service revolutionized the IT industry
(SaaS)
• Equipment as a Service will do the same for the
management and usage of capital assets in healthcare
(EaaS)
Disposition
• The Forgotten Issue
• Book Value
• Monetizing Unused Assets
– Brokers
– Internet
– Trade-in
Summary
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Make equipment planning someone’s job
Subscribe to ECRI and MD Buylines
Develop a relationship with an independent lessor
Foster competition among vendors
Questions
Please contact us with your questions…
Mike Myers, 847-964-2818
[email protected]