The first of a two-part article laying out the benefits and drawbacks of various MRI service options.

As with all medical imaging equipment, the acquisition of a magnetic resonance imaging scanner or the renewal of a service agreement compels hospital administrators to address important financial and patient care/satisfaction challenges relative to service strategies. Several “hard” and “soft” decision factors can play into defining a provider’s ultimate MRI service strategy. When making MRI service decisions, health care providers should consider the range of relevant decision factors and should seek to strike an optimal balance between their desired levels of operational control, economic payback, and risk-tolerance. MRI service strategy has never been a “one-size-fits-all” proposition.

Fundamentally, there are three options for servicing medical imaging equipment: 1) service provided by the original equipment manufacturer’s (OEM) service department; 2) service through an independent service organization (ISO) specializing in diagnostic medical imaging equipment; and 3) service provided by a hospital’s in-house engineering service department. Each of the three service options has several integral components and each exhibits a distinct economic profile that must be balanced against the perceived and actual risk associated with the given approach. Risk in the context of this analysis is very much a function of the installed base density, the commonality of the systems to be serviced, the period of time considered in the risk/return analysis, and the level of service technician training and experience. For a provider with as few as three similarly configured scanners in the same metropolitan area, internal service engineering resources should be equipped with the administrative support, knowledge, and tools necessary to maintain a substantial degree of control over MRI service operations. By positioning an internal service group at the top of the support pyramid, a health care provider can empower itself to take advantage of the attractive service offerings, the potential financial rewards, and the risk mitigation strategies available through each of the three distinct service options. For many providers, an integrated MRI service approach controlled from within can allow their organizations to strategically blend various service offerings to best meet their financial and service quality goals. (See figure p32.)

OEM Service Contracts
Equipment service is a major segment of the medical imaging system industry. Service is a highly profitable, recurring revenue stream for the OEM. It is no wonder then that OEMs aggressively push multiyear service deals, particularly for MRI equipment, which, for standard clinical 1.5T scanners, can yield annual revenue of up to $150,000 to the OEM.

The OEM service group is the most qualified organization to service its brand of equipment. The level of training that the OEM service technician receives, their access to proprietary product documentation and service tools, the availability of quality spare parts, and OEMs’ general level of field service experience working with their systems is difficult for non-OEM service organizations to parallel. OEMs typically guarantee at least 90% uptime in their MRI service agreements. In short, the question is not whether the OEM service group is the best at servicing their equipment, but whether their expertise is worth the significant incremental cost. The answer is (as usual), it depends.

First, what is the cost of an OEM MRI service contract, and what does the health care provider get for its investment? As with most pricing in the medical imaging market, there is “list” and “street” pricing. OEMs routinely offer significant discounts (up to 30%) on service contracts for multiyear and/or multisystem deals. In addition, like service contracts for other medical imaging equipment, OEMs offer tiered pricing based on the breadth of equipment service and the level of service guarantees provided under the MRI service agreement. Gold (premium), silver (standard), and bronze (discount) is the typical stratification for comprehensive OEM MRI service agreements. OEMs will also support “collaborative” agreements with hospital biomedical engineering departments, which can take the form of straight time-and-materials arrangements or can be more of a “first call” structure, in which the hospital biomedical department is responsible for diagnosing a scanner problem and managing problem resolution, typically using outside service personnel. There are a number of potential variants within both comprehensive and collaborative service arrangements. The table (page 34) summarizes the typical cost and service terms for the various OEM MRI service packages.

Health care providers typically shy away from premium-level service agreements, but often find aspects of full coverage (particularly extended coverage hours) attractive. Similarly, hospitals usually do not choose a discount package but will look for ways to take cost out of the service agreement. In response, OEMs will allow buyers to purchase and/or decline service coverage on an “a la carte” basis for incremental cost and/or incremental savings over standard contract pricing. According to interviews with several hospital radiology departments around the United States, the average price of a high-field MRI service contract after considering volume discounting and coverage additions and subtractions is approximately $120,000 per year, with contract terms very close to the standard agreement outlined in the table. The standard warranty period for a new MRI scanner is 1-year parts and labor. Approximately 70% of the clinical MRI scanners in the United States are covered by some form of OEM postwarranty service agreement, with the vast majority of the active OEM service contracts highly similar to the standard contract.

To be sure, not every health care organization has been totally satisfied with their OEM MRI service. Price rigidity, general unresponsiveness, and frustration with contract coverage limitations are among the complaints that administrators have traditionally voiced relative to OEM service arrangements. Nevertheless, one usually gets what one pays for with the OEM: high-quality coverage (the overall lowest risk approach) at a relatively high price. For approximately $120,000 per year per scanner, the radiology department and hospital administration will most likely not be disappointed with the level of service support provided by the OEM.

There are strategies for reducing the cost of MRI OEM service. Negotiating service as part of the initial scanner purchase may provide leverage for reducing OEM service costs. Also, negotiating multiyear, multiscanner (multisite), and/or multimodality deals with the OEM can lead to volume discounting. A service contract bundling strategy does require a level congruence in equipment type, service breadth, and terms among equipment, however. This can present a challenge for hospital administration. Bundling equipment contracts is generally only viable for large networks with high numbers of scanners under service agreements. Also, significant contract discounting typically requires a multiyear commitment and often is predicated upon up-front payment, both of which have an associated cost to the health care provider.

Another way for a provider to reduce OEM MRI service costs is to pursue a single-source multivendor service (MVS) agreement with the OEM. An OEM-MVS arrangement offers some of the quality advantages characteristic of the OEM service offering, while at the same time giving the health care organization the opportunity to reduce overall service costs by consolidating equipment contracts.

