Key Considerations for Dermatology Practices Investing in New Equipment

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In the swiftly evolving field of dermatology, practices must frequently evaluate upgrades in their equipment to stay at the forefront of patient care. Although new equipment can enhance the capabilities and profitability of a dermatology practice, the decision to make such an investment is a significant one. This article provides dermatologists with key factors to assess before moving forward with an equipment acquisition.

Understanding Equipment Needs in Dermatology

Today’s dermatology practice may implement a diverse range of equipment, including advanced lasers for skin treatments, laboratory equipment for diagnostic purposes, skin imaging systems, intense pulsed light machines, radiofrequency devices, and hydrafacial units to expand their service offerings. Each category of equipment comes with unique considerations in terms of usage, cost, and maintenance. The choice of equipment depends on the services offered, the needs of patients, and the practice’s scope of specialization.

Market Analysis for Dermatological Procedures

Before investing in new equipment, it’s imperative to understand the market demand for the services this piece of equipment can provide. This may involve a thorough market analysis, which would include evaluating competition in the area, assessing consumer demand for procedures enabled by the new equipment, and determining pricing for those procedures. Understanding these market dynamics will help determine the potential demand for services offered with the new equipment and ensure a competitive advantage. For example, if the area has a high demand for laser treatments but limited providers, investing in a state-of-the-art laser machine could be a lucrative move.

Dermatologists should also note that consumer willingness to pay certain prices for aesthetic treatments differs geographically. Combining insights from patients with area marketing data and industry reports can help forecast the likely adoption rates for new procedures and the equipment’s profit potential for your practice.

Financial Considerations

Financial due diligence is paramount. A thorough review of the practice’s financial statements is essential to assess the financial feasibility of the investment. Dermatology practice owners should analyze their revenue streams, cash flow, and profitability to determine whether they have the financial capacity to purchase new equipment. This comprehensive evaluation of the practice’s current financial health along with financial projections for revenue to be generated with the new equipment will help to determine the overall affordability of the investment.

A key metric to evaluate is the anticipated return on investment (ROI) from the new equipment. Dermatologists should estimate the expected additional revenue that could be generated from procedures using the new equipment and compare it with the initial investment. A “breakeven” analysis is also valuable, as it calculates the time frame for recouping the investment in the equipment.

Purchasing Options: Buy or Lease

Once the decision is made to move forward with an acquisition, a dermatology practice must determine whether to buy or lease the new equipment. Purchasing may entail a considerable up-front cost, but the equipment becomes an asset to the practice. Alternatively, leasing or renting offers lower initial costs and can provide flexibility to use working capital for other investments. Upon lease expiration, the practice may be able to negotiate a lease for a newer model of the equipment so the latest technology is consistently utilized.

Additional Costs

Beyond the initial purchase or lease cost, dermatology practices must consider additional post-purchase expenses that can significantly impact the overall investment. These can include hiring and training staff to perform new procedures, equipment maintenance, office modifications to accommodate the new equipment, and the ongoing cost of consumables required for procedures.

“A budget for marketing the equipment should also be considered,” said Jessica Nunn, CEO and founder for Maven Financial Partners (www.mavenfp.com). “Too often, we find that practices make large investments in equipment but don’t plan for the marketing spend required to generate the sales needed to support the investment. Consider talking to the sales [representative] about their support for marketing for the device. We do see many cases where the device company will provide some amount of marketing upon purchase of the device.”

Asset Protection and Liability Considerations

Dermatology practices must also contemplate potential liability risks associated with new equipment and procedures that can be performed with it. Dermatologists should evaluate their current malpractice insurance coverage and ensure it adequately protects them in case of any adverse events involving the equipment. Additionally, exploring asset protection strategies, such as owning the equipment through a limited liability company may be justified in certain circumstances.

Case Study: The Laser Investment Decision

Dermatologist Sara Jones was eager to add laser skin resurfacing to the treatments available at her suburban solo practice focusing on general, surgical, and cosmetic dermatology. She researched carbon dioxide and erbium lasers suited for ablation of lesions and wrinkle reduction. After reviewing the competitive landscape in her area and her patients’ frequent requests for such rejuvenation therapies, she estimated solid consumer demand. The total investment would be $120,000 when factoring in the laser device itself, office renovation, hiring an additional part-time nurse practitioner, and initial marketing efforts.

Jones thoroughly analyzed her practice’s financials to gauge whether projected revenue could support the purchase. She conservatively projected the laser would generate at least $7000 in monthly revenue once her staff gained experience with the equipment. Moving forward with a 36-month lease rather than purchasing outright also eased some of the risk. The lease estimate factored in maintenance fees and variable costs per procedure, such as ancillary skin care products.

Beyond her financial diligence, Jones was aware that adding lasers inherently elevates the risk of malpractice liability. Prior to her laser purchase, Jones contacted her insurance adviser to confirm that her current policy covered laser procedures. Based on Jones’ financial analysis, ROI projections, and asset protection considerations, acquiring the laser made financial sense to her and her practice’s financial adviser.

Conclusion

Although investing in new equipment can be a game changer for dermatology practices, careful consideration of financial data, practice operations, and liability risk is mandatory to support a successful integration into the practice. Moving too rapidly or without adequate due diligence can result in costly disappointments for a dermatology practice. By understanding and assessing these considerations, dermatologists can make informed decisions that help their practices thrive while delivering cutting-edge patient care.

David B.Mandell, JD, MBA, is an attorney and author of more than a dozen books for doctors, including Wealth Planning for the Modern Physician. He is a partner in the wealth management firm OJM Group, LLC (www.ojmgroup.com). He can be reached at 877-656-4362 or mandell@ojmgroup.com.

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