Budget predictability is important to health care organizations. One way to ensure it
is to take advantage of equipment maintenance management programs.
There may be as many combinations and permutations of equipment-maintenance programs as
there are facilities participating in themfrom maintenance management programs that
provide consultative services, on-site technical support, and second sourcing to financial
support only. One thing they have in common, however, is that they allow facilities to put
a cap on their expenses and to have a predictable budget.
In health care, budget predictability is very important to
clientsespecially with imaging equipmentthey want to cap any exposure they
have for the maintenance and repair of that device, says Chris Ciatto, president of
ARAMARK Healthcare Management Services-Clinical Technology Services in Philadelphia.
In the past, he says, facilities bought more and more devices and
found they had extended warranties with a variety of manufacturers. Essentially, they had
more protection than they needed.
Some Background
The costs of maintenance contracts were escalating every year, says
Tom Paquin, executive vice president of Mediserve Insurance Services Inc (Oak Creek, Wis),
a subsidiary of SU Group. It used to be that manufacturers made their money making
equipment. That shifted in the 80s and they started making higher profits in the
maintenance field with maintenance contracts and extended warranties. Costs were very high
with no alternatives. Our president, Michael H. Polaski, developed a program to
consolidate all of the maintenance contracts in a hospital into one insurance contract and
lowered the costs, typically by 20%.
Ciatto concurs. There are economies to be realized in consolidating all of those
programs under one umbrella. Instead of having service contracts and extended warranties
with every manufacturer from whom its bought equipment, a facility can put them all
under one program. Its very economicala savings of about 15%.
Tom Drew, biomedical engineering supervisor at Merle West Medical Center, a 176-bed
hospital in Klamath Falls, Ore, says his facility has opted to have only its financial
risk covered. Weve had insurance in one form or another for at least 7 or 8
years. Weve been with [our current insurer] for 2 years. They give us a quote on
capping how much maintenance is going to cost on a piece of equipment. We pay them a
monthly or annual amount, and, if we go over that capped amount, they pick up the tab on
the rest of it. It guarantees our maintenance costs since there is a cap on our cost no
matter what happens. If there is a catastrophic event, and it costs twice as much as it
should to repair [the equipment], the insurance protects us from risk.
Frank Magnarelli, director of the clinical engineering department at Miami
Childrens Hospital says his facility had maintenance insurance for 5 years as a
transition tool to becoming self-insured. Our carrier covered our financial risk and
also provided some training. They renegotiated some of our vendor contracts and were able
to suggest alternate parts sourcing.
How Do They Work?
Ciatto says ARAMARK is different from its competitors in that it offers a
comprehensive plan, which is not just an insurance product. Instead of fragmented
coverage options, all equipment can be put under one program with us. We have added a lot
of services around our option. We are very active in providing vendor selection and
approved vendor lists that give the hospitals a leg up in getting the service provider. We
provide a lot of technical support, much like we do for our own fully managed programs and
make experts available to our clients who are using just the capital asset protection
program.
Mediserve also offers more than just financial support. Paquin says that one of the
first things they do is sit down with the customer to determine what they are looking for.
We can take them from a fully managed program where we put a person on site to
manage all of the maintenance activities to support for the in-house biomedical
department. We offer consultative services, engineering support, and many risk-transfer
options. Our products can fit anything the customer is looking for.
In both programs, the customer retains vendor of choice for repairs, although both
companies can provide alternatives and do offer incentives to use more economical means
when available. When [a facility buys] a service contract, says Ciatto,
they are buying service and risk management. We are letting them buy risk management
from us; they can buy the service from anybody theyd like.
Paquin adds, Its up to the customer to decide what manufacturer to use to
repair their equipment, [but] in the case that the manufacturer isnt meeting the
needs of the customer, we would provide them with an alternative source if they ask for
it.
What is covered under maintenance insurance varies from facility to facility, and Drew
says his facility is very selective about what it puts on the agreement. Most is lab
equipment, radiology equipment, and some IT equipment. We go through a pretty extensive
screening process comparing what we think it would cost us to do the work, what an OEM
contract would cost, and where our insurance carrier wants to cap our expenses.
Magnarellis insurer, on the other hand, covered everything in the
hospitalmedical equipment, IT equipment, the elevators, parking garage gates, etc.
He says the insurance covered only maintenance repairs, explaining, We did not cover
planned maintenance [because] planned maintenance is a predictable event.
Whats in It for You?
Maintenance management programs have many benefits. Not only do they provide a
predictable budget, they also allow facilities to maintain the choice of service providers
that have proven responsive. Additionally, some programs offer support and an advocate if
the facility gets into a situation where it is uncomfortable with the recommendations it
is getting from its usual service provider. Because we are focused exclusively on
clinical equipment, we have support resources and can offer alternatives, says
ARAMARKs Ciatto.
