Everything Old is New Again

Cost and quality converge on the refurbished market

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(© istockphoto.com/Robert Trawick)

Another Man’s Gold

Obsolete can be a relative term abroad. Outdated imaging equipment in America is traditionally sent to developing countries, where it can be sold or donated. Last year, a village clinic in a slum near Bamako in Mali, West Africa, received an ultrasound donation that changed their facility and community. “The purpose of the project was to reduce the infant mortality rate, and also to screen potential high-risk pregnancy

for HIV positive women,” says Mali Rochas, executive director of the Providence, R.I.-based Global Alliance to Immunize Against AIDS (GAIA).

Radiologist Rebecca Gerber, MD, had suggested plans to GAIA for the ultrasound in 2006; however, it would be a few years until the machine would arrive at the village. Though donated by Women & Infants Hospital of Rhode Island in Providence, shipping was an expensive and lengthy endeavor for the nearly 500-pound machine, a Siemen’s Acuson 128 XP that Rochas believes is an early ‘90s model.

Time and money weren’t the only obstacles that GAIA and their Hope Center Clinic encountered. There were also electric problems, says Rochas, who served as translator for Gerber when she trained staff on the ultrasound. She remembers when they first plugged in the machine, it would automatically short circuit and cause electrical surges that drained the clinic’s energy. Installing an electrical converter and stabilizer, and plugging it in a new socket, fixed this problem.

Still, the clinic had to adapt to limited resources and development of their area. Rochas says, “We found [the ultrasound] works better when we shut down a few lights or fans.”

These hitches are small compared to the payoff. As a village-based facility, Rochas says the Hope Center Clinic now has HIV care and medicine for expecting mothers. Furthermore, Rochas says the machine has other practical uses for general obstetrics.

Rochas hopes that more machines will soon make it to Africa. Even when visiting Bamako’s main medical center, the Gabriel Touré Hospital, Gerber and Rochas were surprised to find only two outdated ultrasound machines in use.

Ultimately, Rochas anticipates availability of new innovations in sonography technology. “For us, the ideal situation would be to acquire a portable ultrasound machine because we would avoid shipping costs,” she says. “I think it would also be very helpful if we could have the capability to travel into the community with the machine.”

– Kelly Olsen-Stanko

Expand

When it comes to refurbished and pre-owned radiology equipment, times and opinions are changing. “I definitely think that the opinion is changing and people would be more willing to entertain the thought of purchasing a refurbished piece of equipment than they would have [been] two years ago,” says Rosemary Fisher, RT(R)(MR)(CT), co-founder of MRI Optimize Consultants in Tempe, Ariz.

Jim Moran, director of field marketing at Philips Healthcare in Andover, Mass., agrees. Quoting a statement from Sg2, an independent healthcare research and consulting organization headquartered in Chicago, Moran says, “Twenty-six percent of all customers will consider refurbished equipment, which is much higher than it was in earlier years.” 

Why the change? Several factors have contributed to renewed interest in this not-so-new industry. Changing opinions, motivated by purchasing issues like tighter budgets and shifting equipment needs, have created an ideal atmosphere for the refurbished and pre-owned industry to become the new stars of radiology technology. Suppliers have responded by expanding and initiating new programs and services.

Cutting Costs

The economic crisis has affected every business and budget, including the healthcare industry. Doug Ryan, senior director, CT business unit at Toshiba America Medical Systems, headquartered in Tustin, Calif., believes that hospitals with money invested in the stock market took a major hit months ago. With less money, purchases are scrutinized and refurbished equipment becomes more appealing. This option becomes even more viable for MR, considered by many, including Fisher, to be the most expensive modality in the radiology world. 

However, the economy is not the only driving factor behind interest, and not the only problem contributing to restricted funds. The Deficit Reduction Act of 2005 (DRA) has changed reimbursement rates, which Ryan believes has adversely affected outpatient centers. 

