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.  

7 Mistakes Hospitals Make When Selling Used Medical Devices

With great uncertainty looming over the future of healthcare, hospitals are revamping internal processes to save money. 

One of the least discussed processes and most mismanaged is the resale of end-of-use medical devices. 

These are not  the "end-of-life devices" with obsolete technology and zero market demand.  These are working devices, supported by OEM, just no longer needed by the hospital, with moderate-to-"I REALLY NEED IT!" market demand.   

To generate revenue from end-of-use medical devices, hospitals either auction them, trade-in to OEM or resell to vendors.  

Each of these methods has its flaws and benefits, but the underlying problem is the absence of a dedicated person trained to resell equipment.  

Person tasked with reselling equipment usually joggles multiple projects.  Reselling equipment is seldom a priority.  Without proper training, this person likely follows an antiquated formula for reselling to vendors that goes like this: 

"Email at least 3 vendors to buy equipment.  Get 3 bids. Pick the highest.  Show it to the Boss.  Get Boss's approval.  Notify highest bidder.  Get paid when bidder picks up equipment.  Deliver payment to Finance.  Light up a cigar for a job well done... well, maybe no cigar"

In a nutshell, most hospitals across the nation use this antiquated formula to resell used medical devices.
 
Let's review 7 reasons why this formula doesn't work.

1.  Wrong Start:  How do you decide which vendors to email?  Do they need to be "in the system"? Are they current service providers?  Or, do you go to DOTmed and select top 3 companies?  By the way, those companies pay to be displayed at the top, that doesn't mean they pay fair value for used devices.   

Used medical device industry is GLOBAL.  Emailing 3 vendors you know, found on DOTmed or Google is the wrong way to start this process.  Before finding vendors to bid on equipment, you must determine average global resale value of your device. 

2.  Three Vendor Dilemma: Asking same 3 vendors in your digital rolodex to buy your used equipment is like going to the same hairstylist you don't particularly like but you go because it's convenient.   

In reality, unless your vendors specialize in refurbishing, warrantying and reselling equipment to an end-user, they will give you a low, below market bid.  Only vendors described above know true value of equipment and have the confidence of reselling it later.  These 2 elements are essential in attaining the best bid.    

Also, if you only contact 3 vendors, it's very likely that they know each other.  Used medical device industry is a small, niche market and most vendors work together and resell equipment to each other all the time.   

Have you ever wondered why sometimes, received bids are identical?  

Could it be a coincidence... or a scheme?  You will never know unless you expand your vendor network.     

3.  Vendor vs. Real Estate Agent: Asking your vendors to buy your equipment is like asking your Real Estate Agent to buy your house. 

Imagine how devastated (and pissed and foolish) you may feel if you sold your home to a Real Estate Agent, who sold it for $15k more the following month?! 

Houses don't appreciate by $15k in 30 days, but equipment does in the hands of someone who understands used equipment market. 
 
Of course, this will never happen with your house because Real Estate Agents are governed by state laws and follow strict NAR code of ethics that prohibits them from conducting certain transactions. 
 
Vendors that buy medical equipment directly from hospitals are not bound by any laws or code of conduct and can do as they please. 

For this sole reason, it is safer to outsource resale of end-of-use medical devices to an independent company that works for your hospital instead of approaching vendors directly!

4.  Trade-in Drama.  During equipment upgrade, you ask OEM supplying new equipment to give you a trade-in value for old equipment.  You do know, that the value OEM offers is not market value, right? 

OEMs are not obligated to offer fair trade-in values.  According to OEM documents, trade-in value needs to be nominal. (Hint: If it's not in OEM Master Agreement, then it's in the Service/Product Agreement OEM has with your GPO.) 

So what's a nominal value and how do they arrive at it? 

In most cases, information about your old equipment goes to OEM "trading desk" which is just a fancy description of an obscure process that follows. 

Trading desk personnel share information about your equipment with OEM contracted dealers and distributors and asks them to bid on your equipment. 

After bids are received, OEM will take their slice off the top bid and Voila, you have your nominal trade-in value!

5.  Negotiations, what's that? Bids vendors submit to purchase used devices are seldom, if ever negotiated. 

You hustle over new equipment pricing, service terms and other perks to add into Purchase Agreement, but somehow negotiating best price for the same equipment you are selling years later is not of interest. 

Sure, if you are selling a run-down Cyto Tek Centrifuge, it's not worth the effort.  You should scrap it and not waste time on finding someone who will buy it. 

But, if it's desirable equipment such as C-Arm, why are you giving it away for a top bid of $5000?

6.  Top Dollar Marketing Bait.  All vendors claim to pay "Top Dollar, Highest Value, Best Price for Your Equipment".   

In reality, no vendor will pay top dollar unless they need your equipment at the moment you are selling it.   

Vendors buying for inventory WILL NEVER pay top dollar.  

To get top dollar, takes time, patience and large network of vendors in United States and overseas. 

Is it worth the time building that network?   

Definitely not if you plan to sell Level 1 Fluid Warmers or its equivalents. 

But if you're serious about generating revenue and selling Hospital Beds, Infusion Pumps, Surgical Equipment, Ultrasounds, yes, it is absolutely worth it. 

You will generate double or triple the trade-in value offered by OEM by selling to US dealers, or get 4x as much by selling the same devices to vendors in Africa and Latin America.

7.  Missing Paperwork:  More hospitals are getting into trouble with  CMS, FTC and EPA for making mistakes when reselling equipment.   

Why?   

Because in this industry, almost every vendor who buys equipment from the hospital (again, unless they specialize in refurbishing, warrantying and reselling) will resell it to another vendor.   

Equipment can exchange 4 sets of hands until it finds its second permanent owner.   

Not every vendor will remove patient information from an EKG machine.  Not every vendor will check whether their buyer is located in the country that has trade sanctions imposed by US Department of Treasury.   

Failing to have proper paperwork and lack of due diligence, lands hospitals in hot water with governing authorities.   

When that happens, time required to correct mistakes and fines for hustling are astronomical. (Fact: Medical Center in New York was fined $113,000 by EPA because vendor retained to de-install an obsolete imaging system improperly disposed oil from the generator.)

Selling end-of-use medical devices to vendors has been practiced by hospitals for decades.  When it's done properly, it's a great way to supplement budget deficits and create additional revenue. 

The problem is that 90% of the time it's done haphazardly and without much thought put into the process.  The process is either broken or doesn't exist. 

If you truly want to act in the best interest of your hospital and have C-Suite sing you accolades at the next Town Hall, stop hustling and using an antiquated formula that yields mediocre results and can get your facility in trouble.
 
Fix the process, stop segmentation that occurs when each department does its own selling, identify key person (and please, not the overloaded, swamped and frustrated Contract Specialist or Buyer in Purchasing) who will manage the process FULL TIME.  Train them!  The results will be unrivaled. 

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, need suggestions, looking for validation or resources, EcoMed is here to help. 

 

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.  

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.