Capital equipment can be thought of as costly equipment that can help generate income. What is most important is that the equipment should help the hospital deliver exceptional quality of patient care over an extended period of time.
Here are five primary characteristics of capital equipment:
Capital equipment is generally any piece of equipment whose cost is beyond a preset mark. This “set mark” will vary depending on the hospital. For instance, a small hospital may classify any equipment purchased at more than $1,000 as capital equipment. A larger hospital with enormous resources may classify capital equipment as those items purchased at more than $5,000.
Capital equipment can be stand-alone or supplementary. That is, they may be able to function independently or they may need to be used in conjunction with other equipment items in order to fulfill a particular function. For instance, software purchased together with, and physically installed in, a piece of capital hardware equipment may be capitalized.
Under this circumstance the "set mark" price becomes irrelevant for the software because without it the hardware would be useless. However, if you later purchase separate software to improve the performance of the hardware, this software may be expensed if it is valued at less than the established "set mark" or capitalized if it costs more.
Equipment items that do not meet the "set mark" price individually may sometimes be bundled together to meet or exceed that "set mark" threshold cost. An example of such could be chairs for a waiting room. Individually, they may only cost $250 each, far below a $1,000 set mark for capital equipment. However, when purchased together, a group of just twelve would represent a purchase price of $3000 and so qualify to be capitalized.
Capital equipment items are durable. Any item that cannot be used for a whole year before it wears out or becomes obsolete should not be classified as capital equipment. Capital equipment items are not purchased to be sold or disposed of in the short term. Consumable items, even if they exceed the "set mark" threshold, cannot be considered as capital equipment.
Capital equipment has on most occasions been associated with large, bulky items. While this is not completely untrue, not all capital equipment devices are big. For instance, a stand-by generator for $15,000 is definitely capital equipment. However, a defibrillator that costs $1,200 may also qualify as a capital equipment item even though it consumes much less space and is much lighter than the generator.
Capital equipment is also tangible and physical in nature. This means that it is material, can be touched and that it occupies space. It can be inventoried and tagged as an enduring asset. If an item is not tangible it cannot be considered as capital equipment.
5. Use Life
Capital equipment items generally have a long use life, but are not permanent. They depreciate over time and may deteriorate or become outdated. Typically, capital equipment has a life expectancy of 1 year or more, can be indexed as an asset and may be amortized over a period of 5 to 10 years.
Capital equipment items occupy a very important place when outfitting newly constructed, expanded or remodeled spaces. They represent those items that are not routinely purchased on a recurring basis. Consequently, the efficient procurement, delivery and installation of such items may benefit from the experience expertise of a distributor like CME and their Direct-to-Site delivery program.
With two corporate offices and 35+ service centers, our mission is is to help healthcare facilities nationwide reduce the cost of the equipment they purchase, make their equipment specification, delivery, installation, and maintenance processes more efficient, and help them seamlessly launch, renovate and expand on schedule. Feel free to contact us to learn how we can make your next move-in smoother and easier.