Time for a Break?
Edition: September 2012 - Vol 20 Number 09
Author: Laura Thill
Experts agree that physicians and businesses can take advantage of tax breaks on equipment all year long. And, in fact, many are aware of this. Yet, for various reasons, physicians – as well as their sales reps – leave the big equipment purchases for the end of the fourth quarter. “Dealer and manufacturer reps tend to focus on year-end capital equipment specials and promotions,” explains Craig Riley, district manager, Cardiac Science. “As such, it’s often more advantageous for the physician to wait until the end of the year.”
In some cases, it’s a matter of physicians following their accountant’s lead. “We find that most physicians are unaware of the significance of Section 179 and rely on their accountants for this information,” says Adam Hoxie, national product manager, capital equipment specialist, Henry Schein. Section 179 is the section of the IRS tax code that encourages business owners to invest in equipment or technology by permitting them to deduct a portion of the asset’s value the first year. “This tends to be at the end of the year.” Sales reps, in turn, “tend to wait until the end of the year when discussing Section 179,” he adds. “The urgency of year-end forecasts in conjunction with physicians obtaining their accountant’s advice, represent the primary contributing factors to this trend.”
It’s not that accountants are dragging their feet. Indeed, a wait-and-see approach is often integral to their strategy. “For the most part, their accountant wants to see if the practice has income that needs to be offset with tax breaks to avoid paying taxes,” says Dick Moorman, vice president of sales, Midmark Corp. Add to that the fact that many salespeople “look to the end of the year as an inducement close time period, [and] most practices’ year ends in December,” he explains.
That said, “the right thing for distributor reps to do is to find out when each of their customer’s year-end actually is and present to them several months prior to [that],” Moorman continues.” Reps should start discussing equipment at least 90 days prior to the end of the year, he points out.
Indeed, encouraging physician customers to think about equipment purchases ahead of time can be a matter of smart business planning, says Riley. “The proactive rep will want to plant the idea in the doctor’s mind well before the year end,” he says. “If a customer waits until December to make a [purchasing] decision, there is less time to ship, bill and have the equipment installed by December 31.”
One thing’s apparent: No matter what time of year physicians decide to add new equipment, a number of reasons motivate their purchases. While the wish list of products may vary from one physician practice to the next, Moorman believes that big-ticket items “stand a better chance at year end due to the inducement close a tax break can bring.” Many factors drive physician and end-user equipment purchases, he points out. “The first thing is a need or want,” he says. “Without a need or want, [everything else is] meaningless. People buy [for two reasons]. Think about yourself. You buy when you need something. You have a problem you need fixed. It is something you must have to live or do business. The other time you buy is when you want something. Think iPad, iPhone, jewelry, Corvette, etc. You don’t need those things, but you want them, so you justify the purchase.
“To be successful at selling equipment, a salesperson has to discover the unrealized needs in the practice,” Moorman continues. Often, the physician may fail to understand he or she has a problem; in those cases, it may fall to the sales rep to help the physician identify and solve it, he says. “The other way is to have such a great story to tell about what it is you are trying to sell, that even though a customer may not necessarily need it, they sure want it when you are done telling your story. Don’t forget to ask for the order at that point. Tax breaks or promotions are added bullets, once the need or want is created.”
In spite of their tight budgets, physicians do indeed have their needs and wants. “The need to update or replace old medical equipment is a big factor these days, with [regard to] the new electronic medical record (EMR) requirements,” says Riley. “If the sales professional discovers the need and then shows the tax advantages, this can help drive the physician’s decision. Our customers [tend to] include ECGs, AEDs, cardiac stress, Holter, vital signs monitors and patient monitors on their wish list.”
For Hoxie, the big drivers include technology improvements, connectivity requirements and advantages, tax incentives and the need to replace equipment that has run its life course. “Successful sales reps understand all of these concepts and circumstances before they occur, and [act as] trusted advisors for these customers.” In fact, reps should be able to use their expertise “to identify the correct product to position and fulfill customers’ specific critical needs,” he adds.
Meeting their needs
Sales reps can anticipate a number of concerns on the part of their physician customers, which they should address to the best of their ability. Price, affordability and adapting new equipment or technology to the practice is often foremost on physicians’ minds. They wonder, “Do I need this?” and “Can I get it delivered in time to take advantage of the tax breaks?” notes Moorman, who suggests that reps limit any advice to their customers regarding tax breaks. “We do not want [reps] to come off as being accountants,” he says. “We are salespeople, and any tax advice should be left to their accountant.” As such, he advises sales reps to close their meeting with, “Be sure to talk to your accountant.”
