Finding the “Sweet Spot” for Capital Equipment
Healthcare providers and purchasing departments are tasked with questions surrounding when an asset should be replaced in order to minimize exposure from depreciation/book value and generate the highest net return for the asset. Navigating market information to identify resale value can be time consuming and challenging based on price discrepancies that are found on the internet.
This hinders decision making for asset disposition and can cost hospitals more by keeping the asset in service/storage and missing out on potential returns. How do you know when it’s time to sell in order to get the most return on investment?
Factors that help determine the right time to sell: What is the “sweet spot”?
During the equipment life cycle, all assets have what we call a “sweet spot”. Depending on modality, medical equipment can hold different lengths of useful life. Following are factors that can help identify when aging assets are reaching their “sweet spot”:
- Equipment has served its purposeful life
- Equipment is fully depreciated
- OEM no longer supports the equipment
- Equipment is being replaced by newer/streamlined technology
- Equipment was bought for a specific doctor who recently left and is no longer being used
How do I use the sweet spot to maximize my return?
To understand viability on the resale market, you’ll want to have equipment assessed for fair market value before it reaches the end of life. This can be done early in the replacement budget discussions or by targeting assets that will fully depreciate during the upcoming fiscal year. Weighing the current market value against depreciation or book value can help with decisions at the time of decommission, giving you an idea of its max market potential. The assessment can also be used to negotiate trade-in credits, minimizes the need to put into storage, and protects hospitals from accepting low offers.
Why not store equipment?
It’s important not to default to putting out of service equipment into storage because the facility can be incurring costs and liabilities for storage and potential resale value depreciates the longer it sits. Once equipment is in storage, it’s usually forgotten about and eventually can only be scrapped or sold for pennies on the dollar. You can consider keeping older equipment if there’s plans for its use in the future, but overall it saves more resources to avoid closet clutter before it begins.
Finally, when you’re ready to sell, confirm that the equipment is not part of a lease or rental program with no liens attached to the asset. Working with a trusted resale partner can help you to navigate these steps and better understand your equipment’s value while taking some of the workload off your hands.
MRG Appraisal of the Month:
Multi Radiance Medical MR4 Physical Therapy Laser
- Stryker insufflator change out for Ohio health system
- Surgery Center inventory, assessment and appraisal for Kentucky health system
- Audits for ENT, OBGYN, PT, Neurology, Family Medicine, Digestive Disease, Foot & Ankle practices located in OH, MI and KY
MRG Fun Fact:
Mardi Gras celebrations are associated with New Orleans, but the first Mardi Gras parade was actually held in Mobile, Alabama. It is also celebrated as “Pancake Day” in Ireland, England, Australia, New Zealand, and Canada. Laissez les bon temps rouler! (Let the good times roll)
The prevailing argument for M&A activity has been that stronger competition will cause hospitals to reduce prices to compete for patients. But since that hasn’t been the case, Robert Pearl suggests a much different approach: that closing facilities instead of expanding them would ultimately cause prices to go down. In reading his article below, I thought how could that be? Wouldn’t that mean the remaining facilities can raise prices without local competition? The answer is that the closures force productivity from within.
We currently have an abundance of health services but not enough demand or reimbursement to keep up with rising costs. The market is flooded to the point where hospitals are paying more than they can bring in revenue. Like the farmers in Pearl’s comparison, if healthcare facilities produce fewer services, they can do so at a larger scale than before and with much less administrative overhead. Closures give remaining facilities the opportunity to tailor services to meet the regional demand and end up serving more patients.
It’s difficult to accept that we may need closures in order to transform the healthcare landscape. It’s an uncomfortable thought that incites panic, which he compares to the “rural crisis” of the past. Productivity outweighed tradition in that case and may do so again, despite the growing pains and more immediate consequences such as loss of jobs and access to services. Some rural communities have already started to embrace their hospital closures, coming to understand that they just didn’t need that volume of service and are more efficient without it.
This doesn’t mean that M&A activity needs to slow down; it just has to be done for the right reasons. Although most health systems are currently focused on market gain, M&A strategies should instead aim for consolidation and sharing resources in order to achieve increased revenue and value-based care.