All of the major MRI manufacturers now offer MVS contracts under substantially similar terms as the agreements for their own scanners. Through leveraging multivendor single-source service contract bundling, a health care organization could experience overall savings of as much as 7% to 13% annually and can simplify the management of service vendors¹. There are, however, important caveats to the allure of an OEM-MVS contract. The reality of having one OEM service a second OEM’s brand of equipment is that the service technician’s training and experience, the cost and availability of spare parts, and documentation and tools available to the MVS organization are no greater and arguably more limited than what is possible through alternative service providers. By definition, the quality of service provided to other manufacturers’ hardware will not be as high as it will be for the OEM’s own brand of equipment and MVS service quality is at best equal to what can be provided by an ISO or through an appropriately trained and equipped biomedical engineering department. And while MVS and other OEM service-contract bundling strategies offer potential cost savings to the health care organization, the cost of OEM service as a rule is still higher than the alternatives.

Independent Service Organizations
An alternative to the OEM service contract is service provided through an ISO specializing in medical imaging equipment. ISOs provide field maintenance and repair services in direct competition with OEM service groups. Generally, ISOs can effectively service all major imaging modalities and can handle the majority of the equipment in the installed base. Most ISO management and field-service personnel originally came from OEM service departments, giving the ISO a level of expertise and experience comparable to the OEM for a given piece of imaging equipment and likely a greater level of expertise for scanners not manufactured by the OEM handling service.

Unfortunately, throughout the 1990s, the ISOs in the medical imaging industry experienced considerable instability. A few ISOs waged legal battles against OEMs, several ISOs went out of business, and most of the stronger ISOs were acquired by OEMs, leaving many hospital administrators with negative experiences and a degree of discomfort with this service alternative. For the most part, independent service for medical imaging equipment has stabilized over the past several years, and a select number of large ISOs now exhibit the scale and maturity required to compete head-to-head with OEM service groups.

The most obvious reason a hospital would elect to go with an ISO to service its MRI equipment is cost. With their lower overhead structures, history servicing medical imaging equipment, and intimate knowledge of OEM service costs, ISOs can usually position themselves as much as 10% below negotiated OEM service pricing with an equivalent (or better) set of service-contract terms. One major reason that an ISO can price its contracts below OEM levels is that the ISOs typically have greater flexibility in terms of spare part sources and strategies (ie, repair instead of replacement), whereas the OEMs are typically held to more “captive” spare part channels, increasing the OEM’s overall cost structure for spare MRI parts. Conversely, OEM service departments have greater access to proprietary service tools than do ISOs, often enabling OEMs to create competitive barriers for alternative service organizations.

The national ISOs have invested significantly in training their service personnel, in structuring strategic partnerships, in obtaining critical service tools and product documentation, and in securing reliable spare-part sources in order to provide hospitals with the same service guarantees and quality levels as the OEM, often at a significantly lower price than the OEM. Moreover, the larger ISOs now offer hospitals value-added services aimed at addressing health care administrators’ increasing focus on asset management as a means of reducing overall expenditures on capital equipment. In response to the asset management movement, ISOs have developed programs in areas such as equipment lease versus buy analysis, equipment repair and replacement, supply-chain management, system refurbishment, asset utilization, and remote equipment monitoring as approaches for hospitals to reduce overall capital equipment costs. Often, even a small percentage reduction on a health care organization’s capital equipment expenditures can mean a substantial dollar volume savings, making the value-added services offered by an ISO attractive. OEM service groups now also offer some of these capital management programs, although an OEM’s allegiance is fundamentally to the sale of a new proprietary hardware with a multiyear service contract, making it difficult for the OEM to be an objective source of asset utilization and productivity services.

ISOs appear to be re-emerging as a credible alternative to OEM service. With high-field MRI service contracts priced by the ISO at approximately $105,000 per year (10% below the OEM) for a competitive level of service and the introduction and early success of a variety of value-added asset management programs, an administrator is well-advised to make an objective comparison between an ISO-oriented MRI service strategy and an OEM service arrangement.

In-House Biomedical Engineering Departments
The third alternative for MRI service is through a hospital’s internal engineering service department. As providers continue to seek ways to extract cost from the health care system, many internal engineering departments are expanding their role in the radiology department. Some organizations structure diagnostic imaging service as a support function for the radiology department, making the internal service group directly accountable to the head of radiology. Other hospitals meld the service of imaging equipment into the general biomedical engineering services department. In either case, internal engineering groups can have a broad range of functional responsibility relative to the service of MRI scanners, ranging from simply managing outside service technicians, to handling preventive maintenance responsibility, to supporting first-call responsibility, to performing complete in-house scanner maintenance and repair services.

Many internal engineering service departments have the knowledge, experience, tools, and desire to support their high-field MRI scanners, but some do not. When deciding what role an internal service group should play in the support of MRI equipment, administrators should consider a list of very important questions. (See sidebar on preceding page.)

Of all the pertinent issues relative to in-house MRI service, the “soft” factors relating to organizational culture, department stability, willingness/desire to expand, ability to tolerate and manage an increased level of financial risk, and experience with in-house service approaches are probably the most important to address, particularly early in the decision-making process. If the organization is not prepared to objectively assess the option of performing MRI service in-house, the administration should not even consider moving on to the pertinent financial analyses or on to answering the other relevant MRI service logistics questions. The “hard” factors relating to the in-house service decision can be analyzed systematically within a structured framework for decision-making purposes.

(This is part 1 of a two-part article. Part 2 will appear in the May issue.)

Christopher M. Cone is senior director of business development for Sonora Medical Systems, Longmont, Colo.

Reference
1. Bell RA. Multivendor single-source service: a panel discussion. Decisions in Imaging Economics. 1999;12(4):64-66, 80.