Used Medical Equipment Fair Market Value is Unfair

Let’s talk about used medical equipment fair market value, or FMV.  At some point, almost every healthcare provider needs to establish FMV of their used medical devices. 

 

If you engage an appraiser to establish FMV, most likely you will receive a value that is unrelated to price at which your device will sell.

While this value is suitable for the accounting purposes, it is unfortunately useless in the real world.

 

If you try to establish FMV on your own using Google or any other search engine, you will discover that value of the same device can vary by as much as 60%. 

 

So, if FMV provided by an appraiser cannot be used as a benchmark and online FMV results are inconsistent, how can you establish appropriate resale value of your medical device? 

 

In reality, FMV depends on basic economic principles of supply and demand.

For example, during shortage of respiratory devices during a flu season, price of respiratory devices available on secondary market skyrockets regardless of FMV reported by an appraiser or found online.

In addition, FMV has a different meaning to each buyer, their situation, and location. 

 

A buyer who makes an offer on any device for their inventory will assess its FMV lower than if they were purchasing that device for a prospective end-user (party that will use the device). 

 

And, if that end-user was to issue a Purchase Order, that same buyer may significantly increase their offer. 

 

True Story (and actual photos of the system):

This situation took place in our office while we were selling a GE Lunar Prodigy Bone Densitometer for a client.

A buyer submitted an offer that was below resale value range assessed for this system.

Buyer justified their offer by indicated that system lacked a key technological feature, was expensive to de-install, crate, and transport across the country to their facility. 

 

We presented the offer to our client.  As anticipated and per our recommendations, client rejected the offer. 

 

Three weeks later, the same buyer inquired if the system was still available.

After learning that it was, they increased their offer by $8000.

It turned out, they were now working with an end-user who was in Latin America and despite the absence of a key technological feature still wanted this system. 

 

So, with FMV being arbitrary and purchase price carrying little weight on the secondary market, how can you establish at what price to sell your medical device?

 

Here are 9 suggestions to help:  

1. Resale value will depend on supply and demand of “like” or similar devices. Study the market and determine if there’s a surplus or deficit of equipment you’re selling.
2. Look for buyers who need (not want!) your device. 
3. Avoid buyers who purchase for inventory or will resell device to another buyer instead of an end-user.
4. Refrain from selling to a service company that fixed your device… for obvious reasons.
5. If soliciting bids, engage as many buyers in the US and abroad as possible. Don’t limit yourself to 2-3 companies.
6. Establish a resale price range. This will help you analyze offers. Email us if you need help. This service is FREE and without any obligations.
7. If you decide to auction, be mindful of fees. They
   
   drastically reduce profit. For example, eBay collects 10% from the sale of “Healthcare, Lab & Life Sciences” equipment. You will also incur 3% fee from PayPal for payment processing. Your profit is down 13% and you still must deal with packing & shipping, thus cost of your time. If you engage auctioneers, again, be mindful of fees. In addition to 40%-60% profit split, auctioneers may charge for pickup, cleaning, PHI eradication and so on. Also, buyers who purchase from auctions pay up to 20% premium. This reduces the total amount they’re willing to bid.
8. Avoid selling to buyers who advertise they "buy everything and pay top dollar". Historically, these buyers make the lowest offers. Because they buy everything, they need a big facility for storage and that comes with big overhead. These buyers usually resell equipment to other buyers. See suggestion number #3.
9. Build an international network. Approximately 80% of equipment is sold overseas. Privatization of healthcare in Africa, India, and Pakistan lead to a surge of new hospitals and clinics opening in those regions. International buyers are the biggest players in used medical device industry right now.  

While used medical equipment FMV is an unfair and arbitrary number, these 9 proven suggestions will help you resell your medical devices on the secondary market at reasonable prices.

 

 

EcoMed works exclusively with hospitals, surgery centers, imaging centers and independent healthcare providers by managing resale and transportation of medical devices removed from clinical use. If you have medical devices that are no longer being used, contact us and we will provide you with resources that will help you make the right decision on how to sell them.

 

 

To learn more about benefits of being an EcoMed client, visit us at www.ecomedhtm.com, send us an email or call Toll-Free 855.234.5600. 

Decoding Buyer Profile

Understanding consumer behavior is not an easy task.  According to Psychology Today “it is a hotbed of psychological research as it ties together communication, identity, social status, decision-making, mental and physical health”.
Collected data is further segmented by corporations to position themselves on the market, advertise products and forecast revenue.

While this information is not groundbreaking and slightly boring, you are probably thinking, how is it relevant to me?

If you are employed in a healthcare setting and involved with replacement of medical devices, understanding buyers that purchase pre-owned medical equipment directly from Healthcare Providers will help you target an appropriate audience for devices that are being removed from service.

