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.  

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. 

Are you asking the right question?

 

Hospital Departments and Supply Chain teams, are you still asking vendors to make you offers on devices you no longer use? 
 
Asking this question makes you vulnerable. It exposes you to receiving value the device is worth to vendors, not its market value. 
 
You must know your device's value.  Asking vendors to name a price for your device is the same as listing your house on Craigslist and asking home buyers to tell you what your house is worth.
 

We tested this theory last month while reselling highly demanded surgical device.
 
For the same device, we asked one group of vendors to submit offers. 


And, we asked second group of vendors to pay our asking price. 

Both groups were comprised of equipment dealers, brokers, remarketers, manufacturers and private 3rd parties located in various regions around the world.
 
Results were exactly as projected.  Vendors who chose to participate from the first group, gave offers that were considerably lower than our asking price. 
 
This is not because they were trying to be insulting, but because they gave us offers based on their perception of what the device is worth. 

We positioned this sale by stating: "Taking Offers! Make An Offer!"  Vendors from first group did just that, they made us offers that were marginally negotiable.
 
Vendors who chose to participate from the second group worked with us and agreed to asking price.  

Since multiple vendors agreed to pay asking price, it gave us leverage and position to negotiate with multiple parties.   
 
After negotiations, final price was 94% higher than the lowest offer and 41% higher than the highest negotiated offer received from vendors who submitted offers.
 
Takeaway of this experiment is simple.  Know the value of your device.  Don't ask vendors for offers.  Tell vendors your asking price.  
 
The only questions you should be asking vendors when reselling used medical devices are their expectations related to functionality, inspection and pickup.
 
This approach sets expectations, keeps you in control and makes resale process more transparent. 


EcoMed works exclusively with hospitals by reselling end-of-use medical devices. Even if your hospital has another service provider, you may still have questions, need validation, or resources.  Don't hesitate to reach out and ask.

 

To learn more about benefits of a managing resale of end-of-use medical devices, visit www.ecomedhtm.com or send an email to med@ecomedhtm.com.          

Transforming Wicked Ways of Selling Used Medical Devices

After 7 years of working in a medical field, I can say with certainty that healthcare professionals are more optimistic about Obamacare than selling medical equipment they no longer need. 

Almost everyone who works in a hospital has a colorful story about their experience with sale of used medical devices and vendors who purchased them.  

And, it makes no difference if they sell equipment at an auction, from the hospital's basement or online.  At the end of the day, most feel cheated and mislead by the buyer. 

Regardless of their title and location, the sentiment shared by folks who work in healthcare and have to deal with trading-in or selling equipment is the same:

“Three words: used car dealership.” – Respiratory Nurse, MI

“I was selling a new patient monitor and told by one buyer it's worthless because key options are not enabled.” – Cardiologist, MO

“We auctioned a truck full of equipment and received a check for $250. How’s that possible?” – Hospital Purchasing Manager, IL

Are these folks the ones to blame because they assumed prices published on the internet are actual prices vendors pay?


Did the vendors who purchased the equipment take advantage of them?

Or, is the medical device industry guilty as a whole because it deliberately keeps prices hidden from the public?   

Answers to these questions are irrelevant because each party will have their own truth. However, what is relevant is that none of the folks selling equipment followed a process.  

They either contacted a vendor they already knew, or searched for one on the internet. That’s not a process, that’s equivalent to calling Goodwill and asking them to buy a juice maker that was received as a housewarming gift and never used because “it's just a pain to wash after each use”. 

Without a process, resentment, frustration and mistrust will continue to plague the minds of healthcare professionals whose jobs require them to manage aging medical devices. 

And that’s too bad, because selling can help one’s bottom line (if done properly) and help medical communities that do not have first-hand access to diagnostic and life-saving equipment.  

So, if your facility is ready to transform how used medical equipment is sold, here are some helpful tips:

