From the August 2016 issue of HealthCare Business News magazine
3. What are the options for service contracts that were not negotiated at the point of sale?
If a contract has already been signed, flexibility can be limited. However, many vendors will work with customers or offer options for reducing the cost of coverage. Customers should begin by conducting a comprehensive review of the current service agreements and work with the vendors to discuss the goals and objectives of their institutions. Another option would be to purchase a service contract at the end of warranty on a sliding scale. Also, customers should consider that as the equipment ages, broader coverage may be needed. A piece of equipment that is only a year old will likely not require the same type of coverage for equipment that is five years old.
4. What are the statistics for new equipment service costs as a percentage of list price?
As a rule of thumb, service contracts for capital equipment cost between 6 percent and 8 percent of the average replacement value of the equipment, though this can vary by the type of technology. In some cases, the pricing can vary based on procedure volume, as well. Some equipment that has little variability in configuration may be based on a fixed “list price." The age of the equipment, models covered, type of coverage and condition of the equipment all influence this price. However, there can be variability in service pricing. We have seen a range of approximately 2 percent to 24 percent overall. For example, when we look at IT coverage, we often see hardware in the 8 percent to 12 percent range, but software falls between 18 percent and 24 percent.
5. How should the percentage of cost for service renewals for older technology be estimated? Although older equipment can carry a higher risk of failure, in general, pricing depends on the technology and configuration. Because maintenance contracts for older equipment depend on different metrics, it is best to find a reputable source to benchmark service for these older or obsolete systems. The cost of service for older equipment is always higher than that of newer systems. As the equipment ages, the cost of service will increase, and many vendors will have a 3 percent to 4 percent per year increase on multiyear agreements to account for aging. The main exceptions to these rules are systems that are reaching sunset, or are no longer supported due to obsolescence.
6. How is the amount of service coverage needed determined?
