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The economics of medical equipment service

August 06, 2019
Parts And Service
From the August 2019 issue of HealthCare Business News magazine

Think ahead, ‘before the purchase’
The time to consider the service options of a new technology starts way before signing the purchase order — as early as the capital budget process. This is when the vendor is the most flexible with pricing and service options. After the sale, the vendor has all the leverage. The key is to have a plan well before the warranty expires. Multiple tools are available that include service rating databases along with FDA recalls and MAUDE (FDA) records. These will give potential buyers an indication of a technology’s general service history.

Part of the capital budget process should involve the views of the department director and bio-med staff on how best to maintain the technology. This allows departmental and material managers to have clear goals when negotiating service on the technology. Considering that the cost of service over the life of a technology can equal the capital costs allows negotiators to get a true picture when comparing vendors and models
Keep in mind that not all technology requires a service contract, especially if trained in-house staff is available. If this is the case, service training should be considered. Aggressive negotiations can produce service schools and manuals at no cost. These can represent line items worth thousands of dollars. Diagnostic software and tools may also be required. These are also negotiable at the time of sale, and with large purchases they can be included at no charge during the purchase discussions.

If the decision is to purchase a vendor-supplied service contract, lower costs can be achieved through multi-year agreements. These usually represent a savings of 5–10 percent over single-year agreements. The downside is that the fine print may prevent you from seeking additional savings in the future. Before signing a multiyear contract, consider the length and the out clause. Down the road the department may want to seek other options, such as asset management, time and materials, or in-house support, if staff feel the vendor’s service contract is not cost-effective or dependable.

Another factor to consider is an annual price increase. Historically, price increases have been tied to market basket increases as per the Consumer Price Index (CPI). Market basket increases for medical equipment and supplies are 3–4 percent. Vendors typically price their increases at 1 percent below the market basket increase. This puts the average increase across the board for technology at between 2–3 percent.

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