Finova Medical closes down amid turmoil in used equipment market

January 22, 1997

Closure illustrates problems facing refurbishing firmsEquipment leasing and refurbishing were supposed to be the yin and yang of medical imaging. Rather than stockpiling equipment returned after lease expiration, many lessors believed they could

Closure illustrates problems facing refurbishing firms

Equipment leasing and refurbishing were supposed to be the yin and yang of medical imaging. Rather than stockpiling equipment returned after lease expiration, many lessors believed they could fix up and sell that equipment to cost-conscious buyers. But somewhere along the way, that complementary process went haywire for Finova Medical Systems.

The Temecula, CA, remanufacturer of x-ray, CT, and MR systems, a subsidiary of financing company Finova Capital of Phoenix, shut down Dec. 31, after its parent company saw decreasing returns for the synergy between refurbishing and leasing.

"The business was originally predicated on supporting the equipment leasing business that we have and we are still very active in," said Parker Lapp, group vice president for Finova Capital, the Phoenix parent company. "But we have found that a much higher proportion of our lessees want to keep their equipment, so there isn't really much of a tie-in."

Through much of last year, the management of Finova acted as if the remanufacturing operation would be around for a long time. The company obtained ISO 9002 certification in February and expanded its network of dealers to about 20, comprising 250 salespeople and 450 service engineers. Some 35 staff engineers and technicians worked at the 29,000-square-foot processing facility in Temecula and the company, anticipating rapid growth, announced plans to double the facility's size in 1997. Then Finova's top management pulled the plug.

"We're a financial services company and the remanufacturing operations were unlike any other businesses we have," Lapp said.

Finova is not the first financial #management company to stop processing used imaging equipment. Previously, two other companies, Linc Equipment Services and Ziegler Medical Equipment Group, sold off their processing operations. In April 1995, Linc sold its service and refurbishing capability to Picker International, which used the unit to form its multivendor service offering (SCAN 4/26/95).

Ziegler followed suit last September when it sold its refurbishing operation to Shared Medical Services of Middleton, WI (SCAN 8/28/96). Ziegler then got out of the medical equipment leasing business as well when it was acquired by GE Capital Services.

A market in turmoil. To say that the used equipment market is in turmoil is an understatement. Falling prices for new equipment have hammered sales of used equipment, and mid-sized operations such as Finova have been struggling to make ends meet.

"The industry is really getting tough," said Thomas Norman, formerly president of Ziegler Medical Equipment Group and currently president of the International Association of Medical Equipment Remarketers. "There is less new equipment being sold, which makes for less old equipment coming onto the market. And the prices of new (equipment) have come down so far they have forced the prices of used equipment down."

Some small and mid-size companies have sold out to larger operations that enjoy savings through economies of scale. In July 1996, Huestis Medical picked up privately held Pro-Tronics of Gilberts, IL, which has specialized over the last seven years in the remanufacture of portable x-ray equipment originally made by GE Medical Systems and mobile C-arm units originally made by OEC Medical.

Two years earlier, Huestis had acquired American Radiographics of Taunton, MA, which since 1986 had specialized in remanufacturing x-ray equipment originally made mostly by GE. Both Pro-Tronics and American Radiographics continue to operate, but as business units of Huestis Medical Group. At last month's Radiological Society of North America meeting, Huestis showcased products remanufactured by both companies.

Huestis appears to be assembling distinct tracks of radiology equipment, having also recently acquired Cascade X-ray, a manufacturer of radiation therapy simulators based in Yakima, WA. The Cascade X-ray acquisition complements a core competency at Huestis, which designs and manufactures therapeutic radiology equipment and accessories in Bristol, RI. The goal of the company, said Terry Chwalk, Huestis Medical executive vice president, is to offer "well-designed basic equipment that is easy to install and efficient to operate.

Others that could benefit from the refurbished equipment shakeout are the established giants of the used medical equipment industry: Comdisco Medical Equipment Group of Rosemont, IL, on the leasing and refurb side, and OEMs such as GE Medical Systems and Picker International, which seek to resell primarily their own equipment coming off lease.

Consolidation may not be a panacea for the industry's woes, however. IAMER president Norman believes the industry as a whole faces major regulatory challenges. Last year, in the wake of concerted lobbying efforts led by IAMER, the Food and Drug Administration granted the medical refurb and remanufacturing industry a reprieve from quality controls pertaining to the newly released Good Manufacturing Practices (GMPs), which set tough new requirements for companies to meet (SCAN 11/6/96). How long that reprieve will last is anyone's guess.

"At every mention of refurbishing, the regulations say it will be dealt with at a later date," Norman said. "The FDA has just shelved the issue for right now."