|Regardless of the economic climate, veterans of the contract wars agree that naiveté has no place in contract negotiations.|
Can the art of the deal peacefully coexist with the art of clinical engineering? While many clinical/biomedical engineers would prefer to hone their repair skills, negotiating service contracts often becomes a necessary part of the job. Since being thrust into a role more suited to an MBA than a CBET, Arthur Bartosch, CBET, almost enjoys the deal making that consumes much of his job during times of equipment acquisition.
Despite a workload that is tackled by in-house personnel 90% of the time, Bartosch juggles a contract with ARAMARK Healthcare, in addition to agreements with OEM vendors. At Westchester Medical Center, Valhalla, NY, where Bartosch serves as director of biomedical engineering services, diagnostic imaging is 65% in-house, 20% OEM and/or ISO, 6% warranty, and 9% shared in-house/OEM.
As a Philips strategic business alliance partner, Bartosch benefits from point-of-sale service contracts that garner significant discounts. “Modalities such as high-end MRs and CTs that we have changed out have been with Philips,” Bartosch says, who helps oversee more than 11,000 pieces of equipment at the Westchester level 1 trauma center. “At the time of acquisition, the equipment comes with a 2-year warranty (1-year extended), and then it comes with 5-year point-of-sale service agreements, so the service is bought up front—regardless of when the device is installed. If we planned to buy a CT today, and not install it until the end of 2010 or even 2011, we would have a contract price locked in.”
The skill level of in-house personnel will always play a role in what kind of service contract you shoot for. Bartosch knows what his biomeds can and cannot do. From there, he determines what is mission-critical and what fosters the highest return on investment.
“If you have a piece of equipment that is down, and you can’t get that system operational in a quick manner, forget about what you saved on the service contract, because you’ve probably lost that on the revenue-generating side,” Bartosch says.
Know Your Needs
When he eventually meets at the table, Bartosch wants to be sure that he is getting everything he needs to fully support the device. What are the hours of coverage? Is glassware included? Is it a 24/7 gold, silver, or platinum contract? After determining all that, it is time to talk about a reasonable price.
A reasonable price could come down to a certain percentage of the acquisition cost, but Bartosch rejects that rigid definition. The deal for one device, he says, may be different if you decide to buy two, three, or even four devices. If you end up with different contracts, it can be difficult to get those contracts to end at the same time (co-terminant), but Bartosch says it is worth the effort.
“If you can get a vendor to put on a spreadsheet under one contract listing all the devices that you want to cover with them, you begin to see the dollar value of what those contracts are costing,” Bartosch says. “Now you can say, ‘OK, I have six devices, and since I give you all my six devices, whether it be OEM or third-party, I want a multiple device discount.’ Then you ask, ‘What if I give you a 5-year deal on this?’ “
When Westchester Medical acquired an imaging center across the street, Bartosch had to deal with multiple contracts expiring at different times with the same vendor. Ultimately, he was able to get those contracts co-terminant, with an effective date of January 2009 and all ending 3 years from that date.
“When they were together as one contract amount, it allowed me to see how much we were spending on those contracts,” Bartosch says. “I then worked on multiple-year discounts and multiple-device discounts. It’s only one bill, which is really the trick to this. You can have the same vendor with 15 different devices, different departments, signing off on the approval to pay each contract, and it can be time consuming. But if you can get those into one master co-terminant agreement, it is a significant benefit from a management point of view.”
The First Look
At Yuma Regional Medical Center, Yuma, Ariz, biomeds agree to take a “first look” and make their best effort to troubleshoot problems. This type of agreement is one where the OEM agrees to provide parts and technical support, and if the OEM techs must come on-site, they do so at reduced rates.
The arrangement is all by design, and Steve Matowik, CBET, supervisor of the biomedical service department at Yuma Regional, says a lot of vendors are starting to encourage the practice because it saves them money. Matowik’s current agreement with a radiology systems company was transformed when the digital radiography manufacturer contacted him about the possibility of doing a first-look contract.
The manufacturer had done the arrangement with other customers and discovered that it was a good way to do business.
“At the time, they were having some personnel issues, so we sat down and negotiated,” Matowik says. “They provided a service school for one of my technicians, and they were flexible on the labor rates. We were able to work out that we would not be paying overtime charges, and our weekend rate on Saturdays would be the same as weekdays. There was free shipping on the parts and free return on parts. If at any time during the process we felt it was going to really eat into our technician time, or we were stalled, we would have them come down and continue the service.”
While 80% of the equipment at Yuma Regional is tended to by in-house personnel, the remaining 20% is devoted to OEMs and three ISOs who help take care of the laboratory, radiology, and surgery departments. Time is money, and at an arbitrary hourly rate of around $200 an hour, costs can add up quickly. Anything after 5 pm usually means overtime rates of about $300. On Saturday, it is usually double time, and Sunday can be triple time. For some institutions, there are the charges for on-site time and travel. Since Yuma is roughly 200 miles from the next major metropolitan area, commute times can really add up.
