Experts discuss trends in the market for refurbished radiology equipment.
By Dara O’Brien
Faced with shrinking budgets and a downward shift in reimbursements, health care providers are increasingly likely to turn to the refurbished market when purchasing radiology equipment. With good maintenance, performance of refurbished devices can be competitive with that of current models—at a discount of 40% to 60%. Hospitals and other health care and research facilities are taking notice.
The United States dominates the global refurbished medical equipment market with almost two-thirds (64%) of total revenue, according to a 2011 Report from Scrip Business Insights (“The Market Outlook for Refurbished Medical Devices to 2016”). The report observes that immediate depreciation makes owning new devices less of a priority, and noted an emerging understanding that the newest models are not necessarily the most durable or effective options.
Providers are turning to original equipment manufacturers (OEMs) as well as third party refurbishers, known as independent service organizations (ISOs), when they are in the market to buy. Imaging systems are driving the market for refurbished medical equipment. Scrip reports that the leading product segments in 2010 were CT scanners at 26% of the overall revenues, MRI scanners at 21%, and ultrasound systems at 13%.
Economic Realities
The primary factor driving the demand for refurbished radiology equipment is economic pressure. Squeezed like never before, providers need to do more with less.
“Since the recession, we definitely have seen an increased interest in refurbished systems,” said Sabine Duffy-Sandstrom, vice president, refurbished systems, Siemens Healthcare. She reported double-digit growth in sales since 2009, led initially by purchase of CT and MRI systems, but with nuclear medicine now on the rise. “It’s driven by the uncertainty of what’s happening—with changes in reimbursement, the market, the economy,” said Duffy-Sandstrom. “You see swings depending on what the latest news is.”
“As reimbursements continue to shrink, providers are looking to make extremely money-conscious decisions,” said Josh Block, president, Block Imaging, an ISO based in Lansing, Mich, “as opposed to the days when they were focused on getting as much technology as possible.”
Bobby Serros, who is president of Amber Diagnostics, an ISO based in Orlando, Fla, as well as the owner of Clermont Radiology, an imaging center in Clermont, Fla, sees the market from both sides. “The reimbursements are always a major factor, and I see a lot of that first hand,” said Serros. “It’s amazing what we have to go through just to ensure we’re going to get paid for the MRI that we perform.” But Serros also experiences the impact of smaller budgets in his role as a refurbished equipment vendor. “We definitely see a larger spectrum of buyers,” he said, noting that major hospitals that were primarily buying new in the not so distant past are now pricing refurbished systems. “It’s something that people maybe 7 or 8 years ago really wouldn’t consider. But now they’re looking at it a lot closer because they can save a lot of money.”
The Impact of Consolidation
The recent wave of consolidation in response to the volatile economic landscape has had a major impact on the refurbished equipment market. “The overall consolidation from clinics to hospitals, and even hospitals to larger hospital systems, is an enormous shift in just the last 2 years, and it really altered the landscape of imaging and the refurbished marketplace,” said Block.
Duffy-Sandstrom observed that 4 years ago, the primary market for refurbished systems was freestanding imaging centers and hospitals with maybe 150 beds. “That has now changed quite a bit,” she said. “There are not that many freestanding imaging centers anymore; they now belong to hospitals.”
As the institutional landscape shifts and consolidates, demand for refurbished equipment has broadened. Duffy-Sandstrom noted that medium-sized hospitals are now purchasing refurbished equipment, as are big institutions (for their satellite hospitals or to accommodate overflow). “There is almost no institution type that doesn’t buy refurbished systems,” said Duffy-Sandstrom. “You find it far more across the market than ever before.”
“With cost cutting now predominantly high across most hospitals, the optimum use of budgets is a key factor,” stated the Scrip report. “Cost-effective supply budgets can preserve jobs.”
Changing Perceptions
The increased adoption of refurbished systems reflects more favorable views of their performance. Duffy-Sandstrom has seen a turnaround since 2009; providers who previously bought only new systems are now considering refurbished. “Trust is now manifested in refurbished systems; people know they will perform well—they are not buying risk,” she said. “You get a system that has the same lifespan—8 to 10 years—as a new system, that comes with warranty… Reliability is key.”
Serros noted that some hospitals that were used to the luxury of buying new equipment every 2 or 3 years encountered some resistance from staff when they looked to the refurbished market. “The staff radiologists, the techs, may be a bit concerned… and that’s just something that you have to overcome.”
“When a provider decides to look at refurbished, or let’s say they decide to look at not new, the important part is that they educate themselves on what they want from a feature function, just like they would with a new system,” said Duffy-Sandstrom, “and then that they can educate themselves [on] what the provider does to the system.”
“When you’re making a refurbished decision, it’s crucial to confirm that the organization is fully capable of accomplishing the goals set forth—from acquisition to refurbishment, compliance and project management support, installation and service capabilities,” said Block. “And lastly, a product team that can help make sure you’re getting what you need at the very best value, from equipment to accessories, and turnkey logistics through PACS integration.”
Supply and Demand
Josh Block, Block Imaging
Refurbished inventory levels should remain high. “Supply is strong,” noted Block. “A significant number of systems sold in from 2007-2009 are coming off-lease, and remain extremely desirable as a result of limited research and development investments.”
“We’re seeing a lot of equipment that’s available, but not so much of a demand, at least in the United States, as we’ve seen previously,” said Serros. As a consequence of diminishing demand, he noted, “We are seeing a trend of pricing coming down on [refurbished] radiology equipment. It’s definitely a buyer’s market.”
