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.  

Keeping Your Options Open: Part I

Every healthcare facility has a handful of medical devices that at some point need to get replaced. Some of those devices are “used and abused” and deserve a proper burial, but some still have a pulse.

The question is, will the ones with the pulse be handled just like their battered counter-parts? 

Will the Hospital Departments trade them for shiny-new next generation models without consulting Corporate Office? 

 

Will they be forever retired into an offsite barn used as a storage or, live in the hallway until Joint Commission arrives and then get quickly relocated into a nearby closet or worse, a bathroom (true story!)?

There are five alternatives to consider in addition to the antiquated trade-in or the "out-of-sight, out-of-mind" methods when replacing end-of-use medical devices. 

Each has its pros and cons but all are better alternatives than locking equipment in barns or using as foot stools under the nurse’s station.

The five most common alternatives are:

1. Internet Sales
2. Auctions
3. Hospital Site Sales
4. Direct Vendor Sales
5. International Container Load Sales

A 250 bed hospital has an average of 3,250 devices and since majority of devices are different, different selling strategies should be utilized. For the sake of keeping interest and time, let’s explore “Internet Sales” option in this post and reserve the rest for next time. 

 

Internet Sales Pros:

• Setting Asking Price: let’s face it, we all have access to the internet and if we can
  
  self-diagnose the root cause of that annoying cough, we can probably determine ballpark price of the equipment.

Quick Tip: Prices published on websites such as eBay and DOTmed should be discounted by at least 33%.  Prices listed on these platforms are almost always negotiable which is why it is imperative for facilities to maintain own database with prices received for sold devices. Also, please don’t assume that asset book value Finance Department has on record is the same as street value. It’s not!

• Unlimited Selling Cycle: you’re not bound by time limit and can continue selling until you receive a price that meets your expectations.
• Reaching Global Buyers: you expand your reach beyond vendors personally known to you or working for your facility to a wide range of prospective buyers located in US and abroad.
• 24 Hour Visibility: whereas online auctions and site sales provide limited visibility hours, the internet is always open.
• Reduced Commission/Service Fees: establishing an online store can cost as little as $0 or as much as $200/month, depending on the platform used, but that pales in comparison to 20-60% fees charged by providers offering online auctions and equipment consignment/storage services. 

Internet Sales Cons:

• Time Consuming: it can get time consuming (and irritating for anyone holding a full time job) to respond to prospective buyer’s inquiries, reply to emails, return phone calls, host inspections or verify if the screw holding the plastic case on the bottom of the unit is grey or silver.

• It takes approximately 2-4 hours to sell common general biomedical device.

• It takes approximately 40-60 hours to sell a fixed imaging system.

• It can take months to sell a unique, specialty-focused system or laser.

Of course, sale process can be decreased if you give away the system for the cost of de-install, but if you’ve read this far, I don’t think that is your goal.

• Choosing Selling Platform – there are plenty of online platform to choose from and it appears as if a new one pops up every day. From medWOW, DOTmed and eBay to SoluMed and MediBid just to name a few. Each platform has its own advertising criteria, fee structure and customer traffic that must be evaluated.
• Payment Processing: when selling online, buyers need to have payment options and at very minimum, facilities need to be able to process payments by credit card, PayPal, domestic and international wires.
• Logistics: managing logistics is a pain! And it will be even more painful if buyer is located abroad. It’s not a rocket science to figure out how to ship a 30lb box to Poland, however the process will take on a life of its own when the job calls for de-installation, crating and shipping via ocean-carrier to Australia or determining which consolidated clearing house to use for a shipment to Mexico.

There is definitely some effort involved when selling end-of-use medical devices on the internet, but the financial benefits almost always outweigh the labor involved. 

 

Don’t be afraid to incorporate Internet Sales into your equipment decommission program. Even if you determine it is more beneficial for your facility to trade-in that end-of-use asset, the vendor taking it on a trade just may be more generous with trade-in value if they know you have other options.

 

If you would like to learn more about the benefits of an in-hospital, centrally managed Medical Equipment Decommission Program, please visit www.ecomedhtm.com or send an email to med@ecomedhtm.com.