eyecare by the numbers

A Technolgy Investment Plan

Alan H. Cleinman

A client recently wrote me regarding the rapid depreciation of his technology investments.

Dear Al,

I have a large number of expensive pieces of high-tech equipment— the typical cost of each piece averages between $30,000 and $60,000— which are supported by a variety of computers with costs as high as $10,000. Within five years of purchase, the trade-in value for this technology is near zero. The instruments are virtually worthless and obsolete in the eyes of their own manufacturer, who gradually stops supporting this equipment.

As a result, we are forced to replace these instruments on an ongoing basis in order to keep everything working. The time for this technology to go from cutting edge to obsolete is getting shorter and shorter, and our insurance reimbursements are not keeping up with the costs of these investments.

In light of the above (and factoring in interest, depreciation, reimbursements, cost of IT support, value to our brand, etc.), what’s the smart thing for a high-tech practice to do? Do we trade in the equipment frequently while it still has trade-in value? Or is it smarter to use it until it dies and then start the cycle all over again?

— Dr. JH, Minnesota

Medical technology and IT technology are very different and often should be treated differently. Consider that IT technology plays a supporting role in your patient experience, while medical technology is a lead role. Thus, running a server until it’s near capacity or consumed its useful life is likely a reasonably good strategy. IT technology is generally “behind the scenes” and as long as it works, there’s little reason to replace it. In our business, we cycle our servers every four to five years, upgrade software only as required/logical, and budget for our IT investments accordingly.

On the other hand, medical technology is a marketing tool as well as a healthcare necessity. It is, along with you, your staff, and your facility, an integral element of your brand. That said, different medical technology must also be handled in different ways.

Retinal imaging technology is improving each year. Thus, staying leading edge is likely important from both a standard of care perspective and a marketing perspective, especially in competitive markets.

In some environments, so long as you’re delivering the standard of care, I doubt that patients are hugely impacted by “this year’s model” vs. something a few years old.

That said, if a new technology comes along that is markedly better than what you currently have, you must take it into consideration.

BUILDING A BUDGET

Budget for technology investment by setting aside a percentage of your prior year’s collected revenue for the coming year’s capital investments. A reasonable amount would be between 5 and 7.5 percent of collected revenue. Thus, a million dollar practice would have a $50k to $75k annual technology budget. That’s step one.

Once you’ve decided on your annual budget, you must figure out what to do with it. At year-end, think through your technology priorities. You can’t handle each year the same, as different priorities will arise.

You may decide to focus on a specific specialty for the coming year. Likewise, you may decide to sell your two-year-old OCT because there’s newer technology that’s better or for which you can achieve improved reimbursement.

The recovered monies from the sale can increase your budget. Thus, in one year, you may spend $60,000 because you recovered $10,000 from the sale. Further, in another year, you may not feel it wise to spend the entire budget and roll part of it over to the next year’s budget. EB

©2012 Cleinman Performance Partners, Inc.