Mediserve even offers an educational component when it develops a program for a
hospital. We allocate funds to help the biomed department continue their
education. This is important, says Paquin, because the most cost-effective model is
going to be an in-house program with some type of insurance to support [the facility] for
budget purposes. In this scenario, there is a blend of clinical engineers/biomedical
equipment technicians and OEMs working on equipment, and some type of risk-transfer
program.
Drew and Magnarelli agree that the most cost-effective program is based in house. Drew
says his facility has that goal. Having maintenance insurance has saved us a
significant amount of money over the years, but theres still money on the table that
we could be hanging on to if we made the next step.
The first step to becoming self-insured, Drew says, is setting up a special account
that would be earmarked for equipment repair only. Then, he says, to get an idea of what
it would cost to maintain a device for a year, he would look at the history of repairs
over a number years and get a quote for a service contract from the manufacturer.
Drew said the insurance carrier Merle West now has is aware that the ultimate goal is
self-insurance and has been very helpful in assisting the facility in getting a handle on
what it actually spends on maintenance. Because we have them on board, Drew
says, we are doing a better job of documentation. Now I know to the penny the
maintenance cost over the last 18 months. In the past a lot of the equipment was on OEM
contract. The department that owned it would call in the service guy to fix it. He would
come in, fix it, and leave. The department would keep the documentation and I
wouldnt even know [the equipment] was broken. I wouldnt know the numbers.
Having maintenance insurance has given us an opportunity to get our ducks in a row.
Magnarelli says that having maintenance insurance for 5 years resulted in a smooth
transition to self-insurance. He says it is important to have a transitional program such
as theirs. The first thing we did was get an accurate inventory of every piece of
equipment out there. Theres tons of equipment and we needed this organization to
capture every contract and go through them. Many of them we had to negotiate away from and
we really needed someone who was adept at that. The insurer also had the actuarial data so
we could put a price on everything. The typical hospital may not have that
knowledge.
Making the Move
When moving away from OEM service contracts to either transitional maintenance
insurance or self-insurance, Magnarelli says it is important to have buy-in from all
department heads and convince them that nothing will change. They will still get the same
high-quality service. The only difference will be the way the program is funded. We
took a select number of departments, small but critical, like the cath lab and x-ray, and
pioneered the program with them for a few months and demonstrated the cost savings. Once
these departments realized that nothing had changed and they were saving money, they
embraced it. Then we made a presentation to the management group and rolled it out
hospital-wide. We were faced with some severe reductions at that time, and department
heads saw this as a way to save money without laying people off. The program saved the
hospital more than $700,000 per year.
Transitional insurance programs can help hospitals find the true cost of maintenance
and project a reasonable annual budget. It is also a chance for department heads to learn
that they can receive high-quality, responsive services without relying on service
agreements. Transitioning from a service-agreement plan to self-insurance requires that
department heads become maintenance managers. Magnarelli emphasizes that department heads
or anyone dealing with a service person needs to ask questions, such as Why are you
using this part, rather than that one? Why did you bring two technicians when I dont
see a need for the second? Can we do this on regular time rather than overtime?
All of our department heads are working smarter now. They are accountable and
someone is reading every invoice, he says.
What should a facility or clinical engineering department look for when shopping for a
maintenance-management program provider? Paquin says to look at a companys track
record, longevity, and financial stability. The product is only as good as the
company behind it. If I were going to give a company a million dollars to handle my budget
I would want the peace of mind that it is financially secure. Also, I would want to know
what kind of support my end users will receive from the companynot just the cost
reduction.
Ciatto agrees. When shopping for a maintenance management program provider, look
for its record of experience so you know that the quote you get is one the company will
stand behind and that they will be easy to deal with. There is a triangle here: the
hospital, service providers, ourselves. We need to be efficient and effective in those
interfaces. Financial stability, the ability to be there at the end of the day [is
crucial]. Some folks entered this game and thought they could build market share by going
for low-ball pricing, and when events happened they were not ready. A lot of folks
suffered, the industry suffered, and there was a [perception] that providers like that
would be here today, but not tomorrow.
Magnarelli advises facilities contemplating maintenance insurance to Plan, plan,
and plan again. Start small and pick a few tough departments, then go house-wide.
Guarantee the departments that they will still control who services their equipment and
that the only thing changing is how service is paid for. This should be a painless way to
decrease the budget, spread the risk, and reduce costs.
Drew cautions, There is money to be saved by picking up maintenance insurance or
becoming self-insured, but facilities should not look upon these options as magic pills
they swallow and all of a sudden it will save money. Theres going to be some work
involved. They will have to track the data and pay some attention to it and follow up. But
its worth the effort; theres money to be saved.