Linac Resale Value – Article Published in October 2012 DotMed Magazine
Looking to buy a new linear accelerator system? John Vano, president of Radiology Oncology Systems Inc., says look at resale value before you buy.
When making a purchasing decision for a linear accelerator, Vano wants you to ask yourself: “How much will my equipment be worth when I want to replace or upgrade it?” He says that answer will certainly have an impact on your facility’s ability to purchase a new system in the future. According to Vano, there are three key factors to consider. Here they are in his words.
When Siemens announced it was exiting the linear accelerator manufacturing business a few months ago, the value of Siemens linear accelerator machines in the used equipment market plummeted. Two and three year old Siemens linear accelerators that a few years ago sold for close to a million dollars dropped in value to the point of being almost worthless.
Speculation that Siemens might be positioning itself to buy Varian Medical Systems have been running rampant for years, and Varian’s recent invitation of a renowned Siemens executive onto its board of directors has further fueled that speculation. But whether this would help to revive the value of used Siemens machines remains in question. The most likely scenario is that the current line of Varian machines would simply replace older Siemens machines.
Anther cost of obsolescence has to do with long-term maintenance. Replacement parts become harder and harder to find for obsolete equipment, and service personnel for that type of equipment also become scarce. Trying to find a linear accelerator engineer today that can fix a GE/Saturne linear accelerator system or a Mitsubishi EXL system is simply not possible.
Look at the long-term track record of the manufacturer and ask: “Will this company be around in ten years when I want to replace my equipment?” If the answer is “maybe not,” you should not expect a high resale value for your equipment. Last year Accuray announced its acquisition of Tomotherapy. What happened to the value of used Tomotherapy systems in the used equipment market? It declined. However, this decline was also driven by another factor: expensive relicensing fees.
2.) Re-licensing fees
Let’s say you were out shopping for a used car. You could purchase Car #1 for a specified price and drive it off the lot. Or, you could purchase Car #2, an identical car, for the same price, but before you drive it off the lot, you would have to pay the original manufacturer of that car a fee to relicense the proprietary software that the vehicle uses to operate. With all other things being equal, which car would you purchase? Clearly, you would have to add the software relicensing fee to the cost of Car #2, driving up the price. So Car #1 becomes that much more attractive.
The same may be said about linear accelerators. A machine that is costly to relicense and relocate becomes relatively more expensive, and hence less attractive to buyers, than other systems. These criteria alone can reduce the demand for such equipment. And lower demand equates to lower market values.
This is why Varian and Elekta machines have historically had higher resale values, relative to their original price, than Tomotherapy, Cyberknife, or Siemens linear accelerators. The latter group charges very high fees to relicense the software and to relocate a system, making them less attractive to buyers. These fees may get reduced in years to come, and if they do, you can expect their values in the secondary market to increase.
3.) Technology reimbursement
Perhaps the most challenging element to predict is reimbursement. Buying a new machine today allows for a specific technological reimbursement. But what will that be when the machine is sold in ten years?
The Centers for Medicare and Medicaid Services (CMS) utilize reimbursement rates to encourage clinicians to adopt new, proven treatments. When CMS code 77421 was released years ago, IGRT (Image Guided Radiation Therapy) became widely adopted, and linear accelerators were upgraded to take advantage of this new, proven treatment. Eventually, however, IGRT became the norm. More and more IGRT systems were developed, sold and installed in the U.S. And as economics dictates, when there is more volume to spread across the fixed costs of development, the cost of such equipment goes down. CMS, accordingly, lowered the reimbursement rates of the technology.
This has been the pattern. A strong reimbursement rate generates adoption of new technology. As the technology becomes adopted, the average costs decrease. And once costs come down, reimbursement rates follow.
Whether a linear accelerator system has the technology to capitalize on higher reimbursement rate naturally affects the price of a machine in the used equipment market. Linear accelerators with IMRT, IGRT, and CBCT (cone beam CT) capability naturally command more than machines without these technologies.
It’s hard to predict what technologies will be reimbursed in years to come, and how they will impact the value of the equipment. Varian and Elekta have a long history of manufacturing systems that can be upgraded with new technologies, and this has helped bolster the value of used equipment. Other, more specialized systems, may be more limited in their upgrade paths.
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John Vano is the president of Radiology Oncology Systems, Inc., a company based in San Diego, CA. Since 1997, the company has been helping radiation oncology and diagnostic imaging facilities worldwide with cost-effective, refurbished equipment programs.