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Vendor service strategies of tech management

August 06, 2021
Parts And Service
From the August 2021 issue of HealthCare Business News magazine

To assist in medical technology servicing, there are multiple service provider options to choose from, along with a wide mix of service providers, such as original equipment manufacturer (OEM) service contracts (i.e., vendor service), independent/third-party maintenance organizations, and in-house services. Considerations for hospitals in choosing from among the options include hospital demographics, such as the flexibility of the budget, patient volume, the availably of backup systems, and the capabilities of the in-house staff.

Service provider options: Pros and cons
OEM service contracts: Relative to the location of the provider, an OEM vendor service contract should be able to provide the least amount of downtime for a system. This is due to the vendor’s access to diagnostic software and parts, and the training level of its technicians. The primary drawback to this option is the cost. Consider that vendors can realize 50% or more of their profits from their service contracts. Thus, they use services as a source of recurring revenue. As a result, for healthcare organizations, it’s essential to negotiate the cost and level of service at the time of purchase. Before committing to a contract, hospitals should fully understand which party is responsible for key activities, such as networking and cybersecurity

Negotiating vendor contracts for equipment a hospital or health system already owns is always challenging, as ownership will somewhat limit negotiation leverage. To overcome this, hospitals should keep competition alive by getting competitive service bids from a third-party provider. Unfortunately, third-party options may be limited for leading-edge technologies that are new to the market.

Another way to create leverage in vendor service contract negotiations is to discuss the potential of future business. Medical technology is progressing in leaps and bounds, often quickly creating technological obsolescence. As a result, the life expectancy of medical capital equipment is much shorter than it was even ten to 15 years ago, and equipment is being replaced more frequently. If the vendor knows they are risking the potential for future business by being inflexible during service negotiations, they may be more willing to negotiate on service contracts for existing equipment.

Pros: Usually associated with limited downtime, and parts and software are readily available.
Cons: The cost is typically higher, networking and cybersecurity responsibilities must be confirmed, and uptime guarantees and equipment coverages must be in writing.

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