Traditionally, medical equipment acquisition requires large capital expenditures upfront or fixed monthly lease payments. While both of those models are still relevant in today’s financing landscape, there is another approach that has been gaining traction among healthcare facility operators. As hospitals and surgery centers navigate tighter margins and unpredictable patient volumes, usage-based equipment agreements that tie costs to clinical utilization offer a financing alternative attractive to many operators.

For example, when an ambulatory surgical center (ASC) invests $500,000 in advanced imaging equipment, they immediately face a financial commitment is costly and inflexible. Fixed monthly payments begin regardless of case volume and may cause cash flow challenges as the facility is ramping up patient volume and schedules. As a result, operators pay peak financing costs while the equipment may sit underutilized. For many healthcare providers, such financial commitments delay acquiring new technology that offers a competitive edge and improves patient outcomes.

The Usage-Based Alternative

Usage-based equipment financing also known as “pay-per-procedure” or “equipment-as-a-service” agreements can help alleviate the immediate financial burdens of this equation. Instead of fixed monthly payments, the agreement is structured in a way that aligns costs with clinical activity. As the facility ramps up operations, their monthly fees increase proportionally based on the number of procedures and scans performed or cases treated.

From a lender’s perspective, these agreements require more sophisticated underwriting and monitoring, but they also create partnerships that support the client’s business reality and growth trajectory.

How to Structure a Growth Agreement

We recently put together an agreement* based on a minimum annual case commitment. Structured to align with the client’s projected growth, the fee commitments increase year-over-year.

A regional hospital network acquired new robotic surgical systems for $2 million. Instead of the traditional monthly payments of about $40,000, we structured the agreement on a per-procedure bases with escalating minimum commitments year-over-year for up to five years.

Each procedure had a defined cost of $2,500 for the duration of the agreement. Year one had a minimum commitment of 180 procedures, and that commitment increased by 40 procedures each year until the equipment is paid off. During the first year, as the hospital is training physicians and personnel and establishing procedure volume, the procedure commitment presents a realistic benchmark. As long as they perform 180 procedures, they meet the minimum. If they perform more procedures, they pay for those as well and get to the payoff point faster, but they are not locked into that higher payment from the start.

Healthcare facilities typically see business volumes increase as they establish reputation, add surgeons, and expand payer contracts. After two or three years, a successful program can be performing 300 procedures or more. Such agreements are structured to benefit both, the borrower and the lender because both become invested in the success of the client. This alignment of interests makes is a true partnership. More importantly, the reduced initial monthly fee frees up capital to complement the new equipment, such as marketing, personnel recruitment or facility upgrades.

Risk Management Considerations

From a lender’s perspective, usage-based agreements require more active portfolio management than traditional equipment leasing loans. We work closely with our clients to monitor procedure volume against commitments. Staying close to the client’s objectives also allows us to plan for ongoing equipment upgrades, helping them maintain that competitive edge.

Partnering for Long-term

Usage-based medical equipment financing represents a shift from transactional lending to strategic partnership, with both parties aligned around the same objectives.

For healthcare CFOs and administrators eyeing equipment acquisitions, usage-based structures can be a compelling alternative to traditional financing. By alleviating the initial financial burden, facilities can focus their growth trajectories and leverage technological innovation to enable that growth.

Joshua Shackelford is a Senior Sales & Relationship Advisor at Popular Equipment Finance. He can be reached at jshackelford@popular.com.