To Buy or Not to Buy? Purchasing Decisions in the Clinical Lab

The choice between leasing or buying capital equipment is a decision every hospital department faces, but nowhere is it encountered more often than in the clinical laboratory. The decision to buy or lease equipment in the lab involves a complex analysis, further complicated by the large number of reagents and consumables required to run instruments that may not be included in some agreements.

And this decision has significant ramifications. When considering laboratory departments are not typically seen as a revenue center for hospitals, finding the savings when acquiring equipment is especially important. Understanding the purchase options available will not only help facilitate the process but also allows providers to manage their costs by minimizing expenses and increasing revenue. This is especially true in light of new trends that show healthcare providers are increasing their spending on clinical laboratory supplies. So what considerations can assist this decision making process?

Purchasing considerations
The decision to lease or buy a new piece of equipment for the lab is dependent on two main factors: the available budgetary dollars and the technological relevance of the equipment. Purchasing a system over leasing is typically the best financial decision as it provides hospitals with more negotiating leverage and can lead to reduced cost over the term of the agreement. However, there are exceptions to this rule — especially for certain technologies where advances happen so quickly that newer systems are available in a just few years. This is often the case with core laboratory items, such as a chemistry immunoassay analyzer, that are typically replaced every three to five years. In these situations, hospitals would need to decide which option is more beneficial and financially feasible for their institution. Technologies in other areas of the lab that remain largely unchanged, like tissue processors, may be in use for 20 years before they are replaced.

When analyzing the budget, it is important to remember that there is more tied to a purchase than the initial capital investment. One has to consider the ongoing costs of maintaining and running the system, such as service costs, consumable costs and accreditation testing. It is also imperative that these costs are taken into account and vendors are transparent about all consumable costs, including reagents and calibrators, as these can increase costs substantially.

Purchase options
In most clinical laboratory settings, vendors offer three options for acquiring laboratory equipment — a direct purchase and two leasing scenarios, reagent rental and a cost per reportable agreement. All three options will include a commitment to purchase reagents and consumables that are necessary to run the equipment.

In a direct purchase agreement, the facility owns the instrument and related accessories. They can either choose to pay for the entire purchase upfront or finance it from either the vendor or a third party lender. The advantage of this scenario is that although the instrument may have a useful life of five to seven years, a facility can choose to use it longer if the instrument is in good working condition. Additionally, the information provided in a direct purchase scenario is typically broken down by instrument(s), service, reagents and consumables, and financing fees, if any. Such detailed information makes it easier to see where costs are going, facilitating initial/ongoing negotiation and higher observed savings. The disadvantage to this purchase scenario is that negotiating each piece of the agreement is a time intensive process. Upfront capital would be required resulting in the lab going through a typically long capital approval process, and the technology may become outdated before you have exceeded the useful life of the instrument.

In a reagent rental agreement, the instrument is "free" with the purchase of reagents. The "free" instrument is a misconception, as typically this scenario has an upcharge that is tacked onto each reagent item to offset the price of the equipment and service. Reagent rentals can be priced as cost per test, monthly payment, fair market value lease, $1 buyout lease or simple rental.

A reagent rental can have a simple to complex pricing structure. It is important to ask the right questions to dissect all the costs included and excluded in that number. The advantages of a reagent rental are that a monthly payment may be easier to budget for, there is no large capital investment upfront, meaning you do not have to go through the capital committee, the lab gets what they need quickly, and it is easy to upgrade to the newer model of equipment and send the old one back once the reagent rental contract expires. The disadvantages relate more to the costs, or hidden costs, of this pricing structure. It is typically not clear as to what is included in the pricing. There are penalties for decreased reagent usage. A facility would require accurate volume estimations, otherwise the costs would continue to add up.

In a cost per reportable agreement, the pricing structure resembles that of the reagent rental, except here the facility pays a set price per patient result obtained using the instrument. The instrument is perceived as being free; however, the cost of the equipment and service are typically rolled into the cost per test. In this pricing structure, there is usually no commitment to a set amount of reagents per year. It is important to have accurate volume estimates prior to negotiating for and committing to an agreement. The advantages to this scenario mirror those of the reagent rental. It is easier to budget for, there is no upfront capital necessary and new instrumentation can be obtained at the end of the contract. The disadvantages also are similar to the reagent rental’s. Itemization is almost never made available to the buyer, making it difficult to compare and negotiate pricing. The cost per reportable pricing structure can be very deceiving, as the low dollar amount may give purchasers a false sense of low pricing. In this pricing scenario, the fluctuation of a few cents can mean hundreds of thousands (if not millions) of dollars in additional costs to a facility. Knowing what is rolled into the cost per reportable amount is of upmost importance. Additionally there are steep penalties for decreased or increased volume usage. As these types of contracts are difficult to understand and monitor for fair pricing, we discourage this type of leasing option.

Protective clauses
Regardless of the choice to lease or buy, there are important clauses that should be inserted in any agreement to protect the provider. First, price protection can be established by agreeing on price increases or multiple year discounts during and after the agreement term has been met. Second, including a performance guarantee clause and a response time guarantee will help ensure reliable performance and quick service time. Other protective clauses to consider including are the future availability, new models or enhancements prior to delivery and an obsolescence protection clause.

The effort dedicated to analyzing the agreement, determining the best purchasing option, and all the details in-between, can pay off. Review the allotted budget, assess the type of technology being considered for long term viability and take into account other hidden costs including consumables and service. While the decision to lease or buy will be facility dependent, the potential for savings, sometimes in the millions, is possible for all providers.

Maria Hernandez is a clinical analyst at MD Buyline. She has more than 18 years of experience in the healthcare field, including serving as a laboratory manager, bench technician, night shift supervisor and physician office manager.

Katie Regan is a clinical publishing analyst, responsible for clinical, financial and general healthcare publishing for MD Buyline.

© Copyright ASC COMMUNICATIONS 2019. Interested in LINKING to or REPRINTING this content? View our policies by clicking here.

 

Top 40 Articles from the Past 6 Months