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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

Road map to lower costs
As Medical Technology becomes more complex, providers are seeing their cost of ownership increase. This is true even though competition has driven vendors to offer more reliable technology, particularly in the first few years of operation. For this reason, a full-service contract may not be cost-effective in the early life cycle, especially when routine (preventive) maintenance is performed. But when a technology reaches the end of its life expectancy (typically 5 to 7 years for higher-end technology), service and software costs may exceed the cost of replacement. In this case the systems should be high on the capital budget committee’s list for replacement.

There are advantages and disadvantages for all levels of contracts. To determine which level is best for your needs, consider these factors:

How much is the technology utilized?
Where is it in its life cycle?
How reliable is it?
Is there a backup system available?

Technology that has a high level of utilization and does not have a backup is a candidate for a full-service contract. The loss of revenue if it becomes unavailable may exceed any savings from alternative service options. On the other hand, mature technology in the middle of its life cycle may not require a contract. Cost-conscious facilities with an innovative technology management team should address service needs systematically. This includes tracking the service costs of a technology on a “time and materials” basis.

Even with a full-service contract, vendors can provide an estimate of what the repairs would have cost. At the end of the year, if these costs exceed the cost of a contract, a full-service contract is warranted. This will also help a facility determine when a technology is due for replacement. Considering that even smaller facilities may have thousands of pieces in their inventory, tracking all technology in this manner may require more resources then are available. One thing to keep in mind is that 90 percent of any organization's service costs are associated with 10 percent of the equipment.

James Laskaris
Software has assumed greater importance as technology becomes more computer-driven. It’s often considered a black hole in the budget, especially when higher-end system vendors offer software support as line items. Typically, these are offered on existing equipment on the basis of new features, increased compatibility, or to fix preexisting bugs. But the question in the back of a director’s mind remains: What additional value are we getting for a $10,000-plus software contract or upgrade? Before committing to a software support contract, I recommend you ask several questions: What new features will you be receiving? Will they be truly new features and capabilities or just aesthetics? What does a software upgrade cost on a time and material basis? You may end up paying for a new screen image or for the system to be compatible with something you do not have.

About the author: James Laskaris is the senior clinical strategist at MD Buyline.

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