Should you buy or lease an X-ray unit? I know this may sound like a strange question coming from a DACBR, but it is a very reasonable question, considering the cost of being in practice today. To survive in today's health care market, we need a strategic plan and an ability to adapt quickly to a changing economic environment. It isn't easy to be successful in private practice today. Continuous penetration of managed care, aggressive government reimbursement policies, and ever-changing regulations - be it state or federal restrictions and/or requirements - all impact our very survival in chiropractic. It is difficult, especially for new practitioners fresh out of school, to start and succeed in this environment, even if they don't have any student loans! With loans, it is difficult just to keep out of the red.
In general, I suggest that new practitioners wait (to avoid going further into debt) to get all the equipment they dream of when starting their own practice. Often, chiropractic offices can survive very nicely without having the expense of an X-ray unit. Many times there are several chiropractic offices nearby that would be very amenable to taking films for another chiropractor. There are many radiology centers that will also take X-rays for chiropractors, depending on the area and density of the population. There are many choices to consider before committing to a $20,000 capital investment, plus an additional $200-$300 monthly expense for film, chemistry and maintenance. This isn't even considering the time spent taking the X-rays when one could be treating patients.
What follows is a review of the basic steps one might take when considering any capital investment. We are not discussing high finance here; just some simple steps that can be taken in order to make a reasonable decision concerning the purchase of any expensive equipment. (Those of you who feel $20,000 is not a significant expense need not read any further.)
What to consider when purchasing any expensive equipment:
- Clearly identify that there is a need for the equipment.
- Obtain information on the equipment and determine what will best suit your needs.
- Evaluate the costs and benefits by performing a break-even analysis. Yes, this is a very important step.
- Earmark the funds that will be needed to purchase the equipment or the funds needed to lease the equipment to the break-even point. Don't put it on a credit card and ignore the interest fees.
- Reassess benefits.
Do you really need an X-ray unit, or can you arrange some other relationship with someone who already has one? Fine, so you want one. Let's assume it is a necessity. I'll let you figure out the answer to this first point of consideration.
Let's look at the second point: What type of unit are you interested in buying (and from which manufacturer)? Get some advice from colleagues and experts in the field. Don't forget to assess used equipment. What will be the cost of the build-out and inspection? Can you even put an X-ray unit in your office building? It may take some time to determine if it is feasible to install a unit in your office. This should be taken into account before you sign the lease agreement for the office space.
Most people tend to ignore the cost-benefit analysis. Capital investments, such as purchasing new equipment, should be made with the intention to either increase revenue or decrease expenses. There are other reasons for making capital investments, such as improving access, service and/or increasing market share; but generally, considering that most practitioners are sole proprietorships, they should be looking to increase revenue or decrease expenses. That is why I suggest using a cost-benefit analysis formula that is simple, straightforward and helps to remove some of the emotional aspects from the equation.
Let's discuss the three financial equations that need to be considered as part of any capital investment process: break-even point, payback period and return on investment (ROI).
Break-even point: This analysis is performed to look at what point in time the equipment purchased produces revenues that equals the investment. Let me illustrate a simple break-even point for an X-ray machine costing $20,000. If the chiropractor averages two X-rays per day for 260 days, at a charge of $15 per X-ray, the break-even point will occur in the second year.
Here is the calculation:
2 X-rays a day x 260 days = 520 X-rays in one year
$15 per X-ray x 520 = $7,800 in one year
$20,000 divided by $7,800 = 2.5 years
So, the payback period on this investment is about 2.5 years. Payback period is the number of years it takes the equipment to generate revenue that equals the original purchase price. But wait; we have not considered the expenses generated by having an X-ray machine: the cost of film, chemistry, maintenance, and your time to take the X-rays. Oh, and what about the processor? So let's add in, say, $200 a month for X-ray expenses. That totals $2,400 a year. Now, let's recalculate. $7,800 - $2,400 = $5,400 annual income, rather than $7,800; so $20,000 divided by $5,400 = 3.7 years to break even.
What is the return on your investment? Well, you are in the red for about five years.
(total income - total costs) = ____ x 100 = ROI
total costs
Over a five-year period, your $20,000 investment has the following ROI:
Total income is $5,400 x 5 = $27,000
Total cost is $20,000 plus the $2,400 x 5 = $32,000
ROI = -15.6%
So, after five years, you are still in the red, but after six years, you are out of the red:
Total income is $5,400 x 6 = $32,400
Total cost is still $32,000
ROI is 1.25%
Your return on an investment of $20,000 turns out to cost $32,000, and you don't get a return on that money until six years later, at only 1.25%. This does not include the time value of money or the cost of your time to take the films. Of course, this can vary depending on how many films you take in a day and your reimbursement for each film. This just tells us that you need to be taking more than two X-rays a day. The bottom line is that if you are not averaging two to three X-rays a day, or two to three X-ray series a week, you probably don't need the expense of an X-ray unit.
The fifth and final consideration is reassessing benefits, which is a very difficult task. I think you should not only consider the financial benefits, but also whether or not you enjoy doing the task. If it takes you a half-hour to take an X-ray series, and you detest it, even though you are making a nice profit, maybe you should either refer out or hire on someone else to do your films. But, if it takes you the same amount of time to perform the task and you actually enjoy it, it probably is a good idea to continue doing the films yourself. I found that by taking the films myself, I could continue my examination by integrating the taking of the patient's history and range of motion along with postural analysis. However, this is not the case for everyone.
At the end of the day, it is your practice, and you should try to do your best; but you also need to enjoy what you do. If you enjoy the process of taking films and reviewing the results, you should be taking the X-rays - if not, get someone else to do it. You can spend your time more efficiently doing something else. What I am suggesting is that you make certain you are at least breaking even!
Deborah Pate, DC, DACBR
San Diego, California
patedacbr@cox.net
