Scour any newspaper, and you'll likely see headlines relating to it. Ask any stranger, and they'll likely tell you their fears regarding it. Take inventory of your own conversations among friends and family, and you'll likely see how they're dominated by discussion of it. Whether you like it or not, the dismal state of the U.S. economy is on everyone’s minds. (Case in point: Consider the sheer amount of sentences that begin with the all-to-familiar refrain: "In today’s economy...")

Unfortunately, the healthcare sector hasn’t been immune to the recession. Slashed department budgets, coupled with widespread layoffs and hiring freezes among hospitals staffers, have resulted in big problems for medical facilities. Even without factoring in the recent legislation surrounding the healthcare industry, the sector has taken numerous financial hits as of late. For some businesses tied to the healthcare field, such as original equipment manufacturers (OEMs), the economic downturn has led to decreased sales and production. After all, when hospitals can’t afford to send their radiologic technologists to continuing-education courses, spending $500,000 on a new MRI coil seems superfluous.

A more cost-effective option? Instead of purchasing a brand-new coil from an OEM, healthcare facilities can buy a refurbished part from a third-party manufacturer at a fraction of the price. Voilà, the MRI machine is often as good as new. An increasingly appealing alternative for cash-strapped imaging facilities and hospitals, healthcare organizations are now considering an option they once snubbed: utilizing refurbished equipment parts. Think of it as “high-level recycling,” says Mike Helms, President and CEO of Hendersonville, N.C.-based TROFF Medical. “It’s taking a product that is no longer being used, cleaning it up, and putting it back in the marketplace as a lower-cost item.”

After all, “In the current economy, hospitals and clinics are trying to save money by keeping their equipment in service longer,” says Hekmat Mdalal, the vice president of technical development at Stockton, Calif.-based Conquest Imaging. “As equipment ages, the frequency of equipment failure grows, allowing the parts market to expand.” In other words, what’s arguably bad news for OEMs is good news for their strongest competitors: third-party parts manufacturers/vendors.

Historic Happenings
Although the parts market has been around for several decades, it didn’t pick up steam until the early ’90s. Before then, it was extremely uncommon for companies to work on another manufacturer’s equipment, Helms says. In fact, according to Merle Mangel, the parts director for Fargo, N.D.-based DMS Health Technologies/DMS Topline Medical, the main strike against parts providers was the level of proficiency throughout the equipment industry.

“In the early years, the need for used parts was diminished because component repair was possible on many parts,” Mangel says. Instead of forking out money to purchase a new part, medical facilities employing technical staff could simply repair the broken part themselves. However, he says, once innovation hit the medical equipment industry, it became an entirely different ballgame. “With the advance of technology and the growing complexity of electronic circuit boards, technical staff could not repair as many parts in-house, so parts had to be ordered by the vendor,” Mangel explains. Enter: parts suppliers.

Although the parts market has been around for decades, it’s now gaining momentum, according to Jeremy Probst of Appleton, Wis.-based Technical Prospects. For starters, Probst says, “The OEMs charge very high – and sometimes outrageous – prices for their replacement parts. This opened up an opportunity for quality replacement parts providers.”

Selling quality parts at a greatly reduced price – often 50-percent less than those sold through the OEM – parts suppliers offered healthcare facilities an attractive alternative. Still, some institutions were reluctant to embrace this option. Initially prescribing to the “OEMs-are-superior” mentality, some medical facilities turned up their noses at parts suppliers. Fortunately, the bias has lessened drastically. According to Probst, “Increasingly more facilities are willing to try a third-party source. However, the drive toward higher quality standards is now steering the market. Engineers are not simply looking for a part; they’re looking for a tested, quality-assured part with a warranty.”

Carl Hoffman, president of Salem, Va.-based parts provider First Call Parts, agrees. A worldwide company, First Call Parts is widely recognized as one of the key players in the replacement medical parts industry. To Hoffman, the success of the parts sector is directly related to its push for quality. And he has some tried-and-true recommendations for healthcare facilities: “The only way you can have tested parts is if you buy the system and reinstall it in your facility and do a full, complete testing by factory-trained engineers,” he reveals. “Remember: Buying a system out of a hospital doesn’t ensure that all of the parts will work.”

