August 22, 2016

Many healthcare facilities utilize medical equipment service contracts as a way to cut costs while keeping medical devices functioning and safe for patients. But in reality, popular contract terms often drive up clinical engineering costs, in a big way.

In our last issue, we shared three questions you must ask when evaluating service contracts to reap significant savings—both immediate and long-term. We also discussed why and how your true clinical engineering costs could be 3-5 times what’s showing up in your financial reports today. (You can read about that here.)

Today, we discuss three types of perceived contract “savings” that could be costing you a LOT of money.
When you buy certain contracts, you’re paying for clinical staff too.

For years, hospitals have eliminated full-time employees (FTEs) as a cost-reduction tactic. But then they don’t have enough people to perform certain types of work, and go to the equipment manufacturer (OEM) for help. (Surgery is where we see this most often.) The OEMs have responded by building clinical staffing into service contracts.

Sometimes, it’s an “as-needed” arrangement. Other agreements place an OEM employee on-site full-time, as is the case of a surgical tech, for instance. The reality is that you end up paying an OEM more or the same, but getting far less work done than if you had an associate of your own, who could be performing other duties as well.

Don’t be fooled by thinking an OEM tech is free as part of your agreement. Nothing’s free. The cost of that OEM employee was baked into your agreement, and you haven’t saved any money by outsourcing that function.
Needless upgrades and “vaporware”

Let’s imagine you’ve purchased a CT scanner. We’ll presume you followed a good capital planning process:

  • You evaluated what’s out there and how options aligned with organization-wide goals.
  • You considered which service lines you want to offer in the next year or two.
  • You also considered what people or technology resources already exist in your organization.
  • You weighed the equipment’s ROI against its total cost of ownership before purchasing it.

Great. Then you put that device under a service contract, which promised a free upgrade. Again, nothing’s free: you can be sure upgrade costs were built into the contract price. (To be clear, upgrades are different from software updates. Upgrades actually add new functions to the device.)

Do you really need an upgrade? Why?

  • Didn’t the device meet your needs when you purchased it?
  • What upgrades do you need and what’s the ROI on them?
  • Will it enable new procedures, and what’s the ROI on those procedures?
  • Does that upgrade exist today? Many do not and never will, which is why they earned the nickname “vaporware.”

Instead of asking those questions, many hospitals pay for that invisible cost, which ends up buried in operating expenses when it should be a capital expense and treated as such: evaluated with an ROI and spread out over a seven-year period so you can capitalize it — not burn your operational dollars.
Duplicating internal services

Many times, OEM contracts duplicate the capabilities of in-house clinical engineering staff—services you’re already paying for.

If that’s the case, consider that your on-site technicians can respond immediately to (a) correct the problem or (b) triage the problem and find a solution before the OEM tech can be there.

This is one reason why it’s vital to involve clinical engineering leadership in capital planning and service contract negotiations.

To be fair, contracts aren’t always bad, and can be the appropriate choice in some cases. Bridge agreements, a blend of in-house and outsourced services, are another alternative that may be ideal for some hospitals.

In any case, by identifying true costs, aligning purchases with goals and data, and involving clinical engineering in equipment purchase and contract discussions, your hospital can turn waste into dramatic savings, year after year.