Three Essential Questions for Evaluating Service Contracts

It’s not unusual, when we walk into a hospital, to immediately uncover clinical engineering savings that are both significant and sustainable. One source of those savings can often be found within OEM service contracts.

First, it’s vital to recognize that most healthcare facilities lack visibility into their true clinical engineering costs, which often add up to 3-5 times what’s showing up in financial reports. This is because many medical equipment purchases (including service contracts) are spread throughout several departments, or miscoded in the general ledger.

Lab, Radiology, MRIs, CT and Ultrasound departments, for example, commonly sign and manage their own contracts, which Supply Chain and Finance know nothing about. As a result, bills go to different departments, showing up as small expense line items that never get added up as clinical engineering costs.

One of the first things we do when working with a healthcare facility is to dig for those hidden expenses, shining a bright light on the facility’s true, total clinical engineering costs. Having captured those costs, we then take a look at external service contracts.

Our goal in examining contracts is three-fold:

  • Negotiate existing or new contracts based on data, not personal opinions or hunches.

Equipment and contract decisions should always be driven by the equipment’s historical performance data and total cost of ownership.
How else would you know how often the device in question will break down, how long it will last, and how much it’s likely to cost — in parts, maintenance, repair and usage levels — to keep it running for the next 10 years or so? Can you justify losing hundreds of thousands of dollars because Dr. So-and-So has a personal preference for device X?

  • Align contracts with the true needs and goals of the entire organization.

Too many hospitals get locked into long-term costs that don’t support organization-wide goals. Don’t let that be you. Be sure to include Clinical Engineering and Supply Chain in capital planning and contract discussions, so you’re not left in the dark about resources that already exist in your organization, or factors that may eliminate the need for contracts.

  • Eliminate or reduce unnecessary contracts (or terms).

Your best chance of reducing clinical engineering costs while upgrading service and equipment levels is to shrink your dependency on external contracts. With each new contract negotiation, your organization should be moving closer to self-sufficiency where it makes sense, and utilize contracts when beneficial.
To be fair, contracts aren’t always bad, and can be the appropriate choice in some cases. In our next issue, we’ll dive into three common pitfalls to watch for in OEM service contracts. For now, a great first step is to include clinical engineering leadership in all equipment purchase and contract decisions, and letting their data guide those decisions.