For more tips, see “The Ultimate Guide to Imaging Service Contracts: Part 2.”
How to negotiate the best deal and save your facility money
Most of us regard service contracts as a necessary evil. If we had a choice, and the in-house technical resources, I’m sure most clinical engineering programs would rather redirect those funds spent on contracts to other endeavors. Unfortunately, service contracts are here to stay in one form or another, at least for the time being.
Service contracts come in all shapes, sizes, and prices. Lately, it seems as though the larger service providers are becoming more receptive to à la carte offerings that better fit hospital needs. This flexibility, however, can directly hinge upon your department’s ability to leverage providers and internal resources. Make no mistake: A service provider that wants to “partner” with you still has one main objective, to turn a profit at your expense. Healthcare budgets being what they are, service providers are learning to adapt as a matter of survival.
That being said, there remains a lot of leeway for cost savings—that is, provided you do your research and approach service contracts with a critical eye. To avoid being taken advantage of, you have to know your way around a contract and understand the particular needs of your facility. In the first half of this series, we’ll review what you should consider before shopping around and some of the main coverage types. The second installment will go into more depth about specific coverage areas and outline strategies for the negotiation process.
To Contract Or Not to Contract
The first decision you will have to make is whether you actually need a service contract or not. This decision will require hard data: about the reliability of the device, your available resources to service it, and the anticipated cost of ownership. Unfortunately, in some cases, you won’t have this data—particularly when dealing with point-of-sale or end-of-warranty decisions. Looking at these three areas, here are some things to focus on:
Reliability: If you have had the device for some period, run a work order report. See how often the system goes down and for what reason(s). Are you dealing with simple user-related issues or frequent component failures? Keep in mind that whether you service the device in-house or contract it out, every service event will eat into your available man-hours. Each time, you will be the one making some type of initial response (even if it’s just placing a service call) and documenting the service event. If you have limited data, consider engaging organizations such as KLAS or MD Buyline for their opinion.
Resources: Do you have the bandwidth to support the needs of this device? You will need to consider your reliability data and compare it against your available technical resources. Do you have someone trained already in this modality? How many of these devices do you have—is it even worth training someone? If you have one MRI system, you can definitely train someone to support it. After the first year’s expenses, you will probably save some money on your contract. But if your technician gains limited experience with a single system, are you setting up your technician, and possibly your facility, for failure? In our experience, it requires multiple systems within a given modality to make it worth considering the training expense and risk.
Cost of Ownership: This consideration will also require mining some data—either your own or from the organizations listed above. We have even required manufacturers to provide data regarding consumption rates of particularly expensive parts for their install base in our region to see how reliable a component is. You are trying to determine how much it will cost you to maintain the device. Generally parts are the biggest consideration here, but training, test equipment, vendor response time, and service key requirements must also be considered. If your organization has a heart program with a dozen cath labs and the most reliable service provider is only willing to guarantee a 4-hour response time, is your organization willing to absorb the cost of that downtime by signing a contract? Or would it be more advantageous to utilize in-house resources with a 4-minute response time?
At our facility, we are huge proponents of in-house programs. In our opinion, everyone else is out to make a buck at the expense of the hospital. That being said, not every in-house program has the horsepower to bring all service in-house. If you are a shop of four, trying to handle CT service yourself may not be wise based on system criticality, training, and parts costs. On the flip side, a shop of 22 may decide to contract out a particular brand of mobile x-ray systems based solely on proven reliability issues and parts costs.
So where do you stand to save the most, or get the most bang for your buck? Unfortunately, some devices will require you to maintain a minimum contract level if you do not plan to go strictly time and materials (T&M).
For example, if you have a particular vintage, make, or model of radiographic room, you will either have to pay someone to perform routine maintenance or repairs or do it yourself. Radiographic systems aren’t generally considered overly complicated and can be managed by most in-house teams. However, you may find it nearly impossible to perform a tube adaptation or geometry calibration without access to the manufacturer’s service key. Unless you work for a government organization that has managed to get these tools included in the purchase of the device, you will most likely need to pay for this service. The costs of these tools can run anywhere from a few thousand dollars to tens of thousands of dollars per year, depending on the modality and the number of systems you have (generally you pay for one key per system). This is not to say that there aren’t third-party service providers that have developed their own version of tools to access the service functions of various systems. But this approach can be hit-or-miss, and is often more difficult to use than the OEM tools.
