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AAMI attendees found the halls of the Baltimore, MD, Convention Center buzzing with talk of the Obama administration's cutbacks on health care.

The U.S. Office of Management and Budget's Director, Peter Orszag, is publicizing an administrative plan to save $100 billion over the next 10 years by tightening health care facility budgets. Foreseeing a bite out of their budgets, health care facilities are cutting costs wherever they can to prepare.

"This is the first time in my 25 years in the industry that I am seeing the economy have more of an effect on health care," Robert Broschart, Axess Ultrasound Director of Sales and Marketing, told DOTmed. "We just never noticed past recession and past downturns. This time around, we are noticing it. Our end-user customers are really being forced to watch every dime they spend."

When asked what this meant for medical device makers as a whole, Broschart replied that the capital equipment market has taken a downturn, refurbished equipment sales have gone up, and facilities are shifting their attention from OEMs to third party vendors to save money.

Other leading medical professionals, including Echoserve C.E.O. Chris Cone pinpointed this trend leading the medical device market as well. "The recession is a blessing for us," commented Cone paradoxically.


When asked if the shift was significant, a major player in the medical device industry told DOTmed that it is at trade shows like AAMI where you see these trends take life. According to this source, GE Healthcare alone operates a $200 million a year business just out of their sourcing division. Over the past three years, 90% of their sourcing has been to OEMs. However, now they are forced to shift that model to dealing only 60% of their products to OEMs and 40% through third party vendors. By this reckoning, $60 million will get diverted from the OEMs to third party vendors by GE alone.

GE was not the only company reportedly following this trend. AAMI Exhibitors found biomedical and clinical engineering representatives from facilities all over the United States, and a few international attendees, willing to hear how third party vendors could save them money.

Equipment Companies Shift Focus

However, even with costs on everyone's mind, facilities are still looking for quality, timeliness, and ease of use in medical equipment. Third party vendors have shifted their marketing strategy to full-range product and service coverage to meet these demands. Some companies even used AAMI for a trial run.

"Our marketing strategy has shifted," explained Barry Irvine, Director of Marketing, Tenacore. "More healthcare systems are looking at a consolidation of products under fewer service providers due to time management and cost effectiveness."


Irvine has directed Tenacore's marketing strategy to target companies like Aramark Healthcare and Catholic Healthcare and tell them, "we're going to consolidate your buying under our umbrella, taking your suppliers' needs and use a capsulization model to bring that all that under one house." Instead of issuing four different purchase orders, using companies like Tenacore who have integrated a system of full coverage of parts and service, facilities only have to issue one PO and save hundreds of dollars daily.

Others also noted their marketing shift to offer full product and service coverage to their customers. Block Imaging Vice President of Business Development Jason Crawford noted the current demand in the healthcare industry is for bringing more products and services together.

"The reality is that if I can sell pre-owned equipment to a facility," Crawford commented, "they are going to need service and they are going to need spare parts. The ability to provide service creates another outlet for spare parts. Providing discounted spare parts creates new opportunities for refurbished equipment sales." Crawford and the majority of AAMI Exhibitors interviewed by DOTmed agreed that in this industry and during this economy, everyone benefits the most when you are able to tie equipment, parts, and service components together in an integrative approach.

What the OEMs Say

Draeger Director of Sales and Marketing for Service Organizations David Karchner agreed that the recession is obviously causing major challenges for the OEMs in the healthcare marketplace. "As customers cut back in spending and the way they go to conventions or not go to conventions, we have to continue to reach out and build on the relationships that we already have." Karchner expressed they are reaching out to their customers in nontraditional ways, such as viral marketing. "What customers do whether they want to buy pizza or a piece of medical equipment is that they go onto the web. We are expanding on that capability and spending a lot of hours on our website and utilizing podcasts."


Although the market may seem to be shifting from OEMs to third party vendors, the manufacturers also seem to be playing for keeps and offering more. Echoserve's Cone told DOTmed that the OEMs have been doing a lot with respect to service packaging and offering replacement parts and lower service costs. "This is something they would not have ever offered the hospital before in terms of replacement parts or costs, but they do seem to be going in that direction," commented Cone.

With costs being paramount, the recession hitting hard, and events unsteady in Washington, it is clear for both OEMs and third party vendors that offering more for less is a necessity they must now meet to keep business coming their way.