In fact, Hoffman says, “You can only find that out by doing a full functional test on the room. For that, you need to have a climate-controlled warehouse and static-protected floors. Your staff also needs to be fully versed on static protection, or ESD.” Fortunately for First Call Parts clients, Hoffman’s company is well-versed in all things medical parts. In addition to offering customers a six-month warranty, First Call Parts also provides free technical phone support and onsite assistance. “We want to raise the bar in quality so that our customers can have complete faith in the parts they buy,” Hoffman asserts. By providing stellar service and high-quality parts, Hoffman aspires to overcome the stigma surrounding the third-party sector.

Moreover, Don Hubbard, senior vice president of sales at Aurora, Ohio-based PartsSource Inc., compares the previous bias surrounding third-party manufacturers to the common 1980s axiom: “Nobody gets fired for buying IBM.” In the ’90s, Hubbard says, the saying changed to: ‘Nobody gets fired for buying from GE.’ “The point was that the OEM was the safe, but expensive, choice for parts,” he explains. “However, there is an alternative – the secondary market – and it’s increasingly being utilized by budget-minded techs who simultaneously seek quality in the parts they purchase.” In other words, thanks to the proficiency of parts suppliers, the entire landscape of the medical equipment industry has changed.

An Attractive Alternative
As the president of Nashville, Tenn.-based AllParts Medical, LLC, Steve Cannon certainly knows a thing or two about the parts business. Explaining why the parts market has been so successful in recent years, Cannon cites a litany of reasons. For one thing, he says, there’s the increased focus on quality. “By providing a reliable source of technical training, technical support and cost-effective parts, many alternative parts suppliers have enabled independent service organizations (ISOs) and in-house service providers to deliver higher-quality service at a lower cost,” he says. Furthermore, “as long as healthcare providers continue to focus on quality and cost, then the alternate parts supplier market will continue to be successful.”

Cannon also points to the explosion of parts suppliers who specialize in one to two modalities. By focusing on certain pieces of equipment, these companies can capture a significant portion of market share. One company that fits into this category, for instance, is Conquest Imaging. A provider of ultrasound parts, Conquest has made quite a name for itself in the medical-equipment industry. However, 10 years ago, this wasn’t the case, Mdalal says.

One decade ago, “the OEMs dominated the ultrasound parts market,” Mdalal reveals. “In 2000, however, Conquest Imaging saw a golden opportunity to provide quality ultrasound parts with longer warranties and at lower prices than the OEMs.” Although Mdalal admits that third-party manufacturers, such as Conquest, initially experienced adversity from healthcare facilities, the bias has lessened. “This reluctance has disappeared with the recent urgent need to save money and control costs.”

A Bright Future
Without a doubt, the parts industry is here to stay. As increasingly more medical facilities are forced to reduce their expenditures and do more with less, parts providers will be called on to provide high-quality equipment at an attractive price point. Cannon, for instance, believes that the parts market will grow due to the following three trends:

• Continued focus on lowering the cost of delivering healthcare
• Expansion in the usage of imaging equipment
• Continued growth in the market share of both independent service organizations and in-house service providers

“In addition to growth,” Cannon says, “the market will continue to consolidate around those parts suppliers that can be a true partner to the ISOs and in-house service providers. We believe that the parts suppliers that can deliver a comprehensive parts solution, along with quality technical support and training, are structured to help address some of the key challenges facing ISOs and in-house programs.” Fortunately, Cannon believes that the future of the parts industry is extremely bright.

Moreover, when Helms envisions the future of the industry, he anticipates more mergers and acquisitions taking place. In fact, he projects that in the next few years, the parts market will undergo significant changes relating to company ownership. More specifically, he says, “I foresee some major purchases of companies to the point of possibly some of the OEMs buying these third-party companies because they fit into the model.”

Still, Hubbard maintains that the success of the parts industry is in the hands of the providers. Case in point, he says: “Our job is to make the secondary market ‘safe’ by reducing or eliminating the customer’s risk through quality-centric management of vendors in this market.” If suppliers go to great lengths to ensure quality, then medical facilities will respond accordingly, he asserts. Hubbard also believes that the secondary market will grow significantly. After all, he says, “Low prices and quality is a winning equation.”

Mary Lampley, vice president of Goodlettsville, Tenn.-based J&M Trading, concurs. “I think the market will grow and expand to fit the end users needs for affordable, quality parts,” she says.