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Controlling costs of service: every dollar counts

August 29, 2022
Parts And Service
From the August 2022 issue of HealthCare Business News magazine
There are multiple strategies healthcare organizations can employ to lower the cost of a service contract. One is negotiating the price at the time of capital purchase. The profit margin for OEMs that service their own equipment can range from 40-60%. As a result, it’s beneficial for health systems to negotiate on services from the start, when they have the most leverage.

Another cost-saving strategy involves determining the level of service and/or support that a health system anticipates it will need for a technology in order to maintain continuous patient care. Critical equipment is dictated by the healthcare organization’s patient population and mission. First, the organization must consider the quantity of equipment needed and determine how critical it is to the mission of the hospital. Then, the required level of support can be determined by leveraging inventory management programs to:

• Obtain historical breakdown records
• Review utilization percentages
• Identify impact of downtime on clinical services
• Review impact to revenue for downtime.

Some equipment and technologies could be candidates for lower coverage if they are considered low-use technologies, a backup system is available, or the equipment is consistently reliable. The cost-saving strategies can come via limiting the hours of service and preventive maintenance visits and parts coverage in the contract.

Key considerations in a service contract
To rein in costs, healthcare organizations must carefully think through multiple areas in any service contract. For example, software has become a costly line item in OEM service contracts, primarily because it gives the vendor leverage against competing third parties. Various categories or types of software may be included in the service contract. The vendor can add new features and functions, make enhancements, fix bugs, improve networking — and now more commonly, offer cybersecurity. Older equipment facing end-of-life or basic systems may not get yearly upgrades. As a result, symplr recommends that customers ask the vendor what is included in the software upgrades and determine whether it is appropriate for their technology and utilization.

An additional contract factor to watch for is a significant cost difference in the hours of coverage. The coverage needed will be dictated by how critical the equipment is and whether there is a backup. Systems with high utilization may require coverage for extended hours or even after-hours or weekend preventive maintenance visits. Even when reviewing service on a low-use technology or consistently reliable equipment, a backup system may need to be available and/or it may only require 8-to-5 service coverage.

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