Article Date: 6/1/2005

Six Reasons to Purchase New Equipment
Here's how new equipment will improve the health of your patients and your practice.

Doctors find themselves in a very competitive market place. Seeing more patients for less profit demands a more thoughtful approach to purchasing equipment, but it is worth the effort. New equipment offers many advantages to your practice. Following are six good reasons to go ahead and purchase it.

#1 Financial and tax ramifications

50% Bonus Depreciation Section 179 (Column A in sidebar, page 84). The first year expensing increases from $100,000 in 2001 to $102,000 in 2004, adjusted for inflation. In 2005 the annual amount will again be adjusted for inflation ($102,000 + Cost of Living Adjustment).

Section 179 allows taxpayers to expense the cost of qualifying equipment and includes "off-the-shelf" software purchases rather than depreciating the cost over a period of several years, subject to a threshold. This threshold represents the maximum dollar amount of equipment that you can purchase each year before the write-off is reduced dollar for dollar. The stimulus plan increases the 2004 threshold from $400,000 in 2003 to $410,000 in 2004. In 2005, the phase-out threshold will again be adjusted for inflation ($410,000 + Cost of Living Adjustment).

This deduction is effective for purchases in the tax years that began in 2003. For any remaining amount above the $102,000 allowance, you're entitled to take the Bonus Depreciation (outlined below) and first year depreciation (also outlined below). If there is a remaining amount after these two deductions, it can be depreciated over three, five or seven years, depending on the equipment/software type.

50% Bonus Depreciation (Column B in sidebar, page 84). Taken after Section 179 deduction. The 2003 Jobs and Growth Act contains provisions that allow taxpayers to claim an additional first-year depreciation allowance equal to 50% of the adjusted basis of "qualified property." Qualified property is tangible personal property with a MACRS recovery period of 20 years or less. You can take this additional 50% depreciation for equipment placed in service after May 5, 2003, and before January 1, 2005, provided that no written binding contract to acquire such property was in effect before May 5, 2003.

20% First Year Depreciation (Column C in sidebar, page 84). Taken after Section 179 and 50% Bonus Depreciation. Under the tax rules (MACRS, five-year life, 200% declining balance half-year convention) for the first-year depreciation, 20% may be deducted the first year the equipment is placed in service.

Total First Year Tax Deduction (Column D in sidebar below). The deduction is the total of Section 179, 50% Bonus Depreciation plus the 20% First Year Depreciation, based on the investment you've made in your business.

First Year Tax Savings Assuming a 35% Tax Bracket (Column E and F in sidebar below) The amounts shown reflect what you may save by making the investment in your business. Your particular tax situation may change these figures.

Buying equipment and taking advantage of all tax breaks is critical to proper purchasing philosophy.

#2 Improve Recall

How can instrumentation increase recall efficiency? Recall efficiency is defined as the percentage of patients who return at the time you recall or request. The national average is only 15% to 20%. This does not mean that 80% of the previous patients are leaving your practice. It screams that the eye care field has not educated the public that vision care is preventive like dentistry. Patients who wear visual aids seek out their eye care practitioner every 2.9 years.

How can equipment assist in raising your recall efficiency rating to as high as 60%? Envision instrumentation that is "health" oriented. Simple things like glucometry (blood sugar) and sphygnomanometry (blood pressure) evaluations are a minimal cost, yet they yield huge patient care and financial returns. If you script properly, the patient will understand the preventive health benefits of your comprehensive examination. More sophisticated and expensive pieces such as optic nerve analysis and imaging are an option.

Only if you script (educate, motivate and create enthusiasm) will equipment make a difference in practice building and raising recall efficiency. The instruments and intra-office education used in tandem will achieve the growth, professional image and recall efficiency that you desire. Separately, you will not achieve the desired effect. Buying equipment without doctor and staff using specific internal marketing techniques will not improve recall.

#3 Create the right image

Consumers identify optometrists with products (glasses and contact lenses). They are not aware of the professional advances in therapeutic and diagnostic medicine. However, you can create any image you want in your practice. Purchasing instruments and educating patients about the medical nature and necessity of each test on an annual basis changes the patient's perception of the optometrist. This approach emphasizes health and the need for annual preventive eye examinations.

#4 Produce more income

Certain tests like glucometry, sphygnomanometry, retinal imaging, retinal photography, topography, evaluation of cartinoid levels, etc., could be added to any comprehensive vision regiment. Many offices charge additional fees for their specialized tests and inform patients in writing prior to their entering the clinic. The patient is informed as to the medical necessity and fees for services for these health tests. They understand that the fee is due the day services are rendered.

#5 It sends a message

Doctors should strive to add some new instrument, technique or service annually. This is a message to your patients that you are reinvesting in your practice, that you care about offering your patients the finest in eye health care. Practices are built on this type of planned improvement in equipment and services.

#6 Delegation made easier

The use of almost all of the new equipment purchases can and should be delegated to ancillary personnel. If 2,000 patients purchase an informed consent procedure at $40 per patient, the result is $80,000 of additional revenue generated by technicians. This mode of practice is key to increasing net income in a managed care environment.

Focus on the service

Practices have increased gross income by hundreds of thousands of dollars by changing the emphasis in the practice from the material (product) to the service arena. Remember, from a return-on-investment perspective, it's not how much you invest in equipment that is important. What is critical is that you meet all the internal marketing techniques that were covered in this article.

As doctors, we have an obligation to render quality care and to sell it. Both of these obligations can be met by purchasing the proper equipment in combination with scripting to emphasize its medical necessity. Don't misinterpret my comments by thinking that I'm suggesting that you downplay your optical or contact lens departments. The message is simple: As a profession, optometry has made the majority of its income from products to the extent that we have "hidden" our professional fees in the materials.

If we are to thrive financially in the future and provide patients with the best care, fee for services is the answer.  This approach is in direct correlation with proper medical equipment purchases and internal marketing to support the cost.

Dr. Kattouf is president and founder of two management and consulting companies. For information, call (800) 745-eyes or e-mail him at advancedeyecare@hotmail.com.

 



Optometric Management, Issue: June 2005