Margin crunch? Opportunities for clinical engineering to cut expenses and grow revenue

August 20, 2019
By Samantha Jacques

Hospitals and health systems today continue to be under enormous financial pressure.
Aging populations combined with declining Medicare/Medicaid reimbursements have impacted hospital top line revenue. This pressure, in addition to rising personnel costs, increasing commodity prices, software, and service costs as well as tariffs, have increased expenses.

January 1, 2019 also brought the new hospital price transparency policy. If you haven’t heard of this yet, it’s where hospitals and health systems have to publicly publish their prices for procedures. This transparency has improved consumerism on the part of the patients, putting different pressure on hospitals to lower their costs and/or improve their services.

No matter which equation you look at, the resulting margin crunch has organizations looking at old and new ways of cutting expenses and growing revenue.

Pitfalls, dangers, and consequences
When hospitals are focused on the bottom line, it may be easy to fall into the trap of focusing on the wrong goals leading to negative impacts on the department and organization. For example, it may seem easy, when cost reductions are announced, that the first areas reviewed are staff reductions and contract cancelations. Without careful consideration, implementing reductions in either area results in changes that may actually increase downtime. Staff reductions may lead to increased response time, and without proper training, staff may be left supporting unfamiliar devices. Similarly, without proper training and support, reducing contracts may also lead to increases in downtime. Staff unfamiliar with equipment previously under contract may take a longer time to troubleshoot, obtain parts, and repair the equipment. These increases in downtime may actually decrease the number of patients able to be seen in the organization, leading to a decrease in revenue. If the training issues aren’t quickly resolved this loop can reinforce itself as decreased revenue and can lead organizations to drive even more cost reductions starting the loop again.

Changing the ‘cost reduction’ conversation
Instead of focusing on the requested/required cost reduction as a solution, clinical engineering departments should instead focus on enhancing the value of their department. The two main ways to enhance value are to improve patient safety and satisfaction. Departments need to ask themselves how can they affect/increase patient safety and satisfaction — and the two main ways are to improve standardization and review their contracts/in-house services and align them more fully to the needs of the organization.

There are several ways to look at standardization efforts. One type of standardization is on the equipment within the system. Equipment standardization not only benefits clinical engineering departments, so that departments can minimize the different makes/models of equipment they need to be trained on and keep parts and inventory for, but benefits also abound across the organization. With standardized equipment, nurses, clinicians, and physicians who float unit to unit don’t have to learn how to use different makes/models of equipment. As users become proficient with equipment, the number of errors that occur decrease, which directly increases patient safety. Additionally, supply chain departments can also use standardized equipment to leverage better negotiating power not just for purchasing the capital equipment, but also the disposables associated with those devices. Therefore standardized equipment not only reduces cost of acquisition, support, and training across departments, but also improves patient safety.

As most health systems are underway with equipment standardization, one standardization area not regularly looked at is software standardization. There are very few hospital or health systems that have looked at the asset management solutions they are using in multiple departments and have worked toward standardizing them. Facilities, IT, Clinical Engineering, and Finance usually all have their own system(s) to manage assets and maintenance requirements. Software solutions are now available to use the same system for two or more of these departments, which, again, reduces the support and maintenance costs for these software systems.

Contracts/in-house services
In the section above, caution was given to canceling expensive maintenance contracts in favor of bringing services in-house. Although there are risks to this option, with proper planning, staffing, training, and implementation this technique can be successful. A thorough, in-depth review of services provided by the department with expected service level agreements can identify areas where resources are available to take on additional work. A detailed training and transition plan can mitigate the risk of increasing downtime, negating the cost savings one is trying to achieve. It is important to partner with clinical staff for their support, and communicate any changes and implications to their clinical workflow.

The larger work that hospital systems should be engaging in for those items where canceling contracts is not ideal or recommended is a combined vendor equipment maintenance contract with other contracts for the same vendor. For example, a master contract with a particular vendor may not only include the equipment maintenance agreement, but also include pricing agreements for capital spend and disposable spend, as well as any other services (IT, personnel, etc.) provided. By bundling the spend under one contract, supply chain department can better negotiate discounts on all areas, further driving down the cost across the organization.

Revenue options
Although most support service departments only focus on cost reductions during a margin crunch, there are opportunities for clinical engineering departments to also generate revenue for their organization.

The first and easiest way to generate revenue is to invest some time in how disposition of equipment occurs. It may seem easy to trade in older equipment to the vendor when purchasing new equipment, however, there are a plethora of third-party companies who may pay up to 40% more for that equipment. The caveat for this equipment disposition methodology is that it has to be started early. Third party vendors may use auctions or directly sell the equipment, however their customers want to know the equipment works. Therefore, departments should reach out to these vendors early in their life cycle process to obtain quotes and shop for the best deal while equipment is still in use. Third-party vendors will want to see the equipment in use and learn what disposables/reusables/batteries are also included. Departments do have to be careful to remove all PHI from devices they sell, which also requires tracking.

Other revenue opportunities include selling services to other medical professionals such as veterinary clinics, private physician offices, and clinics. This strategy does require appropriate staffing and discussions with legal, risk, and contracting to complete, but it has the opportunity to generate significant revenue for the organization.

In times of margin crunch, its imperative that clinical engineering departments focus on increasing their department value and not just on the dollars they need to save. By focusing on value, strategies can align departmental objectives with other clinical and support services departments within healthcare organizations and yield not only the savings needed, but also improve patient safety and experience.

Samantha Jacques
About the author: Samantha Jacques, Ph.D., FACHE is the Penn State Health System director of clinical engineering. She holds a Ph.D. in Biomedical Engineering, is a board member of the American College of Clinical Engineering and a fellow at the American College of Healthcare Executives. She writes standards with AAMI and works with the FDA to provide guidance on a wide range of medical equipment and cybersecurity issues. Prior to Penn State Health, she was director of biomedical engineering at Texas Children’s Hospital in Houston, TX.