Managing the Budget Crunch

It would be nice if the biomedical world could blissfully hunker down and avoid the consequences of the down economy, but that is resoundingly not the case in facilities both large and small across the country. Budget cuts and freezes are commonplace as clinical/biomedical engineering departments scale back and all but abandon the idea of buying new equipment. For hospitals that rely on state money for the bulk of reimbursement, the outlook is particularly grim.

In moves that will undoubtedly affect the massive municipal hospital system of New York City, New York Governor David A. Paterson has reacted to tough times by dramatically cutting back on spending as he tries to close the state’s budget gap. “Last year we had a 5% reduction,” laments Rick Elrose, CBET, director of biomedical engineering for Coler Goldwater Specialty Hospital and Nursing Facility, New York City. “Midyear we got another 7% reduction, and they are looking to cut another $350 million out of our budgets. When you get down to the biomed shop, it means that I have lost two people. We are severely restricted in our spending, and the administration is watching every penny now—no more toys, just essentials.”

Almost 600 of the 2,000 beds at the long-term care facility where Elrose works have alternating pressure pump mattresses, some of which are 10 to 15 years old. They are too expensive to replace, so thousands of dollars are spent on parts to keep them running. In some cases, Elrose has completely rebuilt the devices; although he would much rather replace them.

For Elrose, the fiscal year starts in July 2009. If things remain as they are, the prognosis for his budget is zero dollars for test equipment and nothing for outside training. “We are praying for stimulus money to save us, because they are talking about such severe Medicaid and Medicare reimbursement cuts—especially for nursing homes—it’s obscene,” Elrose says. “According to my 5-year plan, we haven’t bought last year’s equipment yet, and we’re not going to buy this years’ equipment. Next year is up for debate. It depends if President Obama saves us or not. I would love to get all new infusion pumps, but it is definitely not going to happen this year.”

The situation is much the same at Children’s Hospital of Alabama in Birmingham. Kelvin Knight, CBET, director of biomedical engineering, says his capital replacement budget has not increased for many years, and that certainly will not change this year. “We are having to prolong the life of our equipment any way we can,” Knight says.

With Medicaid accounting for 50% of the payor mix at Children’s Hospital, budgets are tight—especially since the state cut back on matching funds. Factor in a profit margin of 3.5%, and it is easy to see why new spending has all but ground to a halt. Despite the restraints, Knight counts himself lucky that some training classes are still on the docket this year. Thanks to supportive administrators, his in-house technicians will receive training on sleep lab equipment, while an additional class will address the maintenance of networks.

In the economically hard-hit region of southeast Michigan, officials at the McLaren Health Care Corp, Mount Clemens, are attempting to offset budget shortfalls with innovative strategies. One such cost saver is the “flex 40” workweek, which greatly reduces costly overtime. “Flex 40 is a ‘win win’ when it comes to employee satisfaction,” reports Paul Gudenau, CBET, corporate program manager, clinical engineering services at McLaren. “This allows biomed technicians to work 10 hours, resolving a major problem on a Tuesday, and then go home 2 hours early the following Friday—without costing the department any overtime.”

L-R: Tech E. Wesley Childs and Rick Elrose test a ventilator. Extending the life of equipment helps keep budgets in check.

Budget freezes on capital equipment have been in place for as long as 2 years for some McLaren subsidiaries. The biggest challenge, according to Gudenau, is maintaining equipment that is at or near the end of its useful life but simply cannot be replaced due to limited capital resources.

“In these economic times, our system is striving to increase cash on hand, and to do that you must sacrifice capital spending,” Gudenau says. “We have to continuously work with hospital executives to help them prioritize replacement of emergent capital equipment. They currently have the tough job of deciding to replace an asset that is in dire need, or to put limited capital dollars into new technology that will generate additional revenue. Adding to this dilemma is the fact that IT capital needs are higher than ever.”

In the clinical engineering department at McLaren, Gudenau moves assets between facilities to hopefully extend the life of the devices or uses deinstalled equipment as a source of parts at another facility. “Current hospital finances are working on a very slim margin,” Gudenau says. “McLaren Health [parent company of Mount Clemens & Pontiac Regional Medical Centers] cares for more active and retired UAW workers than any other health care system in our state, so we are greatly concerned with reductions at the ‘big three.’ One of our executive team’s biggest concerns is dealing with increasing instances of bad debt, and with more and more people losing their health care benefits, this number will continue to increase.”

Now More Than Ever

One could argue that budget constraints have made biomedical technicians more valuable than ever. After all, if you cannot replace—you must repair. “Repair and not replace is our model now,” Elrose confirms, who works in the largest municipal hospital system in the country. “I am going back to the original factory, and the parts are sent to me. I would love to replace this older equipment, but you do what you have to do to take care of patients.”

