By Patrick Lynch, CBET, CCE, CHTM, CPHIMS, FACCE

If you are part of an in-house HTM program, you need to know what your services are valued at, both for your own cost estimation and for your customers (the clinicians) to know what you cost the institution.

Every computerized maintenance management software (CMMS) program has a function for adding a labor rate to each transaction, whether that labor is provided by an outside vendor, a contracted individual, or a hospital employee. As a hospital employee, you will not invoice the hospital for your time, but that does not mean your time has an hourly value of $0. After all, every person who works on medical equipment costs the hospital money. This can be paid through a paycheck and benefits, or a service contract, or a time-and-materials invoice per job.

It is also essential that the relative hourly cost of service labor be known, so that you can make a rational decision when determining who is the best option when choosing a service supplier.  All other things being equal, you should always choose the least costly—aka: cheaper—service option. It is absurd to select a more expensive option if a more affordable option can get the job done just as well and just as quickly.

So, how do we decide how much the various service options actually cost us?

Crunching the Numbers

For the sake of this discussion, we will omit parts costs, even though we all know that the parts sold to us from some sources are much more expensive than from others. That is a discussion for another day. Let’s just focus on labor cost for this exercise.

Let’s start with the easiest: the time and materials provider. Similar to your plumber or electrician, your provider will quote you an hourly labor rate. Unless they use a minimum billing period (like four hours), their hourly rate can safely be assumed to be the hourly rate they quote you. This can vary widely, but should always be asked before any job is started. It can vary from $200 per hour to as much as $500 per hour or much more for after hours or weekend work.

Moving to the service contract, this is more difficult because the price paid by the hospital includes parts, after-hours call, upgrades, and items other than labor. Furthermore, the labor is often unlimited, meaning that the hospital will receive as much labor as needed for the equipment to be maintained.

To estimate the hourly cost of a service, it is necessary to remove the cost of all provided items other than repair and PM labor. It is usually impossible to get vendors to break down these costs, because they don’t want you to know this itemization. You can often look at past history and obtain a rough estimate of the cost of parts used and the number of hours of labor provided in past years. Subtracting the parts and dividing what is left by the number of hours provided yields an hourly rate. It should be less than their normal non-contract rates.

In-house HTM labor costs can be very easy to obtain if you have your HTM costs in a single budget. Simply subtract all non-labor costs from the annual budget and divide the remaining money by the amount of productive hours that the entire department is able to provide in a year.

The trick is determining the number of ‘productive hours.’ We know that nobody can work eight full hours every day. Secretaries do not provide billed hours, and supervisors may provide only 30% to 60% of their time as billed (productive) hours. Let’s start with a working BMET with no supervisory or management responsibilities. His or her paid annual hours (52 x 40 = 2,080 hours) must be reduced by the individual’s annual vacation, sick days, training days, and time in meetings.

After subtracting all activities that are not productive (billable), the typical full-time BMET is left with about 1,800 hours. This must further be reduced by the person’s overall productivity (breaks, shop cleanup, slack time, non-billable time). Using a conservative 80% productivity (look at your documentation rate if you don’t believe this number), this reveals that the average full-time BMET has approximately 1,440 billable or productive hours in a year.

Using 1,440 annual hours (instead of 2,080), we can determine that the available shop hours is 1,440 for each BMET, and something less than that for everybody who has administrative responsibilities. The number of billable hours expected from a director may be zero; from a supervisor, it may be 720; from a secretary or “administrative assistant,” this figure may also be zero.

Totaling all of these individual expected billed hours and dividing it into the total departmental labor paid in a year (including the director, secretary, and supervisors), provides the hourly rate that the HTM department has to charge to cover all of its labor costs. It must be increased by 25% if you need to account for benefits.

The in-house labor charge rate for labor should be a minumum of $125 and may be as high as $175 if you have a lot of imaging engineers or are located in California.

Knowing the specific hourly costs to the hospital for each choice of HTM labor is the first step in getting a grip on and successfully managing your costs. Labor is one of the greatest single expenses for most HTM departments. It surely is the part that aggressive management can impact the most.

Patrick Lynch, CBET, CCE, CHTM, CPHIMS, FACCE, is a biomedical manager with 40 years’ experience. Questions and comments can be directed to 24×7 Magazine chief editor Keri Forsythe-Stephens at kstephens@medqor.com.