End of Life Equipment Management.
Mike Kinter wrote an article back in 2013 that summarized End of Life Equipment (EOL) options for hospital facilities. We find that his points are even more applicable in 2015-2016. Here are the highlights from his article:
As new equipment makes its way into your facility, you still must contend with the old equipment that’s outlived its usefulness. Should you sell it? Trade it in? Dispose? Redeploy? Even if no longer needed, that old equipment can still benefit your department or organization.
Over the past several issues, we have explored a methodology to total cost of ownership (TCO) for capital equipment planning. We’ve touched on various methods to take your clinical engineering to best in class. From purchasing and procurement, to equipment implementation, to managing and monitoring, we’ve discussed how a strategic approach to capital equipment planning enables you to boost your bottom line – saving thousands, even millions of dollars over time.
That brings us to the final topic in our discussion: end-of-life management, the final stage of our TCO methodology. In this article, we’ll explore disposition options and opportunities for yielding value out of that outgoing medical equipment.
Whether you call it end-of-life, retired or simply, kaput, a strategic look at end of life management can bring income to your hospital. Let’s take a look at a few ways you can use your old equipment to drive revenue.
Recent research revealed that 58% of retired medical equipment is traded in to manufacturers to offset the cost of a new purchase. This process works much like trading a used car for a new one. It’s definitely the easiest option, but not one that’s guaranteed to reap the best financial return. And, like car dealerships, it’s no secret that manufacturers provide sub-par value for the trade-in toward the purchase of new equipment.
Although original equipment manufacturers (OEMs) position the trade-in credit as being in your facility’s best interest, you can count on the OEM seeking to recover that credit and expenses relative to de-installation by embedding those costs into the capital equipment purchase price. In addition, hospitals rarely have someone in place who understands the true value of the equipment compared to the OEM’s trade-in offer. This fact alone often results in your organization losing money by choosing the trade-in option.
Similar to many of your peers, you likely have old medical equipment in storage. Yet according to research, 57% of sites do not have a structured process to track and monitor which devices are kept in storage. As the saying goes, “out of sight, out of mind” – those devices can be quickly forgotten and it’s not unusual to run into equipment that no one knew was there.
Like those TV shows that uncover hidden treasures in old attics, your facility could benefit from matching retired devices that are still functional with the needs from other facilities or departments. For example, one health system identified more than 3,000 devices in storage at a total estimated value of $1.7 to $3.5 million! If the health system had a process in place to track those devices, they could capitalize on equipment that no longer serves their needs and re-circulate those funds toward repairs, replacement and purchase of new equipment. What treasures are hiding in your storage closets?
In some cases, older equipment will not have any marketable value nor be usable within a healthcare facility. However, the materials used in constructing the equipment will still have some residual value in the scrap market. While identifying quality vendors and coordinating timely de-installation and removal can be difficult for facility personnel, it can be a pain-free (even profitable – you may be able to offset or eliminate any de-installation costs that may occur) process once you identify someone who truly understands this market and can capitalize on the sale of scrap materials.
You might be surprised by the abundance of potential buyers (ranging from healthcare facilities to medical parts merchants) looking to buy the very equipment you have sitting in a closet. While selling can bolster your finances, determining a fair market value for equipment can be challenging. Without extensive experience in this arena, healthcare providers could receive far less than the device’s fair value.
Like buying a new pair of sunglasses just to find the ones you’d lost months earlier under your car seat, many providers end up with excess equipment when the device they’re looking to buy already exists in the healthcare system. It’s easy to see, then, why redeployment of equipment within a healthcare system is such an advantageous option. Having a redeployment program eliminates unnecessary capital expenditures and frees up funds for other purchases. As part of a long-term capital assets strategy, an effective redeployment program provides the most opportunity for reducing capital expenditures.
The challenge lies in matching up supply with demand, and managing the logistics of de-installation, shipping and installation – all of which can be time consuming for a facility where workload and staffing levels are already at capacity.
Admittedly, profitable end-of-life equipment management requires a considerable amount of logistics, know-how and decision points. If your organization wishes to redeem value out of retiring equipment but isn’t equipped or willing to deal with it all in-house, consider partnering with a vendor-neutral third party that can facilitate and carry out those decisions without limiting time or resources. Building on practices and marketplace relationships that have benefitted other healthcare providers, they can help you establish a process for tracking the equipment you have in storage, or keep it from going to storage in the first place.
Your partner can also guide you through a long-term disposition plan to include both large equipment (such as MRI machines and CT scanners) and small biomed devices (infusion pumps, bedside tables, fetal monitors and the like). That plan will likely focus on redeployment, the strategy that typically delivers most value to health providers.
Most importantly, partnering with a third party means financial savings for your organization. Recently, one hospital in Jacksonville, FL partnered with a service provider to sell a 4-slice and 16-slice CT machine. The OEM offered $86,000 for a trade-in. The service provider found a buyer and sold the equipment for $153,000, resulting in a savings of $67,000 for the hospital. Another hospital in Austin, TX had two OEC C-Arms and a local buyer offered $96,000. The service provider was able to find a buyer (not local) and sold the equipment for $116,000 – a 21% increase in residual asset value.
It is estimated that approximately 90% of the time service providers that specialize in redeployment are able to obtain a higher value for the equipment than the OEM offers. Using an independent third party to assess open market options ensures you’ve made a data-driven decision in the rare cases where the OEM offer is the highest.
Whatever mix best fits your organization, end-of-life management remains a vital part of an effective equipment lifecycle management process. One that can generate revenue from unexpected places and help achieve clinical engineering excellence.
Mike Kintner is manager, sourcing & service contracts for TriMedx.