Linc Anthem survey confirmstrends in equipment purchasing

April 12, 1995

Leasing and renting gain in popularityU.S. hospitals last year were less likely to acquire MRI systemsthan any other type of capital equipment except radiation therapyunits, according to Chicago-based Linc Anthem's annual surveyof hospital

Leasing and renting gain in popularity

U.S. hospitals last year were less likely to acquire MRI systemsthan any other type of capital equipment except radiation therapyunits, according to Chicago-based Linc Anthem's annual surveyof hospital equipment purchasing trends.

Less than 10% of the 644 hospital executives polled by theequipment financing company reported adding MRI scanners lastyear, down from 13% in 1993. Moreover, nearly two-thirds saidthat they would consider buying refurbished equipment to savemoney in the future, and 27% said they'd be interested in tradingin surplus equipment to improve their cash positions. Those optionswere not considered nearly so attractive by respondents in previousyears, according to Linc Anthem president and CEO Martin Zimmerman.Linc Anthem's survey was released last month.

Overall, some 28% of the hospital executives said they expectedto cut back on equipment spending in 1995. Four years ago, thatpenny-pinching cohort numbered 6%. Indeed, the Linc Anthem surveyorsreported, 71% of hospitals slashed operating expenses last year,56% downsized staff through layoffs and attrition, and 47% reducedfuture budgets.

Only about one in four of the hospitals sampled -- 12% of thenation's short-term general hospitals -- planned to build additionalfacilities in 1995, as against 42% in 1992. Even renovation projectswere down 10%. Construction of new diagnostic imaging centersby hospitals rose slightly last year: 8.5% as against 7.7% in1993. But that activity had tailed off significantly from the14.4% and 13.4% reported in 1990 and 1991 respectively.

Leasing has become the most popular method for financing equipmentacquisitions after tapping cash reserves, the survey indicated.Operating or capital leases were relied on by more than half ofall respondents -- 53% -- for the first time in six annual samplings.Hospitals, in fact, were three times as likely to lease as tobuy with a bank loan in 1994, and twice as likely to lease asto use tax-exempt bond proceeds to pay for an equipment purchase.

Short-term rental was also an increasingly common acquisitionmechanism. Nearly 16% of hospitals surveyed in 1994 were rentingsystems instead of buying, in order to avoid cash outlays up front,Zimmerman noted. That tripled the1993 figure of 5.4%.

Nearly a quarter of the survey's respondents said they hadput off capital projects and equipment acquisitions in 1994 becauseof the shadows cast throughout much of the year by the prospectof federal health-care reform. But even as those plans came tonaught, market forces have continued to drive major systemic reformand realignment of traditional relationships among providers,Zimmerman said.

Half of all the hospitals polled in 1994 had joined a providernetwork or alliance, he said, and nearly three-quarters expectedto at least broach an affiliation this year. This goes a longway toward explaining the slow-down in capital equipment outlays,he proposed.

"Hospitals that are facing a merger or are consideringan alliance with another institution are reluctant to initiatecapital expenditures, due to uncertainty about the future,"Zimmerman said.

On the other hand, hospital executives were more optimisticabout their access to capital this year than last, the Linc Anthemsurvey found. Some 21% thought they'd find it easier to obtainfunds in 1995, as against 11% with the same expectation a yearearlier.

Banks and lessors are vying hard for hospitals' business, Zimmermansaid. But, he warned, "Hospitals may do well to tie downlong-term financing now, while it is readily available, ratherthan wait until pending Medicare cuts and shrinking margins makelenders more skittish."