John Vano

Looking to buy a new linear accelerator system?

October 10, 2012
by John Vano, President, Radiology Oncology Systems
Look at resale value before you buy.

When making a purchasing decision for a linear accelerator, it’s crucial to ask: “How much will my equipment be worth if I want to replace or upgrade it?” That answer may have an impact on your center’s ability to purchase a new system in the future. To figure it out, pay attention to three considerations.

Obsolescence: When Siemens announced it was exiting the linear accelerator manufacturing business, the value of Siemens linear accelerator machines in the used market plummeted. Two and three year old Siemens linear accelerators that sold for close to a million dollars a few years ago dropped in value to the point of being almost worthless.

Speculation that Siemens might be positioning itself to buy Varian Medical Systems has 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 will simply replace older Siemens machines.

Another cost of obsolescence has to do with long-term maintenance. Replacement parts become harder to find for obsolete equipment and service personnel also becomes scarce. Look at the long-term track record of the manufacturer and ask: “Will this company be around in ten years?” If the answer is unclear, don’t expect a high resale value.

Last year, Accuray announced its acquisition of Tomotherapy. The value of Tomotherapy systems in the used market rapidly declined, in part, because of the acquisition. However, this decline was also driven by another
factor: re-licensing fees.

Re-licensing fees: Let’s say you were out shopping for a used car. You could purchase Car #1 for a set price and drive it off the lot. Or, you could purchase identical Car #2 that includes a considerable fee for the software already included in the first car. With all other things being equal, the additional software relicensing fee to the cost of Car #2 makes the first choice much more attractive.

The same goes for linear accelerators. A machine that is costly to relicense becomes relatively more expensive, and hence less attractive to buyers. These criteria alone can reduce the demand for such equipment. And lower demand means lower value.

This is why Varian and Elekta machines have historically had higher resale values, relative to their original price, than Tomotherapy, Brainlab, Cyberknife, or even Siemens linear accelerators. The latter group charges considerably higher fees to relicense the software and to relocate a system. If these fees are ever reduced, expect their values in the secondary market to increase.

Technology reimbursements: 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 utilize reimbursement rates to encourage clinicians to adopt new, proven treatments. When CMS code 77421 was released years ago, image guided radiation therapy became widely adopted, and linear accelerators were upgraded accordingly. Eventually, IGRT became the norm.

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 is adopted, the average costs decrease. And once costs comedown, reimbursement rates follow.

Whether a linear accelerator system has the technology to capitalize on higher reimbursement rates 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.

John Vano is the president of Radiology Oncology Systems, Inc., a company based in San Diego, Calif. For the past fifteen years, the company has been helping radiation oncology and diagnostic imaging facilities worldwide with cost-effective, refurbished equipment programs.