Pre-owned luxury sedans and sports cars in like-new condition have become a profitable niche market for automobile dealers. Pre-owned may mean second-hand, but that does not mean it also has to be second rate. Rather, the term "pre-owned" has emerged as a smart and thrifty way to enjoy the very best without spending a small fortune.

It should come, then, as no surprise, that pre-owned diagnostic imaging equipment rebuilt to its original specifications, or even upgraded a notch, is starting to attract the eye of cost-conscious health care providers who just a few years ago would not have considered a used system.

Pre-owned equipment generally falls into three categories. At the bottom is "as is." Such equipment may have been given a new coat of paint but otherwise is in the same condition as when it was removed from the previous owner's premises. Such equipment is often 10 to 20 years old and spare parts may be hard to come by if the system breaks down. The reseller in some cases can stage this equipment for a prospective buyer to show that it is in working condition. Most such imaging hardware is sold to financially strapped clinics in South America or third-world countries at a small fraction of what new equipment would cost.

Such vintage imaging equipment was often resold in the United States back in the 1980s by vendors with questionable ethics, sometimes working out of garage workshops, who gave it only a quick paint job. This led to the used marketplace being referred to as "spray and pray." Today, most such resellers are out of business, although the legacy of the "lemons" they passed on to unsuspecting buyers lives on.

The other two categories of used equipment are "remanufactured" and "refurbished." According to Don Bogutski, current president of the International Association of Medical Equipment Remarketers & Servicers (IAMERS), remanufacturers generally install upgrades that have been introduced by the original equipment manufacturer (OEM) since the hardware was first marketed. Also, they often incorporate technological advances that have been introduced in the interim, and they may replace key components, such as computers, to provide a higher level of performance. The cost of remanufactured systems is generally about 70% of the list price of brand-new equipment.

Refurbishing, on the other hand, only brings the equipment back to its original level of performance, in terms of quality and safety, as specified by the OEM. Refurbished equipment normally sells for about 40% to 60% of the cost of new.

While the Food and Drug Administration has created definitions for both terms, it has not as yet implemented them, says Bogutski. But it is expected to publish its definitions at some future date. Meanwhile, in addition to regulating new medical equipment, the FDA is now regulating remanufacturers to make certain their work is up to OEM standards. Many remanufacturers have obtained certification that they conform to ISO 9002, an international quality standard that provides buyers with assurance that the product has been rebuilt to the standards established by its creator.

IAMERS, which was established in 1993 and now has some 80 members, also protects buyers of pre-owned equipment with a code of ethics to which its members must subscribe. "We take complaints extremely seriously," said Bogutski. "We aim to keep all of our members at a high level of ethical performance. The founding concept is that we are not selling used nuts and bolts. We are selling medical equipment. And as such, we have a serious responsibility that must be met."

Among IAMERS members are firms that specialize in specific types of equipment such as ultrasound, nuclear medicine, catheterization/angiography laboratories and C-arms, as well as larger firms (often affiliated with OEMs) that do R/F and radiography rooms, catheterization laboratories, portable radiography units, CT, MRI, and mammography.

Who's buying?

According to Wayne Hibbs, a Dallas-based consultant to hospital groups, most of the interest comes from three sectors: outpatient clinics that do a lot of basic imaging, the offices of private practice physician groups, and smaller hospitals with limited resources that need to expand to meet increasing patient volume, or want to replace aging, breakdown-prone radiographic units.

Hibbs mainly recommends hospitals buy new equipment, but will specify refurbished whenever it makes sense. For example, he plans to recommend pre-owned equipment for a project he is now working on: a 15-bed regional referring hospital.

Another consultant, Ric Heerwald, president of Dallas-based Planning Resources, notes, "It is fairly frequent that hospitals want me to look at refurbished equipment, but it is not all that often that they buy it. Smaller hospitals have a tendency to look at pre-owned more than larger ones."

A hospital he has been working with, the 275-bed Main Campus of the Wilson N. Jones Hospital in Sherman, Tex, recently acquired two CT scanners refurbished by the OEM. One of the CTs, installed in a new outpatient clinic, is of the same generation as the hospital's primary CT scanner, acquired in 2000-2001. The other refurbished CT was of an earlier generation, and replaced a 10-year-old scanner in the hospital emergency department, which also serves as a backup to the newer model.

The refurbished CTs were selected by the hospital's radiologists, says Radiology Administrator Theresa Simmons. "It was their preference," she says. "Having the same type of equipment in both the hospital and the clinic is going to help the technicians."

She also notes that there was not a lot of difference between the cost of the two refurbished CTs and one brand-new system.

But not every small hospital thinks remanufactured is the way to go. "I'm the kind of guy who doesn't even buy a used car," says Michael Wright, radiology director for the 100-bed Holy Rosary Hospital in Miles Center, Mont, part of the Sisters of Charity of Leavenworth chain. "I don't like buying other people's problems." Because of his location, which is difficult and time-consuming for service technicians to reach, "it works out better for me to purchase new equipment," he says. And, he adds, "I find it more challenging to buy new equipment for the remanufactured price."

On the recent purchase of an open MRI, Wright reports, "I probably got the best buy anywhere. I was able to squeeze them down to the point where it almost was given to me." At the same time, Wright also bought two new ultrasound systems, on which "we were able to whittle 20% off the price." Then he renegotiated the service contracts on all of his older equipment and the new extended service contract is expected to save him some $130,000 over a 5-year period.

"Timing is always everything," he says, noting that he caught the vendor at a time when the firm was trying to reduce its inventory. Overall, the three new systems and their service contracts cost about what he would have expected to pay for remanufactured units.

While sales of used imaging equipment are currently heavily skewed to clinics, private offices, and smaller hospitals, major hospitals are beginning to take notice, reports Edward G. Detwiler, whose Palatine, Ill, firm appraises medical equipment nationwide for hospital groups who want to sell or insure it.

"In a pure research environment, you are dealing with hospitals that have to be leading edge and can't endanger their reputation by buying anything but the latest and greatest," he begins. "But major hospitals still need to watch their spending and if they can meet some of their basic needs with reconditioned hardware, they'll have more bucks to buy the state-of-the-art high-technology systems.

"Yet another reason for buying remanufactured systems is that you can order them customized with specific upgrades that are not available from the manufacturer."

Detwiler expects the used equipment market to be three or four times as large as it is today in 10 years' time. With OEMs setting up factory-owned subsidiaries to remanufacture and sell trade-ins, he foresees them reacting to an increasingly competitive marketplace by offering heavily discounted packages of remanufactured systems and brand-new equipment.

Richard B. Elsberry is a contributing writer for Decisions in Imaging Economics.