Equipment Lease Arrangements
BMD has successfully implemented numerous equipment leasing financing arrangements between hospitals and physicians. Instead of a hospital using its own capital to purchase equipment, IT systems, and other large capital expenditures, they recruit physicians (either independent or employed) to establish an equipment leasing company. The physicians purchase the equipment and lease it back to the hospital at fair market value. The benefit to the physicians is that they can take advantage of accelerated depreciation of the assets, which generates significant returns over a short period of time. Although for-profit hospitals can also benefit from this structure, charitable entities are more likely to participate in this structure because they do not financially benefit from depreciation. These financing arrangements are more than the typical equipment leasing company model due to the Stark Law and Anti-kickback statute requirements. Nonetheless, the model is structured to be compliance with all applicable law.
Case Study: A hospital desired to purchase two DaVinci surgical robot systems totaling approximately $3,000,000. Rather than using its own capital, the hospital identified key physicians with whom they wanted to more closely align. The physicians established a limited liability company that purchased the assets (the physicians raised 10% of the needed capital and financed the rest through a local bank). The physicians then leased the robots on a full-time basis to the hospital, which paid a fair market value lease rate (which provided the physicians with a monthly positive return on their investment). The accelerated appreciation allowed the physicians to take advantage of approximately $600,000/year in additional positive cash flow.