Three out of four of the top 500 chief financial officers interviewed for a recent health care industry survey conducted by a major imaging system supplier indicated that their most serious operating challenge was to optimize cash flow,. This need is leading to sweeping changes in how some research-based hospitals and clinics are juggling the need to provide state-of-the-art diagnostic imaging hardware to meet the needs of their patient base while they simultaneously strive to maintain their professional reputation for being at the cutting edge of developing technology.
As a result, sales of refurbished and remanufactured diagnostic imaging systems that formerly occupied only a niche market, generally with smaller hospitals of less than 100 beds, have suddenly surged and are flourishing across the health care spectrum. OEMs that once relegated refurbishment and resale of preowned systems to regional specialists now look to the used marketplace as a potential profit center. They have established refurbishment operations both domestically and abroad, targeting not only large to mid-size private and government hospitals that are experiencing restricted cash flows, but mobile service providers and fixed-base outpatient imaging centers as well.
In a recent interview, a major supplier of new and used hardware indicated it sees the preowned market currently affording worldwide sales of a billion dollars this year, and a future growth potential of between 8% and 10% a year. The world market for remanufactured/refurbished imaging equipment could reach $1.5 billion in 2004, according to Edward G. Detwiler, a Palatine, Ill-based medical equipment appraiser.
As Congress continues to find ways to cut back on costs in the public health care system, Detwiler sees providers reacting to such cuts by decreasing their appetites for new high technology-based equipment. “Manufacturers will simply have to follow along and offer less costly equipment solutions, such as remanufactured or refurbished equipment,” he notes. OEMs are not only scrambling to refurbish and resell preowned assets that have been traded in, but some have created programs whereby they will refurbish equipment to which the hospital retains title and will then reinstall it at the customer’s facility.
Meanwhile, independent refurbishers and rebuilders that once competed with each other to acquire and refurbish such basic hardware as 10-year-old R&F rooms, C-arms, catheterization laboratories, and portable x-ray machines, as well as 5- to 8-year-old CT, MRI, ultrasound, and other high-tech systems, are now aggressively competing with OEMs to buy and refurbish 3- to 5-year-old hardware, and often even newer equipment that has been in service for no more than 6 to 12 months. A California refurbisher specializing in CT recently acquired a 6-month-old eight-slice CT unit in Europe that the customer swapped out for a faster multislice model introduced in the interim. The firm, now in its third year of business, is doing a lot of refurbishing of multislice CTs sold in Europe where there are different depreciation laws and upgrade programs. One of the firm’s principals recently refurbished three multislice CTs, and put them back into the market for about $750,000 to $800,000. Typically, a 3-year-old refurbished CT, with a brand-new tube, sells for about $200,000, depending on the warranty and what bells and whistles the system has. The same firm also is aggressively pursuing PET scanners. It recently refurbished two older units for use in Florida. Image acquisition time is 1 to 2 hours, but for imaging centers with low volume, inexpensive refurbishments can be financially viable.
Action in CT
Cypress Partners LLC, based in Midland, Ga, has been an aggressive acquirer of refurbished hardware and now operates six outpatient imaging centers in Georgia and Alabama. The firm bought 2- to 3-year-old CTs for which it paid $200,000 each. It also bought a remanufactured high field 1.5T MRI with a new table and magnet and a refurbished analog R&F suite. “One of the reasons we look at used and refurbished equipment is that the demographics often do not justify that a pricey system be put in,” says Sam Burke, director of asset management. “We take a look at what we think the break-even will be over a 5-year period, how many examinations we think we will do, and if it is justified. You need to be very careful when buying remanufactured, refurbished, or used equipment. I recommend going with vendors that are good size. You want to check out their facilities and make sure that you do not get a spray-and-pray job. You really have to be careful or you can get taken. If you walk up to an R&F unit that has been refurbished and you see right away that the outside screws have been painted over, you know to walk away from it.
“The CTs we bought had been the manufacturer’s No. 1 model prior to the introduction of multislice,” Burke says. “We didn’t think the demographics in our markets justified a new system. CT is developing so rapidly with the multislice scanners that the prices are dropping out at the bottom. We got a year’s warranty and a new tube, which is much better than going out and putting down $600,000 or $700,000 on the same type scanner that may be obsolete within a year because you need a multislice scanner.”
Another operator of freestanding diagnostic imaging centers is Miracor Diagnostics of San Diego, which now has 14 centers in Florida, Toledo, Chicago, and Southern California, and two more in the planning stages. It recently bought its first refurbished CT and analog x-ray systems as part of a move to upgrade its single modality MRI-only centers to include CT and x-ray. “If we can add additional modalities at half the cost, it makes sense for us to do that. Reimbursement is the same whether you get a brand-new analog x-ray unit at $55,000 to $65,000 or a refurbished unit at $25,000,” notes president Robert Muehlberg. “The CT refurbishments were about 3 years old. We purchased them because, having outpatient facilities, we don’t have the need to compete from the standpoint of having the latest multislice system. We lead with our service, not with a specific piece of equipment. We feel that we will do mostly the bread-and-butter type of diagnostic procedures on those CTs. We don’t need to have anything fast because we are not planning on scanning 35 or 40 patients a day. We’ll probably be in the mid-teens [for daily number of patients] so the additional slices get you additional speed and we just don’t need it. We can still do 95% of everything multislice scanners can do. We are not trying to do lung screening or cardiac scanning or other things that have been added to the multislice scanners that are out there. Our units are strictly for diagnostic referral. If it is something that we cannot do, then we don’t mind referring it out to others. We will, however, be looking at state-of-the-art CT units in the future that are not new. We also will be looking at other refurbished modalities, such as ultrasound, in the future.”
While the terms “refurbished” and “remanufactured” continue to be used almost interchangeably in the marketplace, says Paul Thomas, who heads the Thomas Group, Ltd, an Anaheim, Calif, consulting group, the FDA has attempted to provide a definition of remanufactured on its Web site. It considers a system remanufactured if? “the unit has been renovated, repackaged, or restored so that the finished device’s performance or safety specifications or intended use has been changed” from its original design. Some overhaulers refer to themselves as remanufacturers on their Web sites.
For the most part, however, most firms do not go beyond trying to bring the product back to “like new when first sold” status. Some refurbishers claim to replace a lot more parts, such as brushes and rings, than their competitors do. One OEM follows a 60-point checklist; another claims he has a 72-point list. Some systems used for less than a year may be sold “as is,” while others may have been “reconditioned,” which could mean simply cleaned and repainted. As in any business, it is best to have a prospective vendor define the terms being used so that you are on the same wavelength. As the competition accelerates, some resellers see a short supply of some high-demand items. One refurbisher noted that C-arms are in such demand, it has a waiting list for them, with many customers having sent in deposits to ensure their place in line.
Richard B. Elsberry is a contributing writer for Decisions in Axis Imaging News.