Clinical engineering and the science of the capital budget process
May 24, 2019
By James Laskaris
Clinical engineering has evolved over the years. In the early 70s, safety and repair were the primary focus, especially when Ralph Nader first brought the risks of medical equipment to the attention of consumers. In today’s world, clinical engineering has progressed to managing the entire lifecycle of a technology — from acquisition to obsolescence. With the help of comprehensive equipment management databases, clinical engineering plays an important role in generating multiple data points to assist in identifying a technology’s potential impact during the capital budget process.
Medical technology is vital to the delivery of leading-edge healthcare. The right mix allows the provider to be competitive in their space. To date the U.S. market for medical devices has reached $156 billion, and it’s projected to grow as the population ages, at least for the next few years. Although this is a fraction of what Americans spend every year on healthcare, technology drives virtually all diagnoses and therapies. It dictates the way medicine is practiced and financed. Before capitated reimbursement, buying equipment was a much simpler process. If something cost more, you just charged more. The challenge now — with limited budgets and improved outcomes driving reimbursement — is acquiring the “right technology in the right box at the right price” (the “3 Rs”). This is how a technology provides “value” to the hospital.
The healthcare budgeting process includes a multidisciplinary team to get the most out of the available capital. Primary stakeholders include the CFO, medical director, service line managers, and the director of material management. But with the concept of the “3 Rs”, the selection process becomes more complicated and must rely on solid outcomes along with financial and historical equipment data to categorize and rank the proposed technologies. These include technologies that generate positive revenue (make money), technologies that lower costs (save money), technologies directed to patient safety concerns, and technologies that replace older or obsolete systems. Clinical engineering input is a key factor in strategic assessment, identifying obsolete systems, safety issues, and calculating service and networking costs for equipment replacement planning.
Strategic assessment
The strategic direction of the provider is typically the responsibility of the C-suite, whose members are tasked with shaping how the healthcare system can best address their patient demographics. Clinical engineering can support this by identifying new and emerging technology trends that may compete with or shorten the life expectancy of a proposed project — a critical factor that can impact the ROI of a proposed technology.
Prime examples include items such as film-based X-ray units or older endoscopic systems. These may be less costly, but they are being superseded by more up-to-date systems such as digital X-ray or HD/4K endoscopic technology. Due to clinical necessity, their replacement may be dictated well before their useful life has expired.
In addition, totally new emerging technologies are changing the way healthcare is being delivered. Think how quickly real game-changing technologies such as smart/video Pills, light-based room disinfection, and soft tissue and orthopedic robotics have affected how a service line delivers healthcare.
To help address this, clinical engineering has access to this information through professional organizations such as the Association for the Advancement of Medical Instrumentation (AAMI) and the American College of Clinical Engineering (ACCE), as well as blogs and networking with other clinical engineering departments.
Identifying obsolete systems
There are three primary types of obsolescence: technical, functional, and planned. Technical obsolescence, as mentioned above, occurs when a new technology supersedes the existing technology. One prime example is VHS or floppy disc recording media. This form of obsolescence can limit a technology’s performance within the healthcare environment.
Functional obsolescence happens when a technology has excessive downtime or can no longer be repaired due to parts or software incompatibility. This is a prime reason for replacing a technology. One key indicator is when repair costs start to approach a technology’s depreciated value. Even before a vendor declares a product line obsolete, a user may find it more cost-effective to replace rather than repair the system.
Planned obsolescence is dictated by the manufacturer. It is a business strategy used to increase sales. Technology, in general, has a planned life cycle. Vendors use planned obsolescence when a technology becomes either too costly to support or they intend to offer a new technology into an already saturated market.
The priority list of both planned and functionally obsolete technologies can be identified with the help of the equipment management system. Multiple data points within the software can be mined, such as useful life, service costs, historical downtime, vendor support, and equipment age. The methodology for combining these factors is based on the “Medical Equipment Replacement Score”. There are multiple published versions, but they are all based on a mathematical model that uses a quantitative approach. Each factor is ranked from 1 to 10, and technologies that have the highest numbers on the list are top priorities for replacement.
