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Choosing capital maintenance and service contracts

October 21, 2014
From the August 2014 issue of HealthCare Business News magazine

By Katie Regan and Kevin Hodges

Outside of a hospital’s capital equipment and supply costs, service contracts can have the most significant impact on overall costs — particularly with service rates increasing at 2 to 3 percent annually. There is also the issue of lost revenue when equipment is down, and the potential liability issues if equipment malfunctions due to improper maintenance. As a result, determining the best service option can be a daunting task.

Here are four considerations for achieving the most effective and risk-adverse equipment support:

  • Determine the level of risk

  • Evaluate coverage amount needed

  • Understand types of contracts and styles of coverage available

  • Include important contract language



Determining the level of risk
To assess the level of risk, you need to review your system maintenance and utilization logs. The system maintenance log records all maintenance performed on a machine. System utilization shows the activity over a given period of time (e.g., weekly, monthly).

It is not uncommon for hospitals to switch to a higher risk contract that offers less coverage to save money if these reports show that the most expensive or at risk parts have been replaced within the past 12 months.

Evaluating coverage amount needed
When assessing a service contract, it’s important to look at four primary factors:

  • Consider the technology as a whole: Depending on its complexity, some types equipment require more preventative maintenance than other types, while some requires more concentrated calibration and adjustment.


  • Determine the utilization of the technology: Will it be used for a high volume of patients? Is downtime unacceptable for throughput? Typically, equipment with low utilization rates will have a low failure rate. Use this information to determine the overall level of coverage necessary.


  • Assess in-house support: This includes the training level of the BME staff and availability of backup systems. Some equipment only requires routine inspections which can be performed in-house. If backup devices are available, the demand for immediate service is less, but these backup systems require maintenance too.


Types of Contracts
Most new technology purchases have at least a one-year warranty, in which case the OEM has full responsibility for maintenance and repair. However, the time to consider additional service options starts before signing the final purchase order, when the buyer has the most leverage. Medical equipment maintenance programs exist today that can shave 10 to 40 percent off the cost of vendor service contracts. After the initial warranty period, hospitals have several maintenance options:
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Steven Ford

cancellation

August 12, 2014 05:51

You correctly note that longer term contracts are cheaper than short term contracts. And then you note that there should be a penalty-free termination clause "that allows you to void the entire agreement or specific items within the contract."

Which is it? A long term contract that one party can cancel at any time is not a long term contract.

Our company offers multi year contracts that cost less than a one year contract, but we do expect the customer to pay the whole contract. That's how we balance risk. In almost every contract, the cash outflow is highly uneven, and we pay for the bad days by collecting money over a lot of good days.

Have you ever seen a contract that permitted the customer to unilaterally cancel, unless there are unusual circumstances such as the machine not being in use any longer?

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