We’re back from the holidays and ready to assist clients both old and new with their equipment management needs.
As we head into the new decade, this is the perfect time to update ledgers, plan technology change-outs, and clear out closet clutter. What are your medical equipment goals this year?
Let us know at (888) 557-4797 or email@example.com
We look forward to working with you in 2020!
Equipment Management is the Key to Cybersecurity
It seems like every week there’s another ransomware attack that cripples a hospital’s daily functions and puts patient information at risk, so cybersecurity an increasingly important issue to be on hospital administrators’ minds. Even smaller health care practices are filled with scanners, monitors, and PCs that all connect to one network and share massive amounts of sensitive data.
How do you manage and account for every piece of equipment in order to protect your network? Start with answering the following questions:
What equipment is on your network? IT teams may not be as attentive to items that are used infrequently or out of service but still connected. An inventory of the medical equipment you have gives you a comprehensive picture of:
- What is connected to your network
- Where PHI is stored
- Where assets are physically located for maintenance
Which equipment is most vulnerable? Although newer equipment is more interconnected, outdated equipment may have fewer cybersecurity protections and therefore be easier to hack, allowing access to the rest of your network. The inventory should include:
- Date of installation or manufacture (if applicable)
- Software versions
- Operating systems for anything with a PC
- Condition assessment
This determines the age and usability of your equipment so you know whether they can be updated or should be considered for removal.
What is the plan to maintain equipment cybersecurity? Once you know what equipment you have on your network and what condition they’re in, plans can be made for ongoing preventive maintenance:
- Determine how software for PHI is upkept on each item (through the vendor, IT, biomed, etc.)
- Use those routes to find and implement all possible updates
- Regularly schedule checks for future system updates
If the equipment is no longer supported by the OEM or hasn’t had a new software version/OS in years, it may be time to replace it.
You’re only as strong as your weakest link, and with everything from pacemakers to fixed imaging systems connected to one network, it can be easy to overlook items that store patient data and leave weak spots in network security.
Adding these points to your facility management strategy ensures the control is back in your hands and maximizes protection against future cyberattacks.
MRG Appraisal of the Month:
Haag Streit BM900 Slit Lamp
Halloween Fun Fact:
Ohio has the most haunted places of any state, topping in at 111 sites. It’s not all historic houses and asylums though. Hauntings have been reported at Heather Hills Hospital in Chardon, Southwest General Hospital in Middleburg Heights, and Nationwide Children’s Hospital in Columbus.
Your assets could be costing you more than they’re worth. Unaccounted equipment increases costs associated with preventative maintenance, storage, and insurance.
If it’s been more than 3 years, it may be time to update your ledger.
Many surgery centers don’t have an active ledger to work off of, but who has the time to go through every piece of equipment they own?
Manage Resource Group’s I&A services help with:
Did you know that past audits reveal only a 15%-20% match rate when reconciling against old ledgers?
- Verify the assets located on the property
- Easily track equipment and maintenance throughout its lifecycle
- Add, amend, or delete line items as they come in/out of service to contain facility costs
Do you know what equipment should be replaced? What about which systems present a cybersecurity risk?
- Capture demographics such as condition, age, software, etc.
- Identify the systems on your network that may be weak spots for ransomware attacks
- Determine which items should be upgraded or are no longer needed based on condition assessments
Are you paying too much insurance on your assets? Or not enough should potential litigation arise?
- Appraise assets to better understand insurance requirements for the property
- Make sure you’re covered for what you have installed and in-use
We Inventory and Assess All Assets
– Medical Equipment
– IT Equipment
MRG handles your I&A needs to keep you informed and empowered! To learn more, contact our equipment specialists at (888) 557-4797 or firstname.lastname@example.org.
Decommissioned medical equipment is part of the equipment life cycle that many facilities find challenging. It is typical for equipment managers to be reactive on deciding what to do with these assets, waiting until after items are taken out of service to choose a method of disposition. However, this means that they are not necessarily making the most advantageous decisions, and equipment often ends up going to storage areas to collect dust.