Cost of ownership
When considering a purchase, budget committees require a business analyst to determine the ROI to the facility. Key points to be considered include reimbursement, capital, labor, consumables, overhead, and service costs. Keep in mind that not all reimbursement is positive. There are penalties for “never events” such as readmissions and hospital-acquired infections. Clinical Engineering input centers on service costs, which can have a big impact on the cost of ownership. For example, service for high-end imaging hovers around 10% of the equipment replacement cost. Considering a 1-year warranty, a service contract can exceed 40% of the replacement cost over the 5-year life of the equipment. Clinical engineering is a viable source for proving service data on new equipment as well as identifying alternative service methods that can lower costs and improve the ROI.
Networking
Networking is a concept that has been driven by the Affordable Care Act (ACA) and the need to make the delivery of healthcare more efficient. In the hospital environment, almost all high-end technology is connected to the system backbone through either a wired or Wi-Fi connection. Historically, clinical engineering was tasked with determining whether a system would fit in the space identified and whether there were adequate power and/or water connections available. Now the challenge is whether the device is compatible with the hospital network and the existing EMR, and whether there are any security concerns, all which may generate additional costs for a project.
Safety
Safety has always been a primary concern for hospitals, but in recent years it has been accelerated by the ACA and by better-informed patients. This increased scrutiny has had a direct impact on revenue as safety becomes a key component in identifying equipment to be replaced. There are two points of entry where equipment safety is a factor in the capital budget: identifying the track record of an incoming technology and recolonizing equipment that should be replaced.
When assessing incoming technology, clinical engineering should identify which equipment has safety concerns and what steps should be taken to minimize risks. Two historical examples are surgical robotics and duodenoscopes. Both technologies have a history of Manufacturer and User Facility Device Experience (MAUDE) reports. But most of the incidents involving these systems were attributed not to system failures but to insufficient user training. Because surgical robot technology is inherently very complex, nurse and physician training are imperative and can be costly. Duodenoscopes have been known to transmit infections when the elevator is not properly cleaned — a problem often attributable to high turnover in the reprocessing department. Issues such as these should be identified so an ongoing budget can be established.
The bottom line: “healthcare is complicated”, and the capital budget should be treated as a science rather than an art. Though all members of a team have their expertise, clinical engineering is in the business of managing medical technology. Providers should use all the resources at their disposal for to acquire the “right technology in the right box at the right price” to stay competitive in their market.
About the author: James Laskaris is the senior clinical strategist for MD Buyline
Clinical engineering has evolved over the years. In the early 70s, safety and repair were the primary focus, especially when Ralph Nader first brought the risks of medical equipment to the attention of consumers. In today’s world, clinical engineering has progressed to managing the entire lifecycle of a technology — from acquisition to obsolescence. With the help of comprehensive equipment management databases, clinical engineering plays an important role in generating multiple data points to assist in identifying a technology’s potential impact during the capital budget process.
Medical technology is vital to the delivery of leading-edge healthcare. The right mix allows the provider to be competitive in their space. To date the U.S. market for medical devices has reached $156 billion, and it’s projected to grow as the population ages, at least for the next few years. Although this is a fraction of what Americans spend every year on healthcare, technology drives virtually all diagnoses and therapies. It dictates the way medicine is practiced and financed. Before capitated reimbursement, buying equipment was a much simpler process. If something cost more, you just charged more. The challenge now — with limited budgets and improved outcomes driving reimbursement — is acquiring the “right technology in the right box at the right price” (the “3 Rs”). This is how a technology provides “value” to the hospital.
The healthcare budgeting process includes a multidisciplinary team to get the most out of the available capital. Primary stakeholders include the CFO, medical director, service line managers, and the director of material management. But with the concept of the “3 Rs”, the selection process becomes more complicated and must rely on solid outcomes along with financial and historical equipment data to categorize and rank the proposed technologies. These include technologies that generate positive revenue (make money), technologies that lower costs (save money), technologies directed to patient safety concerns, and technologies that replace older or obsolete systems. Clinical engineering input is a key factor in strategic assessment, identifying obsolete systems, safety issues, and calculating service and networking costs for equipment replacement planning.
Strategic assessment
The strategic direction of the provider is typically the responsibility of the C-suite, whose members are tasked with shaping how the healthcare system can best address their patient demographics. Clinical engineering can support this by identifying new and emerging technology trends that may compete with or shorten the life expectancy of a proposed project — a critical factor that can impact the ROI of a proposed technology.