In order to support the vast majority of newer devices, then, you can either rely on T&M service when needed—which is a viable approach if your analysis of system reliability supports it—or run some level of contracted service.
Areas of Coverage
Let’s assume you have determined that you will need some level of contract support to guarantee the highest uptime for your customers. There is no one-size-fits-all solution. Remember, a service provider will sell you as much as you are willing to buy. It’s your job to separate the wheat from the chaff. Contracts can cover virtually everything all the way down to simple guaranteed labor rates, and the entire spectrum in between. You just need to figure out what is best for your organization.
It is important to understand that the cost associated with a particular contract is an inverse representation of the amount of risk you are willing to assume regarding the service of the device. The higher the contract price, the less risk you assume: The risk is assumed by the contracted service provider. However, if you sign a contract for a service key and technical support for a cath lab, the service provider is under no obligation to respond to your plea for an on-site response when a system goes down—that’s on you. In contrast, any downtime or delay in service response to a call for a system covered under a full service contract may actually involve financial penalties for the service provider if certain criteria are not met. In that case, the risk is on them.
We can’t tell you what the best coverage for your given situation will be, but we can suggest a few areas to consider when you’re requesting contract proposals.
Service Access. As discussed above, this is your ability to access error logs and perform calibrations. Without service access, you are dead in the water for the majority of preventive maintenance and diagnostic functions on most modern imaging equipment. This coverage is an absolute must if your technicians will be touching the device, since it will add value to the work performed, and in turn, reduce downtime. Don’t handcuff your team.
Preventive Maintenance. This type of coverage is another example of risk assumption. If you elect to perform the PMs, the vendor does not have to expend the labor and/or material costs to do so, and the contract is cheaper. Consider whether your staff has the training to provide preventive maintenance in accordance with the manufacturer’s specifications. Generally, in order to assume this responsibility, you will need to purchase service access as well.
Parts. This one seems pretty self-explanatory, but it can get complicated. Parts coverage will generally only be considered for full-service contracts or contracts that require you to have some level of training on the device. A service provider will not give you unlimited parts with no training on the system. You can choose from coverage with or without glassware (tubes, camera tubes, image intensifiers, etc) and digital detectors.
Parts coverage can make or break your decision to maintain a contract on a device. Some vendors will not offer detector or tube coverage unless you sign their silver, gold, or platinum contracts. These deals are essentially full-service contracts with varying levels of response times and uptime guarantees. These levels are important to consider when risking a $150,000 cath lab tube and $185,000 detector for a contract that costs $110,000 per year. Weigh your consumption rate on tubes and detectors. Are you willing to self-insure for the cost of these items in the event of failure? We have found that the more systems you have to consider for contract, the easier it is to self-insure.
To see how these costs compare in a real scenario, imagine that you have 10 digital x-ray rooms with 10 portable digital detectors. A vendor offers you detector coverage at $15,000 per system ($150,000 total) per year. The cost of a single digital detector is $85,000. Your consumption (due to drops) is about one every 2 years. If you self-insure, you will be spending $85,000 every 2 years on a new detector, but if you buy coverage from the vendor you would spend $300,000 over that same period. That’s $215,000 more that the cost of the single detector. The question is whether you can tolerate an unscheduled $85,000 budget variance at any time during the budget cycle, with the understanding that you could, at any time, also have multiple drops. You have to make your decisions based on data. After analysis of detector-related failures, we elected not to cover the detectors against plate damage, but did in fact sign a contract for detector batteries based on the failure rate and parts costs.
Parts Pool. This model is useful if you have a large volume of equipment from a particular manufacturer. It can be a good way to get discounted new OEM parts for your equipment. You buy a block of parts (or parts and labor) for a fee and receive a certain percentage over that amount in parts value—for example, you pay $200,000 and receive $250,000 in parts. Keep in mind that what you don’t use, you lose, so make sure you keep track of your parts spend and don’t leave any money in the kitty at the end of the contract year.
In the second installment, we’ll continue with more complex coverage areas of imaging contracts, such as technical training, uptime guarantees, and coverage hours. Then we’ll discuss how to leverage vendor competition and avoid the perils of fine print, ensuring the best deal for your facility.
Dallas T. Sutton, Jr, CRES, is Supervisor, Clinical Engineering at WakeMed Health and Hospitals in Raleigh, NC. Bhavesh Patel, Director, Clinical Engineering, served as a collaborator on this article. For more information, contact chief editor Jenny Lower at firstname.lastname@example.org.
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