Riley recommends that reps point out year-end promotions to their customers to address any concerns over price. In addition, they should assure customers that delivery and installation will take place before December 31 to ensure the opportunity to take advantage of tax breaks. “A customer [might] purchase a new product and receive a pricing discount, or bundle several items together for additional discounts,” he explains. “In addition to the promotions, we can show the tax savings on a Section 179 calculator. For example, if [a physician were to] purchase a stress system for $22,000, the tax savings would be $7,700, assuming [there is] a 35 percent tax bracket.” That said, he tells his customers to take advantage of promotions and tax savings early to avoid delivery and installation holdups due to an influx of end-of-year orders. “It’s fun to sell at the end of the year, because everyone understands the deadline,” he adds.
In addition to not fully understanding tax incentives and Section 179, physicians must grapple with reimbursement uncertainty, according to Hoxie. “In today’s political climate, reimbursement uncertainty is an ongoing factor that our industry is challenged with understanding and overcoming,” he says. “[Given] reimbursement concerns, along with inadequate tax incentive education, it is imperative that sales reps use all of the tools at their disposal to maintain success. At Henry Schein we emphasize the utilization of the resources that are available to our field sales consultants to better prepare them with the knowledge and expertise to overcome these concerns. Our vendor partners play a significant role in this process, with ongoing programs and training support. In addition to vendor support, Henry Schein has developed a specialized division dedicated to these efforts. Our capital equipment group utilizes two industry-unique divisions: capital equipment specialists and clinical lab specialists. The two divisions align themselves with our sales force to provide up-to-date expertise in reimbursement and tax incentive knowledge and education. This team-effort approach is the best way for our sales reps to overcome these concerns.”
In addition to consulting physician customers on Section 179 tax benefits and incentives, Schein field sales consultants provide leasing solutions that support each customer’s respective situation. “These best practices allow our customers to maximize their savings and in many cases pay for a significant portion of their equipment investment.”
Some probing questions sales reps should ask their customers to initiate a discussion around equipment purchases include:
• “Doctor, do you have any funds left in your budget for capital equipment purchases this year?”
• “Is there any new equipment you require – or updates to current equipment – to connect to your EMR?”
• “Are you aware of any Section 179 adjustments that have occurred this year?”
• “How do you presently stand with regard to maximizing benefits this tax year?”
However, as important as it is to have a discussion about tax incentives with one’s customers, “probing questions should be about the work being done in the medical facility and how we can help the caregiver/patient/practice, etc.,” advises Moorman. “Again, if a need or want is not established, all of the tax breaks, price discounts and promotions in the world are meaningless. If a salesperson leads with [talk about] tax breaks instead of uncovering a need or want, [he or she is] making a mistake. Tax breaks are great as another inducement to have the customer commit. However, I can’t stress enough to not lead with tax breaks or price discounts! Lead your sales story by creating the need or the want, first.
“A deeper understanding of the work being done, will lead [reps] to provide real meaningful solutions to the customer,” Moorman continues. “It is good to know the customer’s year end. It would be good to know how long a piece of equipment has been in the practice
and if it has been fully written off. Knowing this gives a salesperson an edge and could help to start a business conversation around an older piece of equipment. Yet, once again, I will say it is more about understanding the work in the practice in order to understand the pain points, so you can uncover the need and or want in the practice. Then, and only then, can [a discussion about] tax breaks (e.g., depreciation or tax credits) help you close the need or want you have created.”
When it comes to new equipment, the learning curve is constantly changing – both for physicians and sales reps. “Changes in EMR requirements are leading us to make constant changes in our technology to keep up with physicians’ needs,” says Riley. “The current trend is for hospitals to purchase physician practices, and in those cases, the decision maker may no longer be the physician.” This may lead to a change in sales strategies for distributor sales reps, he adds.
Distributor sales reps can help their customers understand the benefits of Section 179.
In order to help physician practices take advantage of Section 179 benefits, sales reps themselves must have a thorough understanding of the tax law and its advantages. Section 179 of the IRS tax code permits a business to deduct, for the current tax year, the full purchase price of financed or leased equipment – provided the equipment purchased, leased or financed falls within specified dollar limits of Section 179. In addition, the equipment must be placed into service in the same tax year that the deduction is being taken.
Some physicians may question the difference between Section 179 and bonus depreciation. The greatest difference is that both new and used equipment qualify for Section 179 deduction, while bonus depreciation only covers new equipment. Bonus depreciation has been useful to large businesses that have spent over $560,000 on new capital equipment in 2012. Also, businesses with a net loss in 2012 qualify to carry-forward the bonus depreciation to a future year. In these cases, Section 179 generally is taken first, followed by bonus depreciation, unless the business has no taxable profit in 2012.