GE-trained Alpha Source field
engineers conduct a preventive
maintenance assessment as
outlined by GE specifications

What do unconventional service models tell us about the bone densitometry market?

August 28, 2017
by John W. Mitchell, Senior Correspondent
In 2016, when GE Healthcare decided to outsource service for its bone mineral densitometry (BMD) units to Alpha Source, a Milwaukee-based independent service organization, there was plenty of speculation and some trepidation about what this unique agreement could mean for the changing face of hospital service as a whole.

Other ISOs and a few biomedical health system managers voiced concerns that the arrangement could spell trouble for hospitals looking to repair bone densitometers quickly and at a competitive price.

So, it’s been almost a year since that agreement was made public and about eight months since it was finalized. Enough time to begin asking: Were concerned third-party stakeholders right to be worried? Or has this experiment proven to be a success?

While partnerships of this nature between ISOs and OEMs haven’t exactly become the latest trend in the industry, experts say it’s working out pretty well so far for GE, Alpha Source and their customers.

Julie Johnson

"You don't usually see sole-source service. This is a unique situation," Julie Johnson, an analyst at MD Buyline, told HCB News. "Our customer feedback on the arrangement has been really good. We're not seeing a drive-up in [service] prices."

The arrangement was inspired, in part, by the success of a prior outsourcing service agreement between the two companies. Before the bone mineral densitometry (BMD) contract, Alpha Source was already the sole service provider for customers who wanted to continue using GE ultrasound models that the manufacturer had deemed end-of-standard-life (EOSL), or was no longer providing service contracts for.

"GE decided that with the Alpha Source locations, this would offer a great opportunity for their customers to benefit from outsourcing for bone densitometry," said Johnson, adding that MD Buyline maintains a robust customer satisfaction function, so they know if their clients are having a problem with service.

"Being selected by GE Healthcare as their service partner is an honor that our entire organization is privileged to support every day. We're all in," says Rick Lytle, CEO at Alpha Source. "We’ve added a centrally located depot operation in our Milwaukee headquarters to provide even faster service to portable GE Achilles (BMD) units, as well as GE Logiqbook Ultrasound devices."

A rare increase in reimbursement
But to what extent does this partnership indicate a shift away from bone densitometry as a whole?

The exam, which is commonly used to diagnose osteoporosis, has been experiencing cuts to CMS reimbursement since 2007. In fact, the rate of hip fractures has been on the rise due to fewer patients receiving the scans.

In November 2016, Medicaid announced that the reimbursement rate for 2017 would be $112.69 for scanners in hospital facilities (instead of $63.33), according to a statement from the University of Alabama at Birmingham supporting the decision at that time.

Despite the history of reimbursement hurdles, the global bone densitometry market is expected to exceed $1 billion annually by 2022, according to a market analysis from ReportBuyer. This represents a 5.2 percent annual growth rate that began in 2016. Stratistics Market Research Consulting cites several factors for the growth, including: increasing rates of osteoporosis in an aging population; better technology; and the growing use of the test in overseas markets such as China, Brazil, Japan and India, which is driven, in part, by medical tourism. In the U.S., Hologic stands alongside GE Healthcare as the other principal manufacturer in the market.

Equipment strategies in an evolving care system
Outsourcing service is an ongoing field of study for analysts, who see a wide range of factors having an impact.
Ash Shehata

"Device makers are looking to improve their value and cost profile throughout the supply chain, so you might see after-market parts, warranties and additional services outsourced to third parties," says Ash Shehata, principal and member of KPMG’s Global Healthcare Center of Excellence.

In an industry report entitled "Collaboration - The future of innovation for the medical device industry," Shehata cited data from a 2015 Forbes survey that listed sales growth, development of new products and reducing cost structure as the top three strategic priorities in the next 12 to 24 months for medical device manufacturers.

"It can make great sense to shift that work outside the company to provide less of a distraction to management," he said.

For GE, success with offsetting the older model ultrasound service to Alpha Source effectively paved the way for a similar arrangement with bone densitometers.

"The footprint Alpha Source built to offer our customers a good solution for their end-of-service-life ultrasound service needs was a key enabler to have Alpha Source expand into bone mineral densitometry," says Rob Reilly, vice president and general manager for GE, U.S. and Canada Service. "We continually evaluate and evolve the work we do, based on market needs and where our field engineers’ high-end technical capabilities can add the most value for our customers."

MD Buyline’s Johnson noted that although agreements like the one between Alpha Source and GE are not the norm, most medical device companies are prioritizing their service operations as a key selling point.

"We see most vendors putting their heart and soul into their service and support to make it better," she says.

Accountability is key
Unlike in decades gone by, Johnson says it's possible in the information age for an OEM to be rated first in product and last in service, a dubious designation she can readily identify with the user ratings and data her company oversees. In an era when it’s easier than ever to issue a public complaint, OEMs are ramping up their focus on training, response and call service – and the results take many forms.

“As a service organization, customer feedback is a cornerstone for our business,” says Alpha Source’s Lytle. “We have contracted with a third-party customer research firm to measure our customer satisfaction, both locally and nationally.”

If a company decides to go the service outsourcing route, as GE has with Alpha Source, there are important considerations to make sure the partnership will be beneficial.

"The risks ... from ceding control of a customer-facing function to that third party ... is short-term gains in profitability can be hurt in the long run if the third party is delivering subpar service,” warns Shehata. “A device maker should be thinking about the scope of work to the service organization [and] its audit rights to ensure that the contract terms are being met.”