As someone who has worked extensively for independent service organizations (ISOs) and original equipment manufacturers (OEMs), Elrose is a firm believer in the cost-effectiveness of in-house biomedical departments. “I try to fix everything myself,” Elrose says. “We were doing more Puritan Bennett 760 ventilator overhauls than Puritan Bennett.”

Only when he was forced to cut back on staffing did Elrose revert to the OEM service contract. “We have not used ISOs a lot, but I’ll use them on a time and material basis, or if I don’t have the specialty tools,” Elrose says. “You could have a service contract where everything is paid for the entire year—no matter how much maintenance is done. So they fix whatever is broken, and I just keep track of them.”

In a recent 24×7 Soapbox article Patrick K. Lynch, CCE, CBET, wrote that some hospitals have taken on long-term contracts for service and maintenance of high-end imaging devices—and these contracts cannot be canceled. CT scanners, MRIs, cath labs, ultrasound machines, and other expensive modalities are often purchased with these service contracts that usually last for as long as 7 years.

See the January 2009 issue for the Lynch article.

“The contracts have fixed pricing—which is supposed to protect the hospitals from the effects of inflation,” wrote Lynch, a biomedical support specialist with Global Medical Imaging, Charlotte, NC. “I have always questioned the value of such agreements. Even in booming economic times, service costs tend to drop as specific equipment is in the marketplace for a longer period. … There are no provisions in the contracts for any reduction of services, reduction of prices, or the shortening of contract terms. In fact, as the equipment is utilized less, the maintenance needs decrease, so the holders of the contracts (usually the OEM) stand to make more profit. They receive the same money and have to do less work.”

Elrose likens service contracts to insurance policies where some years are worth the money, while others are not. It is unusual, he says, but some manufacturers offer incentive-based service contracts where the facility pays a set dollar amount to do all of the preventive maintenance (PM) for the year. There is a pool of money in the contract for repairs, and when the hospital spends the entire pool, it starts getting billed for those repairs up to a maximum amount. “If we reach the max, the manufacturer takes all the costs over that,” Elrose explains. “It is kind of an incentive to keep your repairs low by using a pool of money—but that is rare.”

Gudenau largely agrees with Lynch’s sentiments, and reports that he too has tried to limit the use of OEM service contracts at McLaren Health. “As we bring on new hospitals, one of our biggest challenges is executing the cancellation of existing contacts,” Gudenau says.

Understand Costs

Colt Rhoads, safety officer and manager of biomedical engineering at Western Medical Center Santa Ana, Santa Ana, Calif, believes that using in-house biomed technicians is ultimately the best budget strategy for difficult economic times. Rhoads uses just one manufacturer service contract at the 282-bed trauma center, and that is for high-end imaging equipment that is still under warranty.

In the current climate, Rhoads concedes that all normal operation-type strategies are out the window, and he has been specifically told to spend as little as possible. In a familiar refrain, Rhoads says, “We are extending the useful life of some equipment well beyond what it would normally be used, and we are not purchasing replacements. Training is on hold.”

As a former employee of a large outsource company, Rhoads is convinced that proper management of in-house staff is the key to saving money. However, he cautions that you have to take calculated risks to make it work. Rhoads took such a risk when he decided not to continue with the ISO that used to provide anesthesia service. “We made the decision to go in-house and do that service ourselves—and that was a risk,” he admits. “We worked hard to build our relationship with the anesthesiologists and build their confidence, because they don’t want to change. They want top-of-the-line service—factory service. We were able to show that if they are having a problem, we can be right there. Otherwise they would have to swap the machine out and call for service.”

Rhoads cautions that any budget strategy should include a firm understanding of costs. Such an understanding, he says, will help to inoculate biomeds against the real threat of ISO outsourcing. “I have worked for outsource companies and done the bidding process,” Rhoads says. “There is absolutely no reason why an in-house program can’t be more efficient than outsource companies. If you manage properly, you can always beat their costs and provide a better service. But you must focus on the basics. Get your PMs done, manage your repair costs, and the rest is secondary.”

Since the average life of a hospital administrator is about 2 years, he says biomeds may have to justify their existence on a regular basis. A new COO will inevitably hear from convincing ISO representatives, and Rhoads says that fending them off often depends on going beyond the basics and adding value for the facility. “What else can you do for the hospital?” Rhoads asks. “Nobody is irreplaceable, but the more imbedded you become, the harder it is for them to bring in an outsource company and replace you. Every time we get a new COO, he asks questions. Always be ready, because you never know when he or she is going to knock.”

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Greg Thompson is a contributing writer for 24×7. For more information, contact .