Deliverable 2 – Lease Versus Purchase Assignment for Healthcare Financial Management
Healthcare administrators evaluating lease vs purchase decisions for CT scan equipment in nonprofit hospitals gain essential insights through financial analysis and cost comparisons to ensure optimal resource use.
Scenario
Health resources are finite.
Balancing these limitations calls for thoughtful strategies that prioritize patient needs above all.
Therefore, it is incumbent on all health organizations to exercise responsible fiscal decision making when allocating their financial resources.
As the senior cost analyst for a local, nonprofit hospital, you are charged with determining the most appropriate use of financial resources and making recommendations.
Your organization is seeking to secure a new CT Scan unit for the expanded emergency department.
The hospital has the option of leasing the equipment or purchasing the equipment.
Considering current economic pressures helps in weighing these choices more effectively.
The cost to purchase the CT scan is $1,300,000 at 10% (PV), with straight line depreciation over 5 years.
The trade-in value $130,000 at the end of its useful life.
The maintenance expense equals $12,000 annually.
The cost to lease the equipment is $26,000 per month for a period of 60 months, which includes all maintenance costs.
Recent trends in healthcare financing show a growing preference for flexible options amid rising costs.
The tables below provide the financial overview of the purchase and lease costs.
Purchase
See attached (table image)
Lease
See attached (lease image)
Instructions
In a written case analysis, use the figures provided in the tables to discuss the following:
- Compare and contrast leasing versus purchasing. You may use the Rasmussen library to research articles addressing lease versus purchase decisions in order to support your assertions.
Gathering insights from reliable sources strengthens the overall evaluation process.
- Calculate the figures relative to the principal payment, interest payment, maintenance expense, total expense, and PV expense and complete the tables below.
Leasing the CT scan equipment offers predictable monthly payments of $26,000 over 60 months, totaling $1,560,000, with maintenance included to ease budgeting for the nonprofit hospital. Purchasing involves an initial outlay financed at 10% interest, leading to annual payments around $342,914 plus $12,000 in maintenance, but allows for ownership and potential tax benefits from depreciation. The straight-line depreciation amounts to $234,000 per year after accounting for the $130,000 trade-in value. Present value calculations at 10% discount rate show the lease’s PV around $1,183,000, potentially lower than the purchase’s financed cost. Hospitals often favor leasing to preserve capital for patient care initiatives and adapt to technological advances (Hinrichs-Krapels et al. 2022, https://doi.org/10.1136/bmjopen-2021-057516). Completing the tables reveals that total expenses for purchase, adjusted for trade-in, may exceed the lease over five years when considering opportunity costs. Overall, leasing aligns better with finite resources by avoiding large upfront commitments.
References
- Anjaneyulu, M. (2023) ‘Smart E-Commerce: A Novel Lease Option Model for HealthCare Equipment’, E3S Web of Conferences, 430, p. 01043. Available at: https://doi.org/10.1051/e3sconf/202343001043.
- Hinrichs-Krapels, S. et al. (2022) ‘Purchasing high-cost medical devices and equipment in hospitals: a systematic review’, BMJ Open, 12(9), p. e057516. Available at: https://doi.org/10.1136/bmjopen-2021-057516.
- Wang, Y. and Mejia, J. (2020) ‘The advantages and costs of leasing versus buying scientific instruments for academic core facilities’, Cytometry Part A, 97(5), pp. 437–440. Available at: https://doi.org/10.1002/cyto.a.24000.
- Hinrichs-Krapels, S. et al. (2021) ‘Purchasing high-cost medical equipment in hospitals in OECD countries: A systematic review’, medRxiv [Preprint]. Available at: https://doi.org/10.1101/2021.11.10.21266152.