Why is this the go-to? Time restraints and lack of market knowledge prevent proper asset management. Supply chain leaders often have a heap of responsibilities, so looking into the secondary market for equipment that isn’t actively bringing in revenue falls to the bottom of the pile, especially if it can’t be traded-in or lacks book value. They may not realize that doesn’t mean it can’t bring in returns from the resale market. In fact, more than half of all used equipment still has resale value, even if it’s not functional (it may sell for parts!).
Failing to find the proper avenue for disposition could be costing your organization more than you think. The money coming out of pocket for storing old equipment stacks up, as facilities end up paying more for material handling fees, warehouse labor, rented storage space, and possibly insurance on unusable assets if they’re not taken off the books. Sometimes hospitals use shell areas for storage that could otherwise be used for billable services.
The longer equipment sits in storage, the more it depreciates in value, making it less likely to be resold in the future and continuing the financial drain for years to come. Consider putting into practice a consistent strategy for asset appraisal before items come out of service to determine where the most value is. Why keep paying to store when you could be making money instead?
Employed physicians now outnumber self-employed physicians
We are amid a healthcare landscape where doctors are now reevaluating their practice and migrating from physician-owned facilities to hospitals and hospital-owned facilities. While it’s been happening slowly, the highest rates of change occurred from 1988 to 1994 and 2012 to 2018. Given that physician movement was relatively stagnant in between these two periods, what has changed in healthcare to facilitate this most recent shift?
Looking closer at the stats, doctors are going from small practices of fewer than 10 physicians to larger practices of upwards of 50 physicians and are much less likely to start a new practice than join an existing one. It is likely that smaller practices are struggling to keep up with increasing healthcare costs and lowered reimbursement rates, and that starting a new practice is too risky and unpredictable in the current economic climate. Any kind of hospital involvement, whether partial or total ownership, is now more appealing to practitioners than independent practice, especially for young physicians (under 40) and women physicians.
These trends suggest that financial insecurity is the most influential factor that has been driving physicians to consider other employment options. For women physicians, hospitals can offer a host of benefits that support family life, such as paid time off and family insurance plans that are more robust than an independent practice could afford. Among the benefits are guaranteed wages and standardized payment rates that draw in the younger crowd, who struggle with the increased costs of living and rely on such financial security for survival. Independent practitioners already affected by the unstable market are joining hospitals or hospital owned organizations so that they have more of a financial buffer to cover costs of care and are ensured steady patient volumes to keep revenue flowing.
While most physicians still practice in small, physician-owned spaces, the number is dwindling and may continue to do so as hospitals and health systems seek out opportunities to increase their market share, clinical efficiencies, and geographic coverage. Even with the recent popularity of megamergers, physician practices and organizations are the primary targets for M&A activity within the next year.
Ambulatory surgery centers (ASCs) are growing exponentially in the healthcare market as we see hospital-based outpatient care shifting to freestanding surgical facilities. On top of the 23% growth of ASC outpatient procedure volumes over the last few years, experts predict another 16% growth through 2026 due to low cost to consumers, greater accessibility to life-saving procedures, and changing reimbursement rates from insurance providers. Some would argue that this is a threat to hospitals and that they need to now compete in an oversaturated market for surgical revenue. However, another approach could lead to revenue growth and an increase in quality across healthcare facilities.
Instead of focusing efforts on drawing in potential surgery patients to hospitals, health systems should follow the money and invest in new or existing surgery centers. Although these procedures are cheaper, it seems that the mass influx of patients and reduced operational costs for the facility would offset the loss of revenue from a hospital’s reduced inpatient and outpatient volumes. Both private payers and CMS have actually increased reimbursement rates to ASC procedures to combat the rising expenses in hospital outpatient settings that often leave hospitals indebted and at risk of closure. These factors also increase revenue to physicians, leading them to seek either employment or equity stake in ASCs as they see this trend continue.
Since consumers, payers, and employees all benefit by making this shift, it makes sense for larger systems to invest their resources in these facilities as it would improve their clinical quality and brand recognition. Health systems and hospitals can affiliate with ASCs through a variety of means, such as joint ventures, timesharing, and acquisitions, in order to profit from this market. Regardless of the method, they too can benefit from a changing healthcare environment instead of fighting it.
Read more about the ASC market: