Getting the best return on used medical equipment

The Internet can help you get the best value on used medical equipment. Here are practical techniques to obtain the best deal.

By Bruce G. Krider, MHA

A hospital-based physician group near Los Angeles was interested in divesting itself of an electron-beam CT scanner. About 18 months old, the unit had sold new for about $1.7 million.

When the physician group asked the manufacturer's rep for a used sale price, the rep quoted only $300,000, even though the unit had had monthly maintenance and upgrades.

Have you had a similar experience? If so, you've experienced the pain of trying to get rid of out-of-service equipment. As this story dramatically illustrates, a healthcare organization can rapidly lose equity in medical equipment.

Why was the offer so low? First, manufacturers aren't in the business of swapping iron for fair market or retail value, so this price didn't represent what could be obtained in an open marketplace. Second, manufacturers prefer instead to sell new equipment. Some feel that if the manufacturer doesn't want a piece of equipment back, they quote a price that will guarantee the reaction they want or that will allow them to make a substantial profit reselling the equipment.

But you don't have to take a huge loss on used equipment. In this article, I'll provide specific suggestions for using the Internet to get the most value from used equipment. But first, let's look at the changes that have swept the used-equipment market.

New era
During the past eight years, the used medical equipment market has changed dramatically. For one thing, many Internet sites now sell or broker used medical equipment. For another, hospitals need to operate within the financial constraints of DRG payments. Medicare doesn't pay you any more for doing a CT scan on a seven-year-old unit than on a new one.

As a result, many hospitals keep equipment longer. In cases where they may have bought new, they now consider having units remanufactured and adding upgrades. That way, they may spend only two-thirds of what it would cost for a brand new model.

In the "old days," a materials manager had limited ability to get rid of used equipment. The alternatives were local used equipment dealers (there were many fewer back then) or a manufacturer's rep. In either case, not much was offered for the equipment.

Today, the net allows small independent brokers to buy and sell equipment. You're no longer limited to the local or regional equipment vendor or a manufacturer.

Perhaps nothing will give you as much exposure as the Internet. A great number of potential used equipment buyers and sellers use the internet to search for equipment.

Most of the sellers are brokers or re-marketers. That you're not a middleman but rather the organization that owns a well-maintained, functioning unit makes you much more attractive in the marketplace.

Using the net effectively
To take full advantage of the net, have your organization's webmaster create a web page or a whole site for equipment disposition. Keep these suggestions in mind:

1. Date for replacement. You know well in advance what is going to be replaced and about when that will be from your capital budgeting process. You now have a deadline for when you want to plan for it to be gone. Depending on the item and the equipment switch (new for old), you may have a one-day window or a several-month time frame.

2. Time in the market. Exposure time is a major factor in getting competition and a higher price for your equipment. List equipment 6 to 12 months before you want the space it occupies.

3. Working equipment. Another reason for advertising the equipment early is that most buyers are interested in knowing that the equipment is still functioning and being maintained. There are too many stories of buyers buying junk, so equipment that is still in service is quite attractive. Include plenty of pictures.

4. Date of sale. List a period—say, one week--during which you'll accept offers. If you don't, you'll be pestered unendingly.

5. Purchase offer form. Develop a form on the site for the potential buyer to submit an offer. Have your hospital attorney review the form.

6. Distribution list. On your site, ask if potential buyers want to be notified of future equipment being replaced. These responses can create a mailing list of those to contact automatically each time.

7. Terms. More U.S. equipment is being sold overseas. If you sell to someone outside the U.S., make sure the terms include equipment removal. Also include that the buyer takes possession/acceptance of the equipment at the seller's site. You want to provide an adequate period of time for inspecting the equipment. If you don't have the buyer remove the equipment, at least make sure the terms are FOB from your location or a nearby city. There is no need for you to pay for transportation charges unless you work the cost into the price at the front end.

8. Payment. You need to get paid at the FOB site or before de-installation and removal from your facility. I suggest you take 75% for a down payment and the balance when the new owners take possession at "the U.S. dock." If you're dealing with a letter of credit, make sure it's on an American bank or an internationally recognized trade bank such as Barclay's.

9. Escrow companies. Another cottage industry that has developed from online commerce is the internet escrow company. These can be useful in minimizing problems. The cost of such services between the buyer and seller is negotiable.

Online auctions
Although online auctions can work well to move equipment, they don't often bring the best price. What's more, auction buyers don't invest the time to personally inspect the equipment so there is a greater potential for someone complaining later about something that wasn't clear or made known to them.

Some hospital purchasing organizations have also begun assisting with used equipment sales. You may want to explore that solution as well.

Incredible exposure
The Internet has created a means to provide incredible exposure to anything anyone wants to market. Materials managers are no longer restricted to local dealers and manufacturer reps. This medium can help you avoid big losses and get the biggest return on your used equipment.

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