Tax-Exempt Lease Products Enhance Healthcare Provider Options Rick Carmichael R.S. Carmichael & Co., Inc. 914-761-8200 rsc@rscarmichael.com
Healthcare Leasing Overview Healthcare bright spot in U.S. leasing industry $5.8 million in new lease originations Market growth double overall industry By 2005, $7.4 billion in volume 2
Healthcare Leasing Market Size and Projected Growth $ Billions 8 7 6 5 4 3 2 1 0 $5.8 $6.3 $6.9 $7.4 2002 2003E 2004E 2005E Source: Equipment Leasing Association and R.S. Carmichael & Co. estimates 3
Healthcare leasing driven by changing technology and cash flow pressures Also by surge in outpatient care, reimbursement changes, and other dynamics unique to healthcare 4
Tax-Exempt Leasing Clear benefits versus alternative financing structures Allows not-for-profit provider to costeffectively acquire essential equipment 5
Other benefits : Providers can acquire needed equipment even if not in capital budget Capital preserved for other projects Equipment financed without voter approval 6
Leased Equipment About 65% involves diagnostic (imaging and laboratory) equipment Similar proportion is estimated for taxexempt leasing market 7
Healthcare Leasing Market by Equipment Type Therapy and Surgical 15% Diagnostic 65% HIS and Other* 20% *Includes healthcare information systems, patient monitoring, mobile ground transport, etc. Base: Est. $5.8 billion healthcare equipment lease volume, 2002 Source: Equipment Leasing Association and R.S. Carmichael & Co. estimates 8
Imaging segments favor leasing Equipment Characteristics MRI Open MRI systems resulting in new leasing opportunities CT Multi-slice CT scanners now represent tax-exempt lease potential Ultrasound X-ray Mammography Expanded uses and profitability stimulate this market Digital x-ray systems revitalizing this traditional leasing market Digital systems, plus greater use of mammograms, driving this market PET Nuclear Medicine Additional applications for positive emission tomography and installations in outpatient centers creating lease potential Newer applications in cardiology and oncology resulting in more leasing 9
For small-ticket sizes (<$250,000), taxexempt lease structure might not offer dramatic cost savings Middle-market and large-ticket equipment (i.e., most imaging equipment), economic advantages more evident 80% of tax-exempt leasing involves ticketsizes >$250,000 10
Healthcare Equipment Leasing Market by Ticket Size Middle- Market ($250,000- $5 million) 62% Large-Ticket (>$5 million) 18% Small Ticket (<$250,000) 20% Base: $2.1 billion tax-exempt leasing volume, 2002 Source: Equipment Leasing Association 11
Leasing Pools In New York, for example, Tax-Exempt Leasing Program provides hospitals, nursing homes and other providers with cost-effective source of tax-exempt leasing Provider savings more than 10 percent over taxable rates 12
Leasing Dynamics Not-for-profit healthcare providers seek financing through competitive or negotiated bids Providers often seek financing rates independently from leasing companies 13
In selecting tax-exempt lessors, healthcare providers weigh: - Healthcare industry knowledge - Equipment leasing expertise - Flexibility in structuring - Competitive rates, terms - Quick turnaround 14
Equipment Vendor Role Providers identify tax-exempt leasing sources through equipment vendors and direct calls by leasing companies More tax-exempt leasing transactions originated through programs sponsored by healthcare equipment vendors 15
Utilization of tax-exempt leasing more widely adopted by vendors, including leading manufacturers of imaging and diagnostic equipment Attractiveness of vendor channel to taxexempt lessors: cost-effective access to many potential lessees 16
From providers standpoint, vendorsourced tax-exempt leasing is convenient Creates greater leverage in dealing with equipment vendor 17
Tax-Exempt Leasing Competitors According to ELA, more than 50 members offer tax-exempt leasing to healthcare market Competitor categories: captives, diversified finance companies, bankaffiliates 18
Outlook Not-for-profit providers will have expanding need for state-of-the-art, essential-use equipment Vendors will put greater emphasis on leasing in marketing to not-for-profits Above-average growth opportunities for tax-exempt lessors in healthcare 19