As financial pressures grow, healthcare organizations are evaluating flexible funding structures to maintain essential equipment and manage capital constraints.
By Kathy Havlik, KeyBank and Yulia Murphy, KeyBank
As operating margins continue to tighten, healthcare leaders face the challenge of preserving cash and protecting capital resources while still maintaining high-quality patient care. Strategic equipment investment remains essential, yet funding these upgrades must be balanced against other mission-critical priorities, including staffing, facility expansion, and ongoing operational needs.
In this environment, healthcare organizations are reassessing how they approach equipment acquisition. Many are exploring structured financing models that help preserve liquidity, align costs with usage, and maintain access to essential technology without overextending capital budgets.
Operating in a challenging environment
A range of external pressures continues to challenge the bottom-line profitability of both inpatient providers (health systems and hospitals) and outpatient organizations (physician practices). Key contributors include:
- Rising operating expenses.
- Medical supplies: The cost of medical supplies, devices, and pharmaceuticals continues to climb, driven by global supply chain disruptions, increased tariffs, and limited purchasing leverage among smaller providers.Labor: Persistent shortages of nurses and clinical staff have pushed wages higher and increased reliance on premium-priced contract labor. Additionally, widespread burnout is contributing to turnover, escalating recruitment and retention costs.
- Lagging reimbursement rates.
- Reimbursement adjustments from Medicare, Medicaid, and commercial payors are not keeping pace with increasing operational costs, creating financial shortfalls for many providers.
- Growing regulatory and compliance demands.
- Investments in cybersecurity to protect against fraud, as well as requirements related to price transparency and reporting, are increasing the capital needed to maintain compliant operations.
- Consolidation and competitive pressure.
- Outpatient providers are merging into larger health systems, largely due to the advantages of scale, stronger contracting power, and greater access to capital. Independent practices often struggle to compete with these larger networks.
Equipment financing is one option organizations use to manage cash flow during periods of economic uncertainty and tight reimbursement.
Using Financing Models to Navigate Cash and Cost Pressures
Historically, equipment acquisition strategies were driven largely by the benefits of depreciation. Now, healthcare organizations face far more variables. Regulatory requirements are increasingly complex, technology lifecycles are shorter, and financial leaders are under greater pressure to optimize tax positions and streamline accounting practices.
In response, many providers are turning to a wider range of financing and leasing structures. These solutions offer the flexibility to modernize equipment more frequently, manage cash flow strategically, and align capital decisions with both operational needs and long-term financial goals.
Equipment financing isn’t just for high-cost medical equipment; it also covers laboratory tools, office or patient-care facility furniture and fixtures, HVAC upgrades, energy generation and storage systems, software purchases, training, and more. Specific to the healthcare industry, equipment financing can support electronic health record upgrades and optimization, maintain up-to-date cybersecurity infrastructure and value-based care readiness through digital investment, and address service gaps as labor shortages persist.
In addition, financing or leasing options can structure payments to align with revenue patterns. For example, outpatient clinics often see an increase in the volume of elective procedures during the second half of the calendar year, after patients have met the annual deductibles on their insurance plans. Healthcare chief financial officers and treasurers can work with lenders to structure their payment schedules according to the ebb and flow of revenue in their organizations.
Choosing the Right Equipment Financing Structure
Equipment financing comes in various forms, allowing healthcare organizations to choose structures that tailor programs to their distinct capital needs. Common equipment financing structures include the following:
- Loan with 100% financing
- Tax ownership: The borrower is the tax owner and claims depreciation and interest deductions.
- Accounting treatment: The asset and liability appear on the balance sheet. Payments are split between principal and interest.
- Capital preservation: Enables clients to acquire equipment without upfront cash outlay, preserving working capital and liquidity.
- Comprehensive coverage: Financing can include not just the equipment cost, but also soft costs including installation, taxes, and training.
- $1 buyout lease
- Tax ownership: The lessee is considered the tax owner and claims depreciation.
- Accounting treatment: Classified as a finance lease under ASC 842. The asset and liability are recorded on the balance sheet, and depreciation and interest expense are recognized over time.
- Ownership advantage: Treated as a purchase for accounting purposes. Equipment appears on the balance sheet and ownership transfers at lease-end for a nominal amount.
- Fixed payments: Predictable fixed monthly payments, simplifying budgeting.
- Fair Market Value lease
- Tax ownership: The lessor retains tax ownership and claims depreciation. Lessor passes on tax savings to the lessee via lower monthly payments.
- Accounting treatment: The lessee records rental payments as a lease expense, and the lease may be partially off-balance sheet depending on structure.
- Lower monthly payments: Since the lessee doesn’t finance the full cost of the equipment and the lessor claims the depreciation, payments are typically lower than capital leases.
- End-of-term flexibility: Lessee can return the equipment to the lessor, renew the lease, or purchase the equipment at its fair market value. Allows flexibility to manage technology obsolescence by returning equipment and upgrading to the newest model.
- Uncommitted Equipment Guidance Line
- Flexible access to capital: Provides a pre-approved structure for recurring equipment purchases without requiring a new credit approval each time. Progress funding: Allows staged draws over time, aligning funding with equipment delivery or project milestones.
- Custom structuring: Terms can be tailored to each schedule funding, including amortization style (eg, mortgage or equal principal), rate type, and maturity.
Additionally, tax-exempt leases or bond structures are available for qualified 501(c)(3) organizations. These structures may offer a lower cost of capital and access to a broader pool of investors. Tax-exempt financing provides flexibility in how the funds are used and can help improve cash flow by spreading payments over an extended period.
Financing Smart Growth in Healthcare
Managing the details of leases and loans on medical equipment can be complex. From scheduling and sourcing to lease terms, replacement planning, invoicing, and payment tracking, the administrative burden is significant. Meanwhile, outpatient service providers must keep pace with rapid technology advancements while managing steady growth. Across the care continuum, organizations benefit from taking a strategic, structured approach to equipment financing that supports both near-term needs and long-term planning.
Many healthcare leaders evaluate different financing structures and funding models to determine which approaches best align with their operational goals, cash-flow considerations, and technology lifecycles. Thoughtfully selecting and managing these structures can help organizations navigate financial pressures while maintaining access to essential equipment.
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About the authors: Kathy Havlik is regional director for Key Equipment Finance at KeyBank. She oversees equipment finance operations across the region. Yulia Murphy is a senior vice president at KeyBank, where she manages financial initiatives and supports a portfolio of healthcare clients across the northeastern United States.
Disclosure: This article is for general information purposes only and does not consider the specific investment objectives, financial situation, and particular needs of any individual person or entity.