Paul Yastrab, director of Physicians Imaging Solutions, a medical logistics and technology leasing company in Canton, Ohio, agrees. “Reimbursements are just terrible. People can’t afford to spend $1.7 million on an MR anymore when they can get one that’s four years old for a third of the cost,” he says.

Yastrab says of the nine facilities that Physicians Imaging Solutions owns and operates, four use pre-owned equipment. He expects that number to climb in the future. “I would say [with] our business model and the people we’ll work with on a going-forward basis, 95 percent of them are all going to be pre-owned equipment,” he says. 

Compared with new models, the purchase of a used imaging system can result in substantial savings, which varies according to modality, warranty, upgrade packages, and vendor. Although the formula isn’t exact, customers could save 35 percent to 50 percent from purchasing new with second-generation refurbished systems, Moran says. 

Knowing Your Needs

Cost also depends on the level of refurbishment, and the kind and age of the equipment. Ultimately, the type of facility, such as a high-volume urban hospital or a small rural imaging center, will determine need. 

When consulting with clients, Fisher identifies a facility’s needs. “I know that the tendency is to sometimes [say], ‘We have this capital budget, let’s buy what we can because we might not be able to get anything again for 10 years.’ But is that really the best fiscal decision?” she wonders.

Fisher asks clients to consider factors like volume, types of studies they want to include in their portfolio, and budget. “I worked at a hospital…that had bought an MR scanner that had every bell and whistle on it, and we never used a couple of the most expensive imaging options. The entire life of that scanner, they were never used,” she says. 

Fisher urges facilities to look into refurbished options as a cost-saving measure. Instead of buying equipment new, she says facilities could buy a piece of equipment that’s been refurbished with identical imaging options at a reduced rate. 

Furthermore, every facility does not need state-of-the-art equipment. For instance, a small community hospital in the Midwest may not need a top-of-the-line MR scanner with functional and spectroscopy features if their practice only handles basic imaging for the head, spine, and extremities, Fisher says. Patients who need advanced medical treatment and imaging would be sent to larger facilities anyway, she adds.

Ryan notices another purchasing trend. Because hospitals have been impacted by the financial crisis, he believes that they’re not as interested in purchasing high-end technology. “If they’re replacing a CT, they’re looking at buying a workhorse, and if they can get their workhorse scanner that’s only two or three years old – be it a 16-slice technology or 32-slice technology – that’s an incredibly attractive deal.”

A Changing Attitude

The term “low-end” should not be associated with the refurbishment industry, since the equipment is subjected to performance standards and regulations. “It has to perform per the manufacturer’s specifications – that’s just law,” says Yastrab. “It’s got to be that way because you’re dealing with a diagnostic piece of equipment that treats human beings as mandated by the FDA, so there really is no difference.”

Fisher, who also worked as an applications specialist for Siemens and has worked with their refurbishment program, compares the process to buying a used car. “It obviously has to pass certain standards in order for you to get to get it certified from the state that you’re working with,” she says. Facilities can also get their refurbished equipment accredited with the American College of Radiology (ACR). For refurbished equipment, specifically MR scanners, ACR accreditation relies on image quality, system performance, quality control checks, and a physicist evaluation, she says.

However, the economy that has invigorated refurbished sales has caused some bittersweet results. “The age of equipment being returned is unprecedented, in terms of its newness,” says Bruce Block, president of Lansing, Mich.-based Block Imaging International. Block cites repossessions and bankruptcies, brought on by the financial crisis, as well as replacement programs and shorter lease terms, as reasons why the current market has been flooded with “very little used and well-maintained” equipment. 

Ryan notices a similar movement too, which he says has driven Toshiba to enter the refurbished market with their new Assurance Program. “The amount of equipment in the market and the technology change in the last five or six years has been remarkable,” he says. “We have a lot of customers that have technology today that is in a constant update basis.” 

As a result of this updating surge, Toshiba’s refurbishment program uses the technology that is being returned to their company, says Ryan. The program focuses on the Aquilion® CT systems, but Ryan says the company has been reviewing options for their X-ray, vascular, MR, and ultrasound products, as well.

