“Blueprint for recovering from financial losses caused by used medical device liquidation”
Hospitals rely on liquidation, vendors and auctions to sell unwanted and no longer needed older medical devices.
These companies enable hospitals to get older devices removed from premises and generate revenue.
For the most part, generated revenue covers liquidation expenses and leftover balance is added into hospital’s overall budget.
However, this year, many hospitals using this model began reporting decrease in revenue from used device sales and liquidation.
Since cost of liquidation is seldom a budgeted expense, there's a growing concern that soon revenue will not be enough to cover liquidation expenses and hospitals will have to pay to remove older equipment.
Let's explore why this situation transpired and what hospitals need to do to fix it.
No 1: Change in Banks’ Lending Practices
In March of 2018, Federal Reserve raised its key short-term interest rate. It was raised again in September.
The second increase makes business borrowing costs even more expensive. This marks central bank’s fifth rate increase in 12 months with 1 more projected by the end of 2019.
Together, increased rate and bank’s inclination for large loans cap buying power for small-mid size businesses that purchase older medical devices in United States.
International companies, also key players in used medical device industry, are also finding it tougher than ever to get loans.
SME Alliance (UK group representing small and mid-sized enterprises) reports that big banks are reluctant to lend money and small banks follow classic business model which is averse to lending to small businesses.
Result: Small-mid size companies don’t have enough capital to buy older and less profitable equipment.
No 2: Cheaper and Comparable Chinese Alternative
Not too long ago, companies from Middle East, India and Asia chased US hospital-owned older equipment manufactured by GE, Siemens, Stryker and Philips.
Today, they are less interested in paying premium for brand names because they can acquire comparable and newer equipment manufactured in China.
Chinese manufactured products range from patient monitors, anesthesia machines, X-ray machines to OR lights. They initially cost a fraction of the price charged by their brand name competitors.
These products are yet to break into US market and given the current tariffs situation may not any time soon, however they penetrated Indian and European markets.
Hospitals that purchased Chinese products 5-7 years ago began replacing them. This created an opportunity for Middle East and Indian companies to buy newer and less expensive devices locally and avoid paying excess taxes, customs and shipping costs for imports.
Result: Older US hospital-owned equipment is less desired by international buyers.able for companies overseas.
Shift No 3: Globalization and Accessibility
Surge of online websites that specialize in selling used medical devices created a buyer’s market.
In US, there are dozens of websites for auctioning and reselling used medical devices. They are competing among each other as well as big rivals, eBay and Amazon.
In addition to US based websites, in the last 2 years, UK, Saudi Arabia, France, Mexico, Ukraine and India created their own online marketplaces to sell and auction used medical devices.
There is no more scarcity of devices.
Buyers have more device options and places to buy them.
Participation in scheduled auctions/liquidations has been declining and as a result auction companies are scrapping larger volume of devices than ever.
Result: Greater supply and access to equipment caused decrease in demand and interest.
Current Scenario
They are saving money to buy newer devices that are guaranteed to be more profitable for them.
In addition, international buyers who bought almost 80% of US hospital-owned older devices are now shifting to local products.
Vendors, who within the last 12 months, bought older devices from US hospitals are suffering from inventory surplus. To generate cash flow, many of them started selling off accumulated devices at a loss further reducing already low prices.
Meanwhile, US hospital are seeing revenue decrease from older device sales and having more equipment scrapped than sold.
Financial analysists do not anticipate this trend to reverse in the near future. Additionally, forecasted instability in the stock market and enacted tariffs will compound this situation.
However, there is an option hospitals can exercise to hedge and improve sales revenue from medical devices that were removed from clinical use.
To learn more about this option contact our office for the remainder of this article.
You will receive a copy of viable and easily attainable solution your facility can implement to alleviate financial loss created by globalization and current surplus of older medical devices on the market.
EcoMed works exclusively with hospitals, surgery centers, imaging centers and independent healthcare providers by managing resale and transportation of used medical devices. Contact us for COMPLIMENTORY recommendations, resources, support and medical device industry insights that will help your organization make the right decision on how to handle medical devices removed from clinical use.
