Cost Cutter or Value Killer? 6 Questions Hospitals Need to Ask For Equipment Service Cost-Savings

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Hospitals today are under constant cost pressures — and looking to realize cost reductions wherever possible. One increasingly tempting option is to choose third-party providers for equipment maintenance and service contracts instead of the original equipment manufacturer service provider. While this approach may lower costs in the immediate term, healthcare leaders may be missing the long-term impact to unexpected costs and lost revenue.

In a webinar hosted by Becker's Hospital Review, Mike Parrella, vice president of service of the Midwest zone for Siemens; Jason Raak, director of service for Siemens; and Diane Frazier, manager of Swedish Issaquah (Wash.) Imaging, discussed six simple questions hospitals and imaging centers should ask in order to properly evaluate the real costs and benefits associated with OEM and third-party service providers. These questions should be reviewed before making decision on any medical equipment investments, especially imaging systems.

1. How will a service contract affect total cost of ownership? Service to medical equipment is an important aspect of total ownership costs, and the wrong service agreement can cost a significant amount of money through direct costs, cost management and lost revenue. According to Mr. Parrella, an OEM contract can often help better manage total cost of equipment ownership through reduced downtime, fewer unexpected delays to repair equipment and lower overall revenue loss. "The upfront cost of an OEM contract is a trade off for the long-term cost management," says Mr. Parrella.

Mr. Raak has worked with many hospitals and imaging centers and consistently hears that downtime — scheduled and unscheduled during regular business hours — is a big factor causing many headaches.  "An OEM can provide after-hours service to minimize inconveniences from equipment downtime during regular hours. The hospital needs an imaging service that it can depend on. OEMs can often offer more flexible service options," says Mr. Raak.

2. How will a particular service offering help us mitigate financial risk and manage costs? OEM service offerings help hospitals protect their business and revenue streams through after-hour parts management services, guaranteed response time and parts delivery. "After-hours helps hospitals avoid disruptions during regular hours which can cause a great financial risk. In addition, parts delivery guarantees mitigate the risk associated with delayed part delivery. When parts do not arrive on time, it can cost an imaging facility a great deal of money," says Mr. Parrella.

In order for hospitals and imaging centers to fully understand the impact of bad service for medical equipment on their revenue stream, they can use risk calculators like one offered by Siemens. "The calculator uses average Medicare reimbursement rates to see how much money is lost when certain medical equipment is down for one hour, one day or even three days. We know the numbers can vary slightly but it gives a good directional effect for the financial risk over time," says Mr. Raak. Siemens' online calculator can be found here.

There is a great financial risk associated with downtime on PET, CT and MR scanners:

PET scanner downtime costs based two scans per hour:
• One hour — $2,117
• One day — $16,993
• Three days — $50,800

CT scanner downtime costs based on three scans per hour:
• One hour — $747
• One day — $5,972
• Three days — $17,916

MR scanner downtime costs based on three scans per hour:
• One hour — $1,827
• One day — $14,618
• Three days — $43,855

3. Will we be prepared for greater complexity? There are two sides to staying on top of the complexity of technology with medical equipment: the education of technologists, engineers and technicians as well as the technology of the equipment itself. To keep the equipment technologically current, OEMs can offer regular software and hardware upgrades. "In many cases, only an OEM can offer upgrades for the equipment. A hospital is investing a ton of money in equipment and it needs to be maximized, and the throughput needs to be optimized. Would you run your iPad on old software? No. The upgrade service through OEM is a great way for hospitals to make sure they are running imaging services at top performance," says Mr. Raak.

To keep field technicians current with technology, many OEMs offer a great deal of training for their field technicians and engineers. Siemens has two weeks of training every year at its headquarters for field engineers.

According to Ms. Frazier, keeping medical equipment current can be a challenge but the additional training and 24-hour backup OEMs offer is helpful. "The software upgrades have kept us current in technology. It is something that a third-party can't provide, but an OEM can. Imaging equipment is constantly changing, so staying up-to-date is critical," says Ms. Frazier. "It has given us a competitive advantage because we can translate the technological updates to our CT scanner into quality care and safety for our patients."

4. How does the new CMS mandate for hospitals to follow manufacturer recommended maintenance procedures affect your service decisions?
According to Mr. Parrella, the mandates are an indicator that CMS believes in importance of proper specifications for imaging equipment. "It is a validation of the service process offered by OEM," he says. In addition, he believes the mandates will cause hospitals and imaging facilities to revamp their service strategies. "Access to OEM training and education is going to be critical to maintain reimbursements. If [a hospital or imaging center] uses non-OEM providers, they may need to be more careful in evaluating training that is received," says Mr. Parrella.

Mr. Raak agrees. "An OEM is going to be your partner in preparing for mandates," he says. In addition, an OEM will definitely know what maintenance procedures are necessary for certain equipment.  

"I would say that at Swedish we follow a rigorous maintenance schedule for compliance. We also monitor and follow the manufacturer's recommendations. I don't know that a third party can help you with the recommendations for equipment because they aren't the OEM of the product," says Ms. Frazier.

5. How will this affect our reputation? When the medical equipment for a hospital constantly needs repairs, the chance of extended downtime is high. This can hurt patient satisfaction and, ultimately, the hospital's reputation. "When patients come to [Swedish] they expect our equipment to be working. If a patient comes and something is down or not working, they lose confidence. If equipment is constantly down, they may not come back," says Ms. Frazier. OEMs offer services to avoid problems with equipment that cause significant downtime and delays, such as uptime guarantees, remote services, after-hour repairs and predictive analytics/modeling. "These are all designed to keep the hospital's equipment running optimally to protect their patients from bad service," says Mr. Raak.

6. Will our service strategy help drive a more proactive approach? OEM services offer remote services — the ability to repair a system without dispatching an engineer — and predictive monitoring. These proactive services can help hospitals avoid financial losses that often accompany equipment repairs and downtime. "Siemens also offers Guardian, a proactive monitoring system, which continuously monitors equipment and uses predicative algorithms to see if an equipment failure is pending. Engineers monitor the data in real time and can contact a hospital or imaging center if there is a potential problem. "We can schedule a service call before the equipment goes down," says Mr. Raak.

"One of the attractions of OEM is the type of service it offers. Protecting downtime is important for revenue. When equipment is down for a few days, you lose patient revenue and upset patients. Being able to proactively monitor equipment and change a part at an opportune time is a great way to operate," says Ms. Frazier.

When hospitals and imaging centers are faced with the choice between an OEM service provider and a non-OEM service provider, the tendency may be to lean toward the lower-priced option. According to Mr. Parella, OEMs offer services that third-parties sometimes cannot. "In many cases, the lower priced option does not offer equal services." In order to fully understand all the implications associated with service contracts for medical equipment and the total cost of ownership, hospitals and imaging centers should ask themselves the above questions. These questions will help them properly evaluate the real costs and benefits associated with OEM and third-party service providers.

Download the webinar presentation by clicking here (pdf).

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