EHR FINANCING OPTIONS

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What are my financing options?

The adoption or upgrade of an EMR (electronic medical record) is a major investment for a medical practice. The type or types of financing that a practice chooses can be paramount to a successful return on investment of an EHR. There are a number of financial options available to fund this investment. The best option will depend on your practice finances, cash flow and other factors, including your creditworthiness and whether you are new to practice or close to retirement.

The following options all have benefits and disadvantages. Financing your EMR software and EHR hardware purchases does not have to be an either/or proposition. A physician can use a combination of financing methods to provide optimal solutions.

Please click a financing method below to learn more. You can also contact 4Medapproved today to have a more detailed discussion about your options.

How Does Tax Code Section 179 Apply to Our Practice?

SIGNIFICANTLY! The 'Tax Relief Act of 2010' signed 12/17/2010, extends Section 179 Deduction as well as expands Bonus Depreciation thru the 2011 tax year. Section 179 limits were increased by the 'Jobs Act of 2010' on 09/27/2010 – allowing businesses to write-off up to $500,000 of qualified capital expenditures subject to a dollar-for-dollar phase-out once these expenditures exceed $2 million. Read more on this deduction by visiting http://www.section179.org.

Click here to use our Tax 179 Calculator to ESTIMATE YOUR SAVINGS!

FINANCING OPTIONS

PURCHASING

The advantage to outright purchasing of an EHR is the benefit of ease and time spent in comparison to lease or bank financing solutions. An outright purchase avoids interest costs and leaves credit lines open in the case of emergencies.Hardware purchases up to $500,000 qualify for significant tax savings under the section 179 deductions.

• View our Client/Server vs ASP Costing Spreadsheet.
• Access our Tax Incentive 179 Calculator.

BANK FINANCING

A bank loan in which a borrower is given a set amount of funds from a banking institution with a fixed interest rate and a typical loan timeframe of 3 to 5 years allows the borrower to own the system outright upon payment in full.

Advantages

• Bank loans typically have lower interest rates than leasing. Interest rates can depend on the collateral and longevity of the practice
• Early payment toward the principle can save on interest fees

Disadavantages

• Bank loans require down payments or collateral
• Loans have a longer and more complex approval process
• There is less flexibility in range of payment options
• Can be a liability against personal or business credit rating

LINE OF CREDIT

A line of credit is a revolving loan typically used to finance short-term or seasonal expenses. Like a credit card, the borrower only pays interest on outstanding balance and can "charge" up to a pre-defined amount.

Advantages

• A line credit has flexibility in that the money is available, but interest will not accrue until the funds are actually borrowed
• Minimum payments are defined and balance can be paid without penalty, which is especially useful for unexpected expenses or balance variations in cash flow
• No down payment is required
• A line of credit has similar interest to a bank loan

Disadavantages

• A large EHR expense can use up the majority of practice's line of credit and leave little for unexpected practice expenses
• Can show up as a revolving line of credit

LEASING

There are a number of different types of leases that vary according to the terms and which will fit particular needs.

Finance Lease/Conditional Sale Agreement is traditional fixed term equipment financing. At the end of the term, the property can be purchased for a nominal amount, such as $1.00. This lease is a full-payout, non-cancellable agreement, in which the lessee is responsible for the maintenance, taxes, and insurance.

True Lease is one that the lessor assumes the residual risk of equipment value and obsolescence so the monthly payments are lower than a finance lease. Typically, the payments are tax deductible.

Operating Lease is a short term lease, 3 years or less, often used with technology. Similar to a true lease, the lessor assumes the residual risk associated with asset ownership. This allow for a lower (usually tax deductible) monthly payment.

Advantages - Click to view our Advantages of Leasing Guide


• Leasing applications are not complex and have a quick approval process
• Allow 100% financing including all software and soft costs with no down payment
• Provides options for flexible payment structures and end of term options
• Conservation of capital and preserves other borrowing options
• Tax advantages depending on the type of lease
• Protection from obsolescence

Disadavantages

• Higher interest rates than bank loans
• No compelling reason (interest savings) to buy off the balance of the lease prior to the end of term

ASP/SaaS MODEL SUBSCRIPTION PAYMENTS - ASP (Application Service Provider)/ SaaS (Software as a Service)

ASP, also known as SaaS EHR (Software as a Service), or Web-based EHR is the option to lease the software license on a subscription basis. This method is internet-based and allows users to access the EHR software without the costs associated with ownership.

Advantages

• Reduced hardware investment; no need for client/server architecture
• Reduced administration expenses due to vendor purchase and maintain all server related functions
• Monthly payment per physician that is easy to budget
• Monthly payment includes software tech support and upgrades and IT support covering back up and basic administration
• Monthly payment are a tax benefit that can be written off as operating expenses

Disadavantages

• The physician never owns the software and data stored outside the practice
• Long term (more than 3 to 5 yrs.) monthly fees can be more expensive than other financing
• A hosted system is generally is a bit slower than one housed in the practice
• When the Internet is down or line failures occur, work flow will be disrupted with no access to billing or patient charts

View our Client/Server vs ASP/SaaS Model Comparison Chart

For more information on stimulus incentives for EHR implementation, visit our HITECH reimbursement page.

Last Updated: May 14, 2013