1. 
   Centralize and standardize the process.  Having one central location to process all devices that are being sold is more efficient then having 7 nurses trying to sell 3 IV Poles.  
2. Manage the process.  Accountability and understanding the process directly correlate to revenue that will be generated.  If your facility is content with $250 check for a truck full of equipment, assign the process to an existing, already swamped employee.  If your facility is ready to command $8000 for just one ultrasound, outsource the process.  
3. Don’t use the same vendor to buy all your equipment.  This is the same as investing all your money into one stock.  Vendor diversification is just as important as financial diversification.  Vendor who specializes in refurbishing patient monitors will pay more for the monitors but they will pay below market price for the surgical table.  Contrary to popular belief, international vendors are not looking for donations of crappy, old equipment and will pay premium to acquire working devices.      
4. Don’t use the same method to sell all your equipment.  Some devices such as ventilators should not be traded-in to the manufacturer, fixed diagnostic systems are simply not suited for auctions and hospital furniture does not sell well at onsite sales. 
5. Time the sale.  Did you know that same vendor will pay 15-22% more for equipment if they have a buyer and even more if their buyer gave them a PO?  Timing the sale leads to more revenue.  Isn't it fantastic?  There’re always problems related to budget deficits, unbudgeted expenses and missed annual targets. Without too much effort that financial gap can be reduced just by learning if equipment is being purchased for stock or for an end-user.

If the thought of selling used medical equipment is daunting and hearing the same old story of how equipment is not desirable because "it’s not painted orange with green polka dots" is annoying, take action.  

Without a process, valuable devices will be undersold, inefficiency and miscommunication will flourish and staff will continue to waste time and mistrust buyers.  Start the process, own it and rally the troops to support it!

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.

Reflection and Few Words of Gratitude

Yesterday was a very special day for my family.  It was my son's second birthday.  Yes, he was born on 11.12.13 and as he grows up, his friends and those who learn of his birthday will likely think that it is the coolest birth date ever. 

However, two years ago today, instead of celebrating his birth, we were praying for his survival because shortly after being born, his left lung collapsed and he was intubated. 

That was the hardest time of my life and I do not want to relive it.  However, I do want to express my deepest gratitude to doctors and nurses that went above and beyond the call of their profession to care around the clock for my son.  Within ten long and painful days, they nursed him to perfect health and he was able to come home. 

I cannot articulate the gratitude and appreciation I feel each day when I look at my little boy.  Words also cannot express the honor and exuberance I felt when I found out that EcoMed was retained for a project by the same hospital that saved my son's life.  

"As we express our gratitude, we must never forget that the highest appreciation is not to utter words but to live by them"

~ John F. Kennedy

 
It was bittersweet to walk through the main entrance of this hospital for the first time since two years ago.  And, although I didn't have to be on the second level, I couldn't help but take the East elevator up and stand in front of the NICU hoping that all the babies that are there now can follow my son's journey and go home. 

 As my mind drifted away to that breezy and sunny November of 2013, I quickly forced myself to regain composure because this time I was here for a different purpose.  There was a monumental task at hand and it required concentration and undivided attention.   
 
I took the elevator to the ground level and reunited with my crew in Radiology Department.  As always, expertly and with scientific precision they were already dismantling one of the imaging systems that had served its purpose.  With great ease, they swiftly worked with simple tools and within hours parted out an imaging table, a gantry and removed overhead ceiling rails. 
 
Dismantled parts were laying in several meticulously arranged piles on the floor.  Later, each pile will be taken to an appropriate recycling plant where it will be stripped of oils, harsh metals and reprocessed.  But now, the hallways were buzzing with patient traffic and my crew had to work around these piles.  It wasn't until 8pm that a first handmade dolly made its way out of the hospital carrying all the dismantled parts of a system that once was used for patient diagnosis.    
 
I mention simple tools and handmade dolly for a reason.  Certainly, not because I would want anyone to think that my crew operates with cavemen technology, but because I want everyone to know that we carefully choose where and how we allocate resources.  While our tools may not be as shiny and new, they function extremely well. 

It is not the tools that do the job, but the crew who expertly know how to use them.  In a race to have the latest and greatest technology, simple facts such as this one are often forgotten.  I firmly believe the reason we were awarded this project is not because of my patient experience or because my crew had the latest technology but simply because we were able to provide quality, value, timely service and deliver significant savings. 
 

After two, grueling eleven-hour days, phase one of the project was completed.  I was left alone, standing in an empty hospital hallway overwhelmed with a business sense of accomplishment and an authentic, human feeling of gratitude.  I am convinced that those who have found their true calling in life, strive to execute it with meticulous precision and the last 24 hours proved that I was on the right path. 
 
The gift of working on a project for a hospital that saved my son's life was nothing short of a blessing.  I always inspire EcoMed team to take ownership and responsibility in everything they do, but for this project in particular, I aspired to supersede even my own expectations.  I'm overjoyed to say that it was a privilege to help and improve a hospital that saved my son and I could not have done it without the help of EcoMed family.