Prime examples include items such as film-based X-ray units or older endoscopic systems. These may be less costly, but they are being superseded by more up-to-date systems such as digital X-ray or HD/4K endoscopic technology. Due to clinical necessity, their replacement may be dictated well before their useful life has expired.
In addition, totally new emerging technologies are changing the way healthcare is being delivered. Think how quickly real game-changing technologies such as smart/video Pills, light-based room disinfection, and soft tissue and orthopedic robotics have affected how a service line delivers healthcare.
To help address this, clinical engineering has access to this information through professional organizations such as the Association for the Advancement of Medical Instrumentation (AAMI) and the American College of Clinical Engineering (ACCE), as well as blogs and networking with other clinical engineering departments.
Identifying obsolete systems
There are three primary types of obsolescence: technical, functional, and planned. Technical obsolescence, as mentioned above, occurs when a new technology supersedes the existing technology. One prime example is VHS or floppy disc recording media. This form of obsolescence can limit a technology’s performance within the healthcare environment.
Functional obsolescence happens when a technology has excessive downtime or can no longer be repaired due to parts or software incompatibility. This is a prime reason for replacing a technology. One key indicator is when repair costs start to approach a technology’s depreciated value. Even before a vendor declares a product line obsolete, a user may find it more cost-effective to replace rather than repair the system.
Planned obsolescence is dictated by the manufacturer. It is a business strategy used to increase sales. Technology, in general, has a planned life cycle. Vendors use planned obsolescence when a technology becomes either too costly to support or they intend to offer a new technology into an already saturated market.
The priority list of both planned and functionally obsolete technologies can be identified with the help of the equipment management system. Multiple data points within the software can be mined, such as useful life, service costs, historical downtime, vendor support, and equipment age. The methodology for combining these factors is based on the “Medical Equipment Replacement Score”. There are multiple published versions, but they are all based on a mathematical model that uses a quantitative approach. Each factor is ranked from 1 to 10, and technologies that have the highest numbers on the list are top priorities for replacement.
Cost of ownership
When considering a purchase, budget committees require a business analyst to determine the ROI to the facility. Key points to be considered include reimbursement, capital, labor, consumables, overhead, and service costs. Keep in mind that not all reimbursement is positive. There are penalties for “never events” such as readmissions and hospital-acquired infections. Clinical Engineering input centers on service costs, which can have a big impact on the cost of ownership. For example, service for high-end imaging hovers around 10% of the equipment replacement cost. Considering a 1-year warranty, a service contract can exceed 40% of the replacement cost over the 5-year life of the equipment. Clinical engineering is a viable source for proving service data on new equipment as well as identifying alternative service methods that can lower costs and improve the ROI.
Networking
Networking is a concept that has been driven by the Affordable Care Act (ACA) and the need to make the delivery of healthcare more efficient. In the hospital environment, almost all high-end technology is connected to the system backbone through either a wired or Wi-Fi connection. Historically, clinical engineering was tasked with determining whether a system would fit in the space identified and whether there were adequate power and/or water connections available. Now the challenge is whether the device is compatible with the hospital network and the existing EMR, and whether there are any security concerns, all which may generate additional costs for a project.
Safety
Safety has always been a primary concern for hospitals, but in recent years it has been accelerated by the ACA and by better-informed patients. This increased scrutiny has had a direct impact on revenue as safety becomes a key component in identifying equipment to be replaced. There are two points of entry where equipment safety is a factor in the capital budget: identifying the track record of an incoming technology and recolonizing equipment that should be replaced.
When assessing incoming technology, clinical engineering should identify which equipment has safety concerns and what steps should be taken to minimize risks. Two historical examples are surgical robotics and duodenoscopes. Both technologies have a history of Manufacturer and User Facility Device Experience (MAUDE) reports. But most of the incidents involving these systems were attributed not to system failures but to insufficient user training. Because surgical robot technology is inherently very complex, nurse and physician training are imperative and can be costly. Duodenoscopes have been known to transmit infections when the elevator is not properly cleaned — a problem often attributable to high turnover in the reprocessing department. Issues such as these should be identified so an ongoing budget can be established.
The bottom line: “healthcare is complicated”, and the capital budget should be treated as a science rather than an art. Though all members of a team have their expertise, clinical engineering is in the business of managing medical technology. Providers should use all the resources at their disposal for to acquire the “right technology in the right box at the right price” to stay competitive in their market.
About the author: James Laskaris is the senior clinical strategist for MD Buyline