To attain the most financially advantageous outcome in a direct sale of end-of-use medical devices, you need to recognize that your buyer is first of all, a consumer with specific needs that fit their business model. 

The following list summarizes services and products of most common buyers that purchase pre-owned medical equipment directly from Healthcare Providers.  Selecting the right buyer will result in additional revenue in your pocket, well technically not yours, but nevertheless, it will make you feel like a hero... or a hustler! 

1.      Remarketer – these companies specialize in Marketing used devices.  After obtaining manufacturer, model, production year and photos of equipment, they market it on the internet, by email and directly to medical equipment dealers. 

These companies seldom set selling prices and often solicit offers.  The highest offer received is reduced sometimes by as much as 60% before being presented as the purchase price for equipment. 

Occasionally, remarketers will accept equipment on consignment where the split may be as high as 60/40 (in their favor), but most prefer not to handle equipment directly, meaning it remains with the facility until buyer is located. 

Remarketers specialize in marketing and advertising services and seldom possess technical training required to check functionality, review service history or confirm eradication of ePHI before handing over device to the buyer.

2.     Reseller – these are the “Jacks of all Trades, Masters of ...” companies.  They purchase all types of used medical equipment. 

Resellers often purchase on site and by the “box”.  They contact Biomed, Materials Management and if they can get to, Purchasing Departments to inquire if any used equipment is available for sale.  They may send a truck directly to equipment storage area and make an offer on whatever is available.  

Since these companies pick up equipment by the box, they cannot predict if anything valuable is buried on the bottom, so at the risk of overpaying for scrap, they have no choice but to make low purchase offers. 

A lot of equipment they obtain is scrapped, some is resold to dealers, refurbishing companies or occasionally to end-users.  Resellers have some technical skills and may provide basic services such as minor repairs, parts replacement, cleaning and painting before reselling equipment.   

3.     Refurbisher – companies that actually refurbish medical equipment are highly skilled and often ISO certified.  They take great care and pride in their refurbishing process which is often documented and available for review. 

Technicians working at these companies are frequently certified and manufacturer trained.  Refurbished equipment is sold with a warranty to an end-user who may be a Healthcare Provider or an academic organization. 

Since refurbishing companies are dealing with end-users and have additional sources of revenue such as warranties and service contracts, they pay top dollar for used medical equipment.  With that said, they are more selective in their purchases and abstain from outdated technologies. 

4.     Original Equipment Manufacturer – “aka” the OEM enters the picture when older, not outdated equipment is being replaced.  OEM will do a trade-in, or “buy back” older equipment and apply price offered for a trade-in as a credit towards purchase price of the new device. 

OEM, rarely if ever, pays a fair price for trade-in equipment.  It is critical to review every dollar sign in the new device Purchase Agreement because price paid for a trade-in is likely embedded in it. 

Since OEM obtains most of the revenue from sale of new equipment, few have interest in refurbishing equipment they take on a trade.  Thus, they either destroy it to prevent from entering the secondary market or resell it to an OEM-contracted vendor. 

Either way, while it may be convenient to have an OEM pick up older equipment and it’s attractive to see lower price of new equipment on paper, in reality, this practice prevents underserved medical community from acquiring affordable equipment and bluntly stated “leaves money on the table”.    

Deliberately omitted from this list are Auction Houses that are starting to saturate the online marketplace.  Auction Houses do not purchase equipment. Equipment is consigned to them and their job is to sell it through an auction. 

Slightly simplified, but the auction process begins after substantial amount of equipment is collected from several facilities.  Prospective buyers stored in Auction House’s database are notified of date, time and location. 

Since Auction Houses provide an auction platform, they do not get involved in details that

may enhance price of equipment such as replaced parts or recent PM. Their scope of service doesn’t include operability verification, eradication of ePHI and conducting de-installation of fixed systems.  Those tasks are transposed to prospective buyers. 

Information provided to prospective buyers is limited to manufacturer, model and quantity. To participate in an auction, buyers are limited to those having a credit card and available during set auction time.  Buyers typically pay a premium fee that may be as high as 20% per transactions and some Auction Houses actually impose a fee on sellers thus further reducing the overall generated revenue for the seller.  

When working with an Auction House, it is essential to keep a very detailed list of consigned equipment, review items sold at each auction, audit items that did not sell and will be auctioned at a later date, review all sale prices and associated buyer and seller fees. 

This list is not intended to minimize or maximize buyer’s expertise but to distinguish between their service offerings which directly impacts their buying practices. Purchasing used medical equipment directly from Healthcare Providers is done all the time, but this practice is not regulated and buyers set their own rules and prices, thereby often claiming they “can offer the best price”. 

While receiving the best price is a sweet melody to one's ear, understanding buyer’s role and business model can guide Healthcare Providers into making an appropriate decision as to which buyer to engage for a specific device and what deliverables to expect from their joint collaboration.