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Making your next purchase a profitable one

June 20, 2011
From the June 2011 issue of HealthCare Business News magazine
This report originally appeared in the June 2011 issue of DOTmed Business News

By Thomas V. Vorpahl

It’s a common scenario: Hospital buyers carefully select equipment they believe will give the organization the most bang for its buck, only to find it’s a money pit as downtime, patient diversion and maintenance costs mount.

Having been on the original equipment manufacturer side of the industry for 35 years, I’ve witnessed the harmful repercussions of basing purchasing decisions for expensive clinical technology on incomplete data. It’s not unusual, for example, for a hospital to spend as much on service and parts over the first five years as it did on the initial purchase of the device. Wise purchasing decisions hinge on the completeness and accuracy of the information available to decision-makers.

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Where do hospital buyers get their information? In my experience, most CFOs get it from their supply chain and service line officers, who do their homework and then make a recommendation. The staff, in turn, typically gets its information from a group purchasing organization or third-party consultant. Of course, physicians have traditionally had a say in equipment purchases too, but that influence has declined as institutions have been forced to make decisions based on the pro-forma invoice. That’s where it gets interesting.

As you’re likely aware, the true cost of a new purchase isn’t just the technology itself; it’s the cost of the equipment plus its maintenance over the course of its entire life cycle. Unfortunately, complete, factual data aren’t readily available in the current pro-forma model—not in a way that assists the buyer in truly understanding the total cost of ownership.

In order to grasp that TCO, buyers need access to downtime data over the lifetime of the equipment, performance forecasts and metrics for newer models, meantime to failure, cost and availability of replacement parts, possible trade value and more. Meanwhile, new technology begets new challenges as technology tends to evolve incrementally, as opposed to sudden, major breakthroughs.

As you may guess, OEMs aren’t motivated to be completely transparent with service performance metrics, so we can expect self-reported data to have undergone some level of PR treatment, clouding the buyer’s judgment. What’s more, not only is an understanding of the fair market value needed upfront, but also a true apple-to-apple comparison between equipment platforms, as well as the optimal set of terms and conditions for that specific modality.

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