February 2, 2024


It is not uncommon to need to know the fair market value of large complex medical equipment. This could be for a particular joint venture, a divestiture, or for tax purposes.  A linear accelerator (“linac”) is one such piece of equipment.  A linac system provides radiation treatment against various cancerous tumors.  It was first developed in the 1950s by Henry Kaplan, MD in collaboration with physicist at Stanford University.  Their research in particle acceleration for splitting atoms have led to this form of interventional cancer treatment.

From the beginning to present, the medical linac radiation therapy has been driven by technological advances such as the 1994 cyberknife tiny multi-beam treatment, the 1997 intensity-modulated radiation therapy, and the 2004 4-dimension radiation therapy.  Most recently, linacs have evolved to use 120 multi-leaf collimators to provide surface guided treatment and relies on technical planning and treatment software which both oncologists and radiation therapy physicist utilize to customize based on patient specific parameters. In this piece, we will review the approaches to deriving fair market value by addressing the key value drivers and the different considerations under the various valuation methodologies.

Key Value Drivers

In every valuation, there are key value drivers that can materially impact fair market value. At the heart of this analysis is the cost of the linear accelerator.  Like most medical treatment equipment, advancements in technology, inflation, and competition can impact the current cost of the equipment.  When valuing an older linac system and trying to first determine an appropriate cost new, it’s important to ask the questions:

  • Is the product still valid and sold today? If not, when did the subject model stop being manufactured and sold, and what model has replaced it?  What is the current cost of the current model and what features does the current model have that the previous model did not?  These questions will help establish a replacement cost for a new unit (RCN).
  • What is the software version being used and can the software be upgraded to current, or is that only achievable through purchase of a new unit? Does the subject linac system have a software upgrade that makes it comparable to the features of newer linac systems?  Does the software only provide a limited number of upgradable features?  Does the software only provide certification and no real feature improvements?
  • Rigging, delivery, and installation of the linac system are expenses to be considered as part of cost build-up, especially when valuing the asset in-continued use.

Approaches to Fair Market Value

Valuation methodology typically involves three approaches: Cost Approach, Market Approach, and Income Approach.  While we consider all three, the cost and market approaches are typically the methods that are relied upon when determining the value of a linac system.

Cost Approach. The Cost Approach is a valuation method grounded in the economic principle that a willing buyer would not pay more for an asset than the cost required to replace or reproduce it. This approach entails several key steps:

  1. Estimate the Replacement/Reproduction Cost New (RCN): This is the cost to replace an existing asset with one of equal utility, factoring in changes in technology, design, building techniques, and costs. RCN represents the maximum value a prudent investor would assign to an asset in new condition. It’s important to distinguish RCN from reproduction cost new, which is the cost to create an exact duplicate of the asset.
  2. Estimate Physical Depreciation: This refers to the decrease in value due to wear and tear, operational use, and exposure to the elements (although “exposure to elements” is classical physical depreciation, a linac vault is so secure with such thick perimeters, it is not applicable to linacs). Physical depreciation can be curable (repairable) or incurable and is usually assessed based on the cost to repair or replace various components, up to the point where it is economically justifiable.

Determining the estimated useful life of the linear accelerator is key in this step.  Based on interviews with manufacturers and secondary market sales representatives, the expected life for a linear accelerator can vary between 9-13 years.  Estimates can also be obtained by data compiled from hundreds of equipment and capital asset investments in hospitals published by the American Hospital Association in their survey titled Estimated Useful Lives of Depreciable Hospital Assets.”

Equipment or software upgrades may have the effect of extending the useful life of the linac system.  These upgrades can cost anywhere between $200,000 to $1,000,000 plus.  After years of discussions with manufactures, it can be concluded that not all upgrades are created equal and is largely dependent upon the features of the current models.

  1. Estimate Functional and Economic Obsolescence:
    • Functional Obsolescence: This is the loss in value from internal factors such as inadequacy, excess capacity, excess construction costs (should the buyer not have an existing linac vault), or reduced utility due to technological advancements.
    • Economic Obsolescence: This loss in value arises from external factors like reduced demand for the product or service, an oversupply of similar products or services, shifts in industry economics, changes in material, labor, utilities, and transportation costs, local economic changes, or new legislation.
  2. Maintenance of the Equipment:  The maintenance history and coverage of the linac system is of vital importance.  The typical linac system functions under a maintenance agreement.  This agreement may be a single location agreement or multi-location agreement.  However, if the maintenance agreement has lapsed for the linac system, then it would most likely result in additional costs to the purchaser to bring the system back on-line for patients.  There are three major linac manufacturers, Varian, Elekta, and Accuray, each having certain required patient ready certification processes and costs before a unit with lapse coverage may be sold or acquired.  Therefore, these costs must be accounted for and, in turn, may impact value.
  1. Software Programs & Licenses: Linac manufactures generally do not allow their planning and treatment software programs / licenses to be sold by sellers including secondary market vendors. These must be purchased directly from the manufacturer and, therefore, the associated costs are excluded from the valuation. In addition to software licenses, manufacturers may also have hardware licenses, which again are typically purchased directly from the manufacturer.  Understanding the transferability and/or the cost to procure these licenses is incumbent on the purchaser in order to fully understand the investment cost needed to procure the linear accelerator.

After assessing the above factors, the fair market value of the asset is determined under the cost approach, reflecting its worth in the current market conditions.

Market Approach.  The Market Approach entails collecting information on assets recently sold that closely resemble the asset in question. Understanding the factors outlined in the cost approach above, allows you to understand the different value attributes of the comparable linear accelerators and apply necessary adjustments to account for any disparities with the subject linear accelerator. Given the multitude of factors influencing value, the most accurate comparables are those that bear the closest resemblance to the subject linear accelerator. Consequently, comparables necessitating minimal adjustments typically serve as the most reliable indicators of value for the subject linear accelerator.


Valuing a linear accelerator draws from valuation theory and industry practice for fixed asset appraisals, however, given the complexity of a linear accelerator the analysis requires experience with the manufacturers and the secondary vendor market.  In addition, understanding and navigating the nuances associated with the various linac models, hidden costs from the transfer of licenses, as well as the processes required to ensure the units are maintained for patient use is critical to arriving at an accurate fair market value range.  Be certain to know these factors when finalizing the value for any transaction involving a linear accelerator.


By: Mike Vetter, Partner
Rel Armistead, Valuation Analysist

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Mike Vetter

Partner—CVA, ASA

Rel Armistead

Valuation Analyst

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