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Refinance Medical Equipment to Offset Medicare Payment Reductions

Healthcare providers, particularly those with a large mix of Medicare related transactions, are in for a cash and profit squeeze. Refinancing existing medical and office equipment leases can be a way to ease the pressure. According to AMA President Jeremy Lazarus, 45% of physicians in the American Medical Association plan to decrease or stop the acceptance of new Medicare beneficiaries if Congress does not act to stop a 5% decrease in Medicare payments. These payment reductions are scheduled to go into effect in 2007. According to Lazerus "Over the next nine years, Medicare will cut physician payments 37%, unless Congress acts before January 1, 2007", adding, "at the same time, the cost of caring for those patients will increase 22%, and that math just doesn't add up". The cuts, which would reduce payments by $2.8 billion over five years, are included in a 2006 deficit reduction package.

Should the projected cuts hold up, providers will need to become more operationally and financially efficient. One way to offset the decreased cash flow is to refinance equipment. Many providers are making very large monthly payments because they have opted to execute four or even three year leases. There are now medical equipment financing options available that can spread those payments out over a 96 month period. For example, a physician needed $500,000 of equipment to start his practice and signed a 48 lease. Payments on the lease, assuming an 8% interest rate, would be approximately $12,200 per month. If that equipment were refinanced at the beginning of year two, the balance would be approximately $380,000. Refinancing that balance over 96 months would result in payments of $5,400 per month, a cash savings of $6,800 per month or $81,600 per year.

The provider should carefully review the equipment being used to determine if he is a good candidate for long term refinancing or even buying new equipment for longer amortizations. If the medical equipment is likely to withstand an onslaught of technical advances, a refinancing could be the ticket to helping offset the specter of Medicare payment deductions.

Kent Harlan has been a CPA since 1984 and has provided consulting, accounting and financial services to several industries. He is the owner of Ozarks Capital Funding, LLC, a Springfield, MO based company offering financing in the areas of accounts receivable factoring, equipment leasing, asset based lending, and healthcare provider financing. Website: www.ocflink.com

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