Fluctuating demand puts increased pressure on vendors to deliver value. Block warns that an emphasis on low cost alone can be shortsighted. “You make the purchase once, and what you’re left with, for better or worse, is a partner…price is just a part of the equation,” he noted. “A partner with a clear understanding of the project scope and a capable team are crucial to supporting great patient care.”
Delivery of quality services as a selling point is on the rise. “Apart from the mandatory services demanded by end users…vendors of refurbished medical devices are looking to offer value-added services,” states the Scrip report. The 24/7 coverage, preventive maintenance visits, glassware coverage, and site improvements such as space upgrades are some of the key differentiators being offered. The report also notes an increased demand for shared risk agreements and easy leasing options.
For some providers, the service contract offers an opportunity for cost savings. Block has seen a shift toward greater in-house support. “Service has changed significantly; service contracts are a great place to trim operating budgets by getting creative and taking on additional risk,” he said. “First-call response, parts-only, and shared-risk arrangements are a few of the ways to make this happen.”
Savvy providers see advantages in buying through OEMs as well as from ISOs. Serros noted the importance of considering a vendor’s track record before making the purchase. “Whom you’re buying from is very important,” he said. “Has the company been around long enough to be able to absorb the financial impact that it takes to support that warranty?” he said. “There are a lot of companies that come into the business and then they move or they change names very quickly.… When a warranty issue comes up, they’re nowhere to be found.”
Duffy-Sandstrom discussed the quality assurance that buying from an OEM affords. “When we create a system new, it has to conform to certain specifications. Specifications only the original manufacturer knows, they’re proprietary,” she said. “When we take the system back and we refurbish it, it goes through the exact same test as the new system did, it has to again perform within the specifications. And a third party doesn’t know those specifications.”
Lower pricing and flexibility are leading some providers to choose ISOs. “Buying from an ISO, you’re going to have lower rates, you’re going to have more flexibility,” said Serros. “In most cases, you’re dealing with the owner or someone who is very close to the owner.”
Another advantage of working with an ISO is access to a diversity of inventory from multiple manufacturers. “We’re able to provide a far less ‘biased’ approach in remaining manufacturer neutral,” said Block. “There is some measure of control you maintain when you diversify, instead of having all your eggs in one basket.” He also observed that ISOs can offer quicker accessibility to equipment.
Sustainability
Sustainability is a watchword in the health care industry and beyond. “Having fewer systems manufactured, and having them utilized at a high capacity, is certainly a good thing from an environmental standpoint,” said Block. “It’s also more sustainable from an economic perspective, especially with government dollars funding such a significant (and growing) portion of imaging.”
“If you were to buy a new system… you use natural resources by default,” said Duffy-Sandstrom. “In a refurbishment, you use what you get back.” She noted that Siemens Healthcare’s Proven Excellence refurbishment reuses 98% of the system, leaving just 2% wasted. The company states its refurbishment processes lead to 20,000 tons of CO2 savings per year.
The trend toward sustainability is important to customers as well as the current and future workforce. “When we recruit talent, the question always comes up, ‘What does Siemens do for sustainability?’” said Duffy-Sandstrom. Siemens builds on its commitment to sustainability through a reforestation initiative in Indonesia’s Sebangau National Park in partnership with the World Wildlife Fund.
Some providers may be looking to take sustainability a step further by having their own equipment refurbished in lieu of trade-in. “I wouldn’t be surprised if it would become a trend,” said Duffy-Sandstrom. She noted that providers who know and like their current system might want to refurbish it with options and upgrades “to get another 8 years out of it.” Siemens has begun to explore if this is something customers might want in the future.
Serros observed that some providers are refurbishing their own smaller units, but believed the cost of movement and reinstallation would make this practice cost-prohibitive for larger units. He also noted that once providers make the decision to refurbish a system, “they’re going to trade it in for something newer, better.”
Not every piece of used equipment comes into the refurbished market through trade-in. Volatile economic conditions led many providers to sell off some, or all, of their imaging equipment. “When the crisis hit…a lot of people were left holding a lot of debt and weren’t able to refinance that debt,” said Serros. “Pricing on their equipment dropped; they owed more on it than it was worth.” He noted that, at the height of the recession, about 50% of Amber’s calls and e-mails were from providers requesting pricing for their used systems.
What Lies Ahead
An August 2012 Markets and Markets Report predicts 7.8% growth of the global refurbished medical equipment market to reach $8.45 billion by 2017, with imaging-monitoring-diagnostic devices delivering the most significant growth.
Despite the strong forecast, the future continues to be marked by uncertainty. “Providers are nervous about major capital expenses,” said Serros. “It’s a wait-and-see game. That’s a frustrating place to be, because everybody’s inclination is to grow, expand, and provide better services to their patients.”
“Customers are holding onto their systems longer because of economic pressures,” said Duffy-Sandstrom. “You see different swings depending on what the latest news is.”
“By second or third quarter next year, we may have a better feel for what’s going on,” said Serros. “That’s when the health care reform kicks in, and we’ll see what that looks like: are providers going to take another hit for reimbursements? Those unknowns are a trickle-down to vendors who provide equipment.”
Providers who decide to explore the refurbished market are entering at an opportune time. “The delta in technological capabilities between equipment manufactured in 2006-2007 and today is quite narrow,” said Block. “Obsolescence has never been less of an issue. Refurbished equipment is a great solution today, and it’s never been better.”
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Dara O’Brien is a contributing writer for Axis Imaging News.
