Impact of Federal Interest Rate Increase on Used Medical Device Sales & Liquidation

“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.

In addition to rate increase, US banks prefer larger loans. However, majority of companies that buy used equipment are small-mid size businesses seeking loans under $250,000. These loans are less profitable and riskier for banks.

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

With less buying power, both US and international buyers are paying less for older equipment. 

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.

Cost Opportunity Proposal

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.  

Negotiating Strategies or Excuses?

3 Minute Read | Decision Factors

“Asking price is too high. We buy same pumps for half the price.”

“Market is saturated with these modules. They are almost worthless.”

"System is old and worthless. Removal will be expensive."

 

Healthcare Providers and Supply Chain Professionals, do any of these sound familiar? 

How many of you heard these statements while selling medical devices after they were removed from use by your organization? 

 

Are these statements accurate, or is the buyer trying to corner you into lowering the price under pretense they know the market better? 

In some instances, yes, these statements are correct and your buyer is right.

 

However, that's not always the case. 

 

If your buyers are purchasing devices for inventory than it is unlikely you will receive fair market price.   These buyers have overhead expenses such as warehousing, transportation, refurbishing processes, etc. and there's never 100% guarantee that device will sell and their investment will be fully recovered. 

 

However, there are situations when devices sell at fair market prices or premium. This usually occurs when

• Buyer has an immediate need for device  
• Device is being purchased by an end-user

So how do you decide whether to sell the device, or keep it until the right buyer pops up on the radar?

 

Here 3 biggest factors that should influence your decision

1. Equipment type
2. Future use potential 
3. Timeline

Let's explore the Big 3 in more detail.

 

Device Type: 
There are many types of equipment - general, surgical, lab, diagnostic, the list goes on. 

Within this mix, there are individual unique devices such as O-Arms, Portable Heart-Lug Machines and Mobile Hyperthermia Treatment Systems to name a few. 

Provided such devices are in working condition and supported by their manufacturers, it is possible to sell them 25%-60% above fair market price.  

 

The keys to getting a good sale price are

• Correct Sales Strategy
• Global Market Use and Demand Knowledge
• Communications
• Targeting the Right Buyers
• Patience

Posting an Internet listing and sending few emails to vendors that fix medical equipment and soliciting an offer will unlikely yield any stellar results.

 

Future Use Potential:

Yes, your organization may have paid a lot of money when they purchased this device. Yes, it may be in pristine condition and well maintained, but offers you are receiving don't come close to what you feel the device is worth or asking prices you see on the Internet for same device so you decide to keep it.

 

It's a tough predicament but if you're not going to use this device, you should entertain a lower offer as it sits there, it will loose all remaining residual value and in the end, you will pay to have it removed and scrapped. 

 

Please don't assume you will get 40-50% of what you paid in 1995 especially if the device is no longer supported by the manufacturer. 

 

Also, keep in mind MD Buyline and asking prices on DOTmed do not reflect fair market price for end-of-use medical devices.  You will need to determine fair price by doing your own analysis, monitoring the market, following auctions and constantly communicating with multiple buyers.   

 

Timeline:

Occasionally, even with a good strategy, you will have no choice but to cave in to your timeline. Most unique devices eventually sell. It’s just a matter of time it takes to find the right buyer willing to pay the right price.

 

However, if space is an issue or an asbestos abatement project is underway, time may not be on your side. Therefore, timeline will impact duration of the selling cycle.

 

If you pull the plug on selling cycle because you don't have time to chase buyers, answer their questions or just want device out, then you should probably delegate or outsource this job. 

 

Premature sale of medical devices only limits revenue that can be generated from capital investments made by your organization.    

 

At the end of the day, everyone wants a good deal. Everyone negotiates. Everyone hustles.  Ultimately, it is up to you or your trusted partner who works on behalf of your organization to sell end-of-use medical device equitably and smart.

 

 

We are here to help you decide the best way to decommission medical devices your organization no longer uses. Even if you work with another service provider, have questions, looking for suggestions, ideas or resources, please contact us and we will be glad to be a resource. 

 

To learn more about benefits of a managed Medical Equipment Decommission Program, please visit www.ecomedhtm.com or send an email to med@ecomedhtm.com. 

Personal Attachment: 10 Minutes of Unlicensed Therapy

Who’s got attachment issues? It’s remarkable to what extremes people go to hang on to their dated belongings. The “I cannot let this go” phenomenon clutters our homes, our minds and certainly generates a few dollars for Hollywood when shows like Hoarders has viewers glued to the screens with mouths wide open.

It’s almost endearing to have a collection of sorts. And trust me, I know as my “good luck charms” paraphernalia is starting to overpopulate the shelf it calls home. 

 

However, for those of you working in a medical setting and exhibiting profound attachment to underused medical devices and supplies, this type of behavior can be filed under an "expensive and unrewarding" hobby.    

 

You see, unlike personal collections that may increase in value or be resold directly to other collectors, auctioned off (watch out for those fees!) or brought to consignment stores, medical devices simply depreciate in value and eventually become almost worthless.

 

This was a tough lesson recently learned by two Chicago area physicians who decided to retire and sell all the assets from their private practice. They were proud of their established, 20 year old clinic that was heavily stocked with barely used medical equipment, supplies and furniture.  They had no doubts that buyers will be lined up outside their door ready to pay premium for well-maintained products.  

 

Among items that ranged in age from few months to 20 years, were two “once-upon-a-time” very valuable and expensive diagnostic devices. Both devices were purchased at a sticker price, directly from OEM nine years ago.  

 

Sadly, for various reasons, both devices were completely under-utilized and sat around practically untouched throughout most of their longevity. Truth is, physicians should have sold them years ago when reimbursement rates for procedures performed on these devices were more rewarding and equipment was still young.  

 

But, they didn’t sell them, or any of their other acquisitions.  On the contrary, even though physicians seldom used the equipment, they rented storage space and paid a local service company to have it preventatively checked and regularly cleaned. They kept all of the original boxes, purchasing agreements, technical spec brochures and sales rep’s business cards.

 

They were hoping their amassed collection and due diligence will pay off and they will be able to sell all equipment by discounting it 25% from original purchase price. What, really?

 

As good and lucrative as this plan sounds, here’s why it’s not realistic:

1. Technology evolved and these devices are missing standard options desired by today’s market
2. Software is now outdated and considering the age of equipment is not worth the upgrade
3. Some of the devices are no longer supported by their manufacturers
4. Some of the supplies used with these devices are no longer being manufactured
5. End-users such as medical facilities will not purchase equipment without at least a 90 day warranty and do not want to pay any associated de-installation fees
6. Dealers/Refurbishing Companies are looking for bargains and despite working condition & good cosmetics, they still have costs associated with refurbishing process and warranty

The two physicians learned an expensive and eye-opening lesson. Not only did the recent volatility of the stock market negatively impacted their IRAs, their overall retirement portfolio dropped by more than $24,000 due to poor planning, inherent industry misconception and weak market demand for complex and dated medical equipment.

 

So how can you help your facility from getting caught in same situation? Simple, if you know of any device not being utilized, advocate to sell it! The longer it sits around and collects dust, the less rewarding will be its’ decommission.  

 

Unless devices used in your facility are entirely made of gold, they will not increase in value with age. And if they are made of gold, please snap a selfie standing next to one of them and send it to me. I will frame and add it to my collection of “good luck charms”!

 

 

If you would like to learn more about the benefits of centrally managed, in-house Medical Equipment Decommission Program, please visit www.ecomedhtm.com.