TCO Defined Part 2 (3/4) – Breaking Down Disposition Cost
This installment of our “TCO Defined” blog series addresses the third, and final, phase of the medical equipment lifecycle – disposition. In this blog, we will discuss how disposition is an often overlooked step that can help hospitals recover value from their unused or unwanted medical equipment.
Disposition presents a unique opportunity to recover value for your hospital. While value not recovered through systematic disposition activities equates to just 3% of total medical equipment lifecycle costs for most hospitals, it is one of the easiest and only remaining untapped source of savings. There are also many additional financial and non-financial sources of value that can result from an effective disposition process.
There are many ways to recover value from medical equipment including resale, redeployment, trade-ins, and donation. While many hospitals view resale or trade-ins as the only disposition option, our experience has shown that the redeployment of equipment internally is nearly always the best financial outcome. Maximizing value and repurposing equipment your hospital already owns can also help avoid time and money spent on new equipment purchases you don’t need.
While many hospitals have a disposition process in place, most aren’t getting close to the full value of their unused or unwanted medical equipment simply because they don’t have access to the right information to know what their equipment is worth. Too often, hospitals accept trade-in or resale offers they receive because they know some value is better than no value. Not knowing the value of equipment you are trading in can also reduce your negotiation leverage to make sure you get the full value you deserve. Here is a question we’ve heard a lot from you – our readers:
Any value we receive from the equipment we are trading in is good… right?
Not necessarily. A favorite saying in our office is that, “trade-ins can be the most expensive decision about equipment hospitals make.” What we mean is that hospitals often accept trade-in offers from suppliers without really knowing what their equipment is worth. As a result they often end up getting far less than they should have. Suppliers often adjust trade-in values as a way of reducing the price of new equipment instead of applying additional discounts that may be available. This risks making it look like you are getting a good trade-in value when in reality you may be missing savings you could otherwise have gotten. Always start the process for buying new equipment by requesting a quote without the trade-in included (even if you know want to trade your equipment in). This will allow you to establish the best price for the new equipment before including the trade-in, and let you make an informed decision about whether or not the trade-in is actually a good deal. This will help you get the most value from both your new equipment purchase, and for the equipment you are trading-in.
There are many different drivers of disposition value (and cost) beyond just the price of the item, some of which include:
- Service contracts (not yet cancelled)
- Facilities modification/repair
- End of lease fees/penalties
We hope this helps deepen your appreciation of the importance and opportunity of disposition as a key phase of the medical equipment lifecycle, and part of any effective TCO strategy. Many hospitals are finding that TCO as an approach to taking control of equipment costs has been easier than they thought, and is an effective and profitable approach for their organizations. The better cost visibility that TCO enables makes it easier to find, and act on, the greatest opportunities for cost reduction.
As always, if you have questions, please reach out. We’d be happy to answer them either directly, or in the form of our final blog. Your questions help keep our content relevant to the challenges hospitals are facing today. Thanks again for your time.Tweet