From the May 2021 issue of HealthCare Business News magazine
Service can also be an important revenue stream for vendors, accounting for up to 40% of total revenue. This is especially true with high-end technology providers (robotics, imaging, lab, IT) or systems with a long life cycle (sterilizers, beds, lights). Profit margins on vendor service plans can reach 50%. This has become especially evident for new IT-focused technologies where software licenses and upgrades have become the norm, thus adding to the cost of ownership.
Hospital profit margins over the last 10 years hover in the 4–6% range, but as many as a quarter of facilities operate in the red. This has led to a focus on service as a way to lower costs. A hospital must generate $20 in revenue for every dollar in costs. Fortunately, multiple service options are available to control costs without compromising outcomes. These include multiple vendors, hospital-wide, third-party, and in-house service options. Each has its own benefits and drawbacks; risks must be balanced with savings.
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One key method of controlling costs is to “think ahead before the purchase”. A comprehensive HTM program includes evaluation of new technology and its service options. Part of the capital budget process should involve sign-off by the department director and Bio-Med staff on their recommendations for maintaining the technology. This allows department and material managers to have clear goals when negotiating service on the technology.
Considering service over the life of a technology in addition to capital costs allows negotiators to get a true picture for cost comparison of vendors and models. It is at this point that the vendor is 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. Among the multiple tools available are FDA recalls and the FDA MAUDE database. These will give potential buyers an indication of a technology’s general service history.
About the author: James Laskaris, EE, BME is a clinical expert at TractManager, now a part of symplr.Back to HCB News
