This article originally app eared in the April 2013 issue of Managed Care Contracting Reimbursement Advisor.
With physician practices squeezed today like never before, every dollar of revenue helps. But holding on to those dollars and not wasting them through inefficiency or poor business practices also is important.
Physician practices often focus so much on increasing revenue that they don't take the time to look at where they might save more of the money they've already earned, says Jason Biro, a 15-year veteran of the lending industry who now heads up medical finance for Bank of America. He says many physicians are throwing money away each month in one commonly overlooked area: their loans and leases.
"The financing is overlooked and their equipment loans, or a combination of loans, can be so out of balance that it creates too much debt at the end of the month," Biro says. "We focus on consolidating debt so that they're in a better position at the end of the month and not so strapped for cash."
Many practices take out multiple loans, lines of credit, and equipment leases only to find themselves treading water in no time, Biro says. He offers this example: Dr. X had a loan for his practice, two equipment leases, two zero-interest loans, a business line of credit, and two business credit cards.
Although his practice was running very well, his debt payments-which totaled $173,124 a year-were smothering his business and personal life. No matter what he did to improve his office efficiency, he still found himself scrambling each month thanks to this mountain of debt.
The fix? By taking time to analyze the debt and consolidating it into one long-term 15-year loan, Dr. X was able to lower his total debt payment from $14,427 to $3,923 a month. (Not to mention he lowered his blood pressure, too.)
"So many physicians lease equipment nowadays, with lasers being the most common, and with leases there are such hefty pre-payment penalties that these poor doctors are paying every cent of interest on this equipment," Biro says. "We come in and offer them a loan instead of a lease that provides flexibility. When the return on investment is strong on the equipment, which it usually is, the loan allows them to pay it off quickly and save so much over the term of the loan."
Physicians and practice managers often assume that leasing is the only option for obtaining equipment, but Biro says loans are almost always available. Even though a lease might seem more attractive due to a lower monthly payment, being able to pay off a loan early and avoid much of the interest can greatly alter the cost picture.
Biro also encourages physicians to look at the number of loans and leases that are currently held by their practice.
"Nine times out of 10 we'll find that any given doctor might have five to 10 debt sources they're paying on a monthly basis," Biro says. "I'll look at that and find a way to consolidate those debts and stretch them out a little further with a payment that is much more affordable."
The move to electronic health records is spurring a lot of capital expenditures for hardware and software, Biro notes. Many of the companies providing this equipment will offer a three- to five-year lease, but Biro says your bank probably will offer a 10-year loan that puts you in a better position to pay off the debt without a pre-payment penalty.
Another option to consider is incorporating real estate into your practice, Biro says. This is another advantage to opting for a loan instead of a lease-when you decide to sell the practice in 10 or 15 years, you will have real estate attached to that sale in addition to your patient base.
"That's part of a good exit strategy. You put all this blood, sweat, and tears into building the practice, and then you want it to be attractive to someone when you sell," Biro says. "Part of your practice being attractive to a buyer is having no debt and some real estate."
To take advantage of some of these financing options, Biro suggests seeking out a lender that specializes in working with the medical community, such as his division at Bank of America.
"Those lenders understand the pulse of the medical community, what they need, and they underwrite differently than small business lenders do," Biro says. "We know how to figure out what will make a doctor have a better cash flow position at the end of the month."