Clinical engineers often face the following dilemma when it comes to service contracts management: Should a medical device be covered in-house, on a service contract, or under time and materials (T&M)? Service contracts are an expensive option, but will cover all the costs; T&M might save an organization money, but could also be risky. How about using insurance instead? What other options are there? What is the best service option for a specific technology?

While there is no magic formula to finding the right answer to these questions, it’s always important to review the effectiveness and cost-efficiency of service contracts, and to evaluate alternative service options that adequately meet the level of support required at a lower cost.

In some cases, service contracts are certainly the most effective way to support medical equipment. However, it’s important to note that some of these contracts exceed the actual needs of the equipment and, as a result, are not cost-productive to the organization. Why should the organization spend more money than necessary to support a certain technology?

The goal for clinical engineers is to identify other service options that adequately meet the service needs of the equipment more cost-efficiently than the current service contract. In some cases, after analyzing a contract, the recommendation will be downgrading the coverage (for example, from full-service to parts only). In other cases, the recommendation will be a partnership program or T&M support. Because service contracts typically represent the largest opportunity for cost savings, the main focus is outlining the key steps of the contracts review process and sharing the key takeaways.

Start Early

The first step in the review process is identifying those contracts that have upcoming expiration dates. Clinical engineers should maintain an accurate database of vendor service contracts so that they are not missed in the process and can be quickly tracked for upcoming expiration dates. It is important to start the review process early to provide enough time to read the contract’s fine print, gather the information necessary to carry out an analysis, get the equipment stakeholders’ input, produce a recommendation, and answer any questions stakeholders might have. Ideally, one should start the review process 90 to 120 days before the contract expiration date.

Analyze the Equipment

Analyze Service History. An analysis of the service history provides an overview of the reliability and common issues of the equipment under consideration. It is critical to gather all the service history available. This may be challenging when service events have not been thoroughly documented in the computerized maintenance management system, which is why it is necessary to reach out to multiple sources, including the vendor (whether OEM or third-party), users, and the technical staff that services the equipment to collect and validate service history information.

There are a number of ways to gain deep insight into the service history:

  • Look at the value of the service provided by the vendor, and compare it to the actual cost of the contract. This comparison could be an immediate indicator on whether or not the current contract is cost-efficient.
  • Break down the service cost into components, such as labor, parts, travel, and software and hardware upgrades. This will reveal where the highest percentage of the service cost is being spent.
  • Assess the impact of each service event on the organization in terms of patient safety, equipment availability, and financial implications. If there were service events that caused a significant negative impact on the organization, look into ways to minimize the probability of recurrence of similar events.
  • Review the costs throughout the lifetime of the equipment. This could reveal a service costs trend that may help project future costs.

Identify Critical Components and Future Needs. When reviewing contracts for a certain technology, it is essential to understand its critical components. These are major parts of the equipment that typically have a high dollar value when they fail or cause a significant operational and financial impact on the organization. Investigate typical failure rates of the critical components, along with how the equipment is being utilized and how this affects the predicted failure rates. Then, assign a dollar value to the predicted failure rates.

Another part of the analysis is the assessment of the future needs of the equipment. This includes finding out whether parts and service support will be available in the near future, and identifying anticipated software and hardware upgrades. This projection of future needs will help determine what service option will be most cost-efficient to the organization.

Get Stakeholders’ Input. A critical aspect of this process is the equipment stakeholders’ involvement. These stakeholders include, among others, the equipment owners and operators, the department managers, finance, materials management, and IT. They are an essential source of information, and it is important they are aware of and understand the review process.

Most stakeholders will agree that the contract analysis is a necessary step in order to control costs. However, they will also want to have their equipment covered so as to prevent downtime and protect their budget. That is why communicating the entire process with the stakeholders is essential to a successful outcome. If they understand the process from the beginning, and all the options are communicated clearly, their buy-in will be much easier to obtain.

Stakeholders may have a log of equipment failures that were not reported to clinical engineering or the service vendor. This record should be analyzed to help determine device reliability. It will provide insight as to whether there might be upcoming failures. The stakeholder will also be able to speak to the obsolescence of technology or whether the equipment may need to be replaced soon. In addition, they may know whether a doctor has suggested that the equipment continues to meet clinical needs

Finally, stakeholders can determine the levels of criticality and utilization. For example, if there is one computed tomography device in a busy emergency department, it will be critical to the department and will constantly be in use. This kind of information will be needed to determine the appropriate contract options and service levels needed.

Analyze the Service Options

Identify Service Options. When evaluating alternative service options, look first at the whole spectrum of choices, including OEM full-service, parts or PM-only contracts, partnership programs, and T&M. Investigate options from third parties that include service contracts, T&M, and insurance programs. Another alternative is bringing the service in-house via training, hiring, or procuring appropriate equipment to service it.

With such an array of options available, take the following factors into account in an effort to make the most viable choice:

  • in-house expertise;
  • staffing level;
  • number of similar devices; and
  • local representation of the service engineers and reliability of the vendors.

Project cost. Since there is no single way of projecting medical equipment costs, this step in the analysis involves creating your own formula. The following are the variables recommended for creating the formula:

  • Use the equipment service history for predicting equipment performance, and, therefore, service cost.
  • Take into consideration the cost of the anticipated failure of critical components.
  • Consider the cost of anticipated software and hardware upgrades.
  • Review the stakeholders’ input regarding additional anticipated costs.
  • Obtain service contracts quotes and labor and travel rates from vendors.
  • Obtain pricing for equipment parts that may need to be replaced.
  • Use the service history of another device of the same type that is installed in your facility. This helps predict the behavior for the device in question.

Compare Service Options. The next step is to perform a comparative analysis among the selected alternative service options. Include elements such as service contract price, parts coverage, hardware and software upgrades coverage, training cost, service equipment cost, projected service costs, and fees, labor, and travel rates associated with T&M support. In addition, each service model has a set of pros and cons associated that should be included in the analysis and presented to the stakeholder.

Make a Recommendation

Based on the above analyses, the leadership team of clinical engineering needs to discuss what the optimal service option is and have a unified recommendation to present to the stakeholders. Since there has been open communication with the stakeholders throughout the process, the clinical engineering recommendation should be aligned with the interests of the stakeholders. The recommendation is delivered to senior leadership for final acceptance.

Implement Service Model and Monitor Performance

Materials management is typically involved with clinical engineering in the implementation of the service support model selected. It is important to continue monitoring the quality, effectiveness, cost, and vendors’ adherence to service-level agreements of the service support provided to the medical technology. At the same time, equipment stakeholders and materials management periodically review their list of service agreements and inform clinical engineering of any necessary addition, removal, or changes in the service support.


Service contracts management is a complex process involving members beyond clinical engineering, and their involvement is essential in the process. Good data is also key, and therefore it is critical that all sources of information are consulted for an accurate analysis.

When carried out effectively, this process achieves significant savings for the organization while still maintaining a satisfactory level of service support. 24×7 Service Solutions July 2013

Jillyan Morano, BSBE, MHA, is the assistant director of clinical engineering at ABM Health in Holliston, Mass. Mariana Hu, MS, is a clinical systems engineer at ABM Health in Holliston, Mass. For more information, contact