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 them—from 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 clients—especially with imaging equipment—they 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 it’s bought equipment, a facility can put them all under one program. It’s very economical—a 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. “We’ve had insurance in one form or another for at least 7 or 8 years. We’ve 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 Children’s 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 they’d like.”

Paquin adds, “It’s up to the customer to decide what manufacturer to use to repair their equipment, [but] in the case that the manufacturer isn’t 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.”

Magnarelli’s insurer, on the other hand, covered everything in the hospital—medical 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.”

What’s 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 ARAMARK’s 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 there’s 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 doc
umentation. 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 wouldn’t even know [the equipment] was broken. I wouldn’t 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. There’s 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 don’t 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 company’s 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 company—not 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. There’s going to be some work involved. They will have to track the data and pay some attention to it and follow up. But it’s worth the effort; there’s money to be saved.”