Matowik views the traditional time constraints as merely a starting point. “When you are negotiating the service contract, you can suggest different hours of coverage and possibly get a reduced rate, so instead of paying double time on the weekend you may be only paying time and a half,” he explains. “Or, on Sundays, maybe you are only paying double time. With some contracts, there is Cadillac- level coverage where all of that is included, but you would be paying substantially more for that type of plan.”
A bad deal under any service contract is one where the clinical/biomedical departments get what they consider to be an inadequate amount of coverage. If you are stuck with no weekend coverage, and only get dispatches from distant lands, you probably have a bad deal.
“In the case of one dialysis company, we ultimately found that they only had three engineers for the entire United States, and there was no guarantee that you would have a technician in a reasonable amount of time,” Matowik says. “Even when the guy showed up, there was no guarantee that he would be able to correct the problem. One service call, a fellow came in and looked at the equipment and made his best determination as to what the problem was, he put in a parts order, and then left our hospital to fly to Seattle. I asked when he would be back and he said it would probably not be him coming back, but instead a different guy who was currently in Florida.”
Inconsistent service provision and too many new faces are both precursors to poor service. Ultimately, the definition of a good contract depends a lot on what biomeds are looking to get out of the deal. If you want full service contracts that cover everything from stem to stern, Matowik warns to be on the alert for things that you could probably do in-house just as inexpensively.
|When you eventually meet at the table, be sure you get everything you need to fully support the device|
If there are frills, have an idea of what you want, and avoid the frills. “For example, if there is a computer that is part of the system, and they want to cover the monitor, well, you know how much it costs to buy a computer monitor,” Matowik says. “It is relatively inexpensive. The company may have no qualms about you using an off-the-shelf product—such as Dell or HP. Some of the peripheral stuff are things that probably will not break down, and you might not want to go with the full service coverage package. I have perfusion equipment right now that just includes preventive maintenance on the contract, because the company and the physician that has been using this equipment for many years have found it hasn’t required repairs for 5 or 6 years after original purchase.”
Flexibility Is Key
Joseph Wagner, clinical engineering business manager at UMass Memorial Medical Center, Worcester, Mass, is keen to ensure against financial loss and protect the facility against proprietary software issues. To accomplish this and other goals, he looks for responsive vendors who are not afraid to build flexibility into their service contracts.
Contracts that include sound OEM training allow the increasingly popular first-look provisions to work well, and Wagner looks for these knowledge-building opportunities when purchasing equipment and negotiating the service.
“We feel there is no vendor out there that can provide better service than our guys on-site,” Wagner says, who heads the Worcester facility, which is part of the 1,200-bed UMass Memorial Health Care Corp. “Our technicians will affect minor repairs and troubleshoot, and if it needs an in-depth repair, then we will go to the OEM for additional support. Our technicians would also be responsible for all preventive maintenance on those devices. Ultimately, it becomes a win-win because the OEMs can provide less full-time-employee support for the devices that they have in the field, and it is a win for us because our end users realize a quicker response time and better overall service.”
Terri Crofts, director of clinical engineering at UMass, helps compile performance metrics for all of the facility’s contractual agreements. Quarterly reviews of the contracts ensure that the metrics are being monitored and met.
“We also negotiate termination clauses to get out of the contract and be able to add or delete equipment or change coverage terms,” Crofts says. “They are multiyear, but that is mainly for price protection and consistency when dealing with the vendor.”
A decade ago, it was difficult to get an agreement beyond 1 year or 2, and 3 years was considered long term. Now, Wagner and Crofts say 5- to 7-year agreements are not uncommon. “Most of those lengthy agreements allow us to cap our costs,” Wagner explains. “We are locking in that price for a long period of time, and we are able to avoid the consumer price index (CPI) adjustments. We also get pricing benefits.”
Crofts and Wagner agree that options are available, but you have to ask. “As long as there is an open dialogue, flexibility has always been achievable,” Wagner says. “People think the terms and conditions are rigid, but that has not been our experience. If you go at it with the perspective of a long-term strong relationship, the vendor is more understanding and flexible. The ability to terminate contracts with small notice—days or months—is also important because it allows you the flexibility to adapt to changing environments.”
The Starting Point
Regardless of the economic climate, veterans of the contract wars all agree that naiveté has no place in contract negotiations. “The company that is negotiating with you is trying to make money,” Matowik says. “A lot of companies are looking at service as another revenue stream. Back when I first started, the company would sell you the product, they would support the product, but they did not look at providing service to the product as a revenue stream. They do now.”
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“The vendor is in the business to make a profit,” Bartosch says. “And you are in the business to keep as much money as you can for the facility. The vendor needs to be able to perform his magic and needs to be able to work while not worrying about every single nickel and dime. You know they are going to make a profit on you, but if you keep track of the service contracts, you’ll find that you can both benefit from a fair deal.”
“It’s no different than if you went to purchase a car,” Wagner says. “Most folks would love to just hand something across the table and have you approve it. And most of them continue to make those types of offerings. But most of them understand that the offer is just a starting point.”
Greg Thompson is a contributing writer for 24×7. For more information, contact .