Ryan thinks that it was only a matter of time before the stigma around refurbished equipment dissipated. “It’s funny how social changes occur,” he says. “Today, a lot of people will buy used cars that have an extended warranty option and they don’t think twice about it. I think those effects always tend to roll into different markets over a period of time.”

Another indication of this shifting opinion and the industry’s potential for growth is the expansion of Philips’ refurbishing factories for its Diamond Select program. In the last two years, Philips invested in building a refurbishing factory in Cleveland, Moran says.

Overall, Moran says Philips’ refurbished sales have steadily increased, revealing the interest and popularity of this market. Since Philips began its refurbished program with its own factories in 2003, Moran says it’s been a double-digit growth portion of the company’s business. At the end of 2007 and into 2008, he says that sales dipped across the market with the economy, but 2009 was a good year. 

Do Your Homework

There are two tiers of suppliers in the refurbishment market – OEMs and second source, or independent, suppliers. The standard refurbishment process generally includes cosmetic refinishing, replacing worn parts, and a software update, along with testing for original performance standards and a service warranty. 

However, Block warns that purchasers should beware of independent companies supplying “spray and pray” equipment. “I think it was probably more prevalent years ago than maybe today, but there were some [companies] that brought them in, blew the dust off, and sprayed up the covers so it looked like it was new, but there wasn’t much going on under the hood,” he says. 

Buyers should still invest time to choose vendors. “There are so many fly-by-night companies out there,” says Yastrab, who advises purchasers to check references for second-source resellers. He also recommends checking if the supply company has a warehouse, in-house expertise, and OEM-trained staff to work with the unit – all indicators of a reputable supplier. 

Catherine Leyen, RT(R)(MR)(CV), co-founder of MRI Optimize and Fisher’s colleague, urges purchasers to be “scrupulously meticulous in reviewing the contracts and the options available” when any new or used system is purchased. Both Fisher and Leyen have used refurbished equipment in their careers as technicians. As consultants, they’ve also recommended refurbished equipment based on their clients’ requirements and situations.

In a belief that perfectly captures today’s assessment of refurbished radiology equipment, Fisher prefers not to discriminate against equipment. Instead she applies her same standards to all modalities and machines. She warns that purchasers can turn any of their equipment into boat anchors if they don’t implement proper staff training. “The tech that sits down at the scanner can make or break the performance of that system. Whether you’re buying a new piece of equipment or a refurbished piece, it’s vital to invest in education of the people that are going to run it.”

Forecasting the Storm

Changes in government healthcare reform initiatives, including a multi-billion dollar fee for companies that manufacture medical devices such as imaging equipment, could play a crucial role in the refurbishment industry’s burgeoning success. 

With healthcare reform still in debate, details over whether refurbished equipment and its resalers will be considered under the tax have not been released. 

Thomas Novelli, director of federal affairs for the Medical Device Manufacturers Association in Washington D.C., believes that refurbishing companies and the equipment they sell will not be spared. “If you refurbish a device and resell it, and you’re classified as a device manufacturer, you would be taxed,” he says.

Since the FDA classifies medical imaging and radiology equipment as class II, Novelli believes that this equipment will be taxed, if it’s been refurbished or not. Class I devices, such as gauze and bandages, and certain class II devices that are sold at retail for under $100 are exempt from the tax. 

“We’re still unclear about how this will all play out as far as specifics are concerned,” says Novelli, citing difficulty among the channels of commercialization in this refurbished market. “They are leaving some authority to the Treasury secretary to further define this, but they haven’t provided that level of detail yet.”

Critics of the tax believe it will stifle innovation and the cost could get passed on to the customer. If the price of all equipment rises, Novelli expects to see purchasers buy less equipment and seek out bargains, leaving even more potential for refurbished market growth in the coming years.

– Kelly Olsen-Stanko is staff writer for rt image. Direct questions and comments to editorial@rtimage.com.