Providers today have so many more options than they did in the past when it comes to parts and service. It’s fortunate, because the challenges they face are also much greater than they were in the past. With financial challenges, regulatory issues, staffing concerns and of course, the need to stay abreast of new technology, the lines between departments are blurring and fewer people are expected to get more done with less resources.

There is no one right answer to solve all the problems and different providers approach problems in different ways. Some large providers have economy of scale working to their advantage and can benefit from in-house services, while others can’t or choose not to go in-house.

Meanwhile, some smaller facilities feel they cannot afford OEM service or justify an in-house team, so they explore alternative service options. In some cases, whether large or small, hospitals might use a blend of all three.

It seems based on the professionals interviewed for this story that there is no hard and fast rule. Oftentimes, the choice is a reflection of the personality of the people in charge. Some people have a do-it-yourself mentality while others prefer leaving certain responsibilities to others as they focus on different tasks.

Although in-house service technicians are onsite and provide the fastest initial response time, unless the organization has that economy of scale, they likely need support from an outside service group.

In-house teams not only help to maintain equipment by keeping up with preventative maintenance, but they also serve to provide an immediate first look in the event of equipment failure. While not every facility may be large enough to justify a full-time in-house team, it’s a valid option for many. And in-house isn’t an all-or-nothing proposition. Many OEMs and ISOs work closely with in-house teams, providing training and support, in some cases even working with those professionals to help them become more self-sufficient and thereby take charge of more of their hospital’s service needs.

While alternative maintenance programs using risk-based assessment have been carried out for years, officially, it was against the rules to deviate from manufacturer recommendations for maintenance according to the requirements set forth by The Centers for Medicare & Medicaid Services. But CMS, whether understaffed or unconcerned, didn’t go to great lengths to enforce the rules as long as hospitals were keeping the equipment in good order and had the documentation to support their risk-based maintenance decisions.

That all changed in late 2011, when CMS issued a memo specifying restrictions to those alternative maintenance programs. According to the memo, hospitals had the option to examine and adjust maintenance schedules and testing frequency where appropriate, but could not deviate from manufacturer recommendations for any equipment that could impact patient health and safety or for any equipment too new to have an extensive maintenance history. Hospitals, ISOs and numerous healthcare associations were up-in-arms and the outcry was so loud that CMS toned down the directive. The final decree is that hospitals must follow the manufacturer’s recommendations when it comes to laser devices, imaging equipment, radiological equipment and equipment too new to the market to have adequate maintenance history to develop an alternative program.

While that comes as a blow to some in-house service teams, the savings and efficiency they deliver still makes the option attractive to many hospitals. Other hospitals swear by longstanding relationships with OEM partners and haven’t concerned themselves with the CMS drama.

DOTmed HealthCare Business News spoke with a number of providers about their service needs and the experiences they’ve had. The group has had a mix of using in-house, ISO or OEM services and has had a mix of success with those options.

Keeping the long-term in mind

Low cost offerings and immediate savings can be attractive propositions for hospitals, especially in these days of shrinking budgets. Yet savvy health care professionals realize they’re running a marathon instead of a sprint when it comes to ensuring the ongoing health of the hospital or health care system they’re with. Frederick McMurtrie, CBET and biomedical supervisor of a leading Florida Hospital System and Past-President of the Florida Biomedical Society realizes he’s in a marathon.

“In our system, we work with our OEM partners to cover parts for seven years and labor for one year or parts three years and three years of labor; it is all part of the cost of ownership and is negotiated up front during the purchase process,” says McMurtrie.

With cost containment a hot button topic for health care professionals, stretching the profitable life of equipment assets is highly desired. Taking care of the equipment, keeping up with preventative maintenance schedules and even just being sure to keep it clean goes a long way to helping the machine go a long way. “We try to manage the equipment with the idea that it should be maintained in as close-to-factory-new condition as possible,” says McMurtrie. But it’s sometimes easier said than done, especially when parts get scarce or service support dries up.

In instances where the OEM has discontinued support or the cost to upkeep through OEM services become prohibitive in comparison to the revenue a machine is generating, then McMurtrie will explore aftermarket parts options or other options for service. In general though, his hospital system relies heavily on OEM service and materials. “I would say the percentage breakdown would be 85 percent OEM and 15 percent aftermarket,” he says.

It’s a balancing act when considering the revenue a piece of equipment can generate and the cost it takes to maintain the machine. If outside service companies are used (whether OEM or ISO) a carefully designed contract can help a hospital more accurately determine when it’s time to retire a machine. However, if the last few years have been any indication of things to come, return on investment will require very careful planning and considerations like service and parts will have to figure in significantly to the overall plan. “Most parts we pay for have gone up,” says McMurtrie. “In some cases, doubling or tripling in cost over a year or two,” he says.

While McMurtrie’s hospital system does belong to a GPO and prefers going through it for services, they do have flexibility to look outside those boundaries when a situation warrants it.

Uptime equals patient satisfaction

Donal Teahan, director of practice development for the department of radiology at NYU Langone Medical Center, is a strong voice in the parts and service discussion. Teahan washes his hands of the notion of taking services in-house and welcomes continued service by the OEMs.

“I rely on Siemens to service much of our equipment because I believe that in our environment with the uptime I’m required to have, that I have much more control and get a much better response than I would from an in-house engineering department that’s fixing beds one day and MRs the next,” Teahan says.

“I have worked with in-house service, ISO service and OEM service and have seen that our response time is better with the OEM. That the staff is better-trained and most importantly our uptime is greater,” he says.

To make the numbers work and to keep his budget intact, Teahan says it’s necessary that he produces on the backend. “We get a budget from the institution to take care of service. It’s a global outside budget and once we produce on the back end no one is looking to cut our budget.”

When Teahan made the decision to make uptime the top priority he requested changes to his old service contract. “We had a service contract from 8 to 4, Monday through Friday and everything else outside was overtime and outside the standard hours. We now ask the OEM to work on any equipment maintenance from 12 midnight to six in the morning. If you’re taking my equipment away from me at other hours we can’t see patients,” he says.

He believes that taking service in-house only looks good financially for a few years, when the equipment is still new and unlikely to require any significant repair or service. As time goes on and parts begin to wear out or fail, the financial benefits can start to fade.

With Teahan’s hospital in a major metropolitan market, patients aren’t the only thing facilities are competing to bring in. Just as facilities are investing in advertising to bring those patients in, so too are they investing when they want to bring the parts they need in. “If I have an OEM contract and the hospital up the street has it all inhouse and we both need the same part, who do you think is going to get the part if there’s only one available?” he asks.

Teahan is also pragmatic when it comes to in-house capabilities and working with limited resources to handle a large number of modalities and units. “We have Siemens and other OEM engineers on site and they know their modalities. It is just not possible for in-house service to compete because they cannot know everything.”

“Of course we are interested in reducing costs, but uptime is more important,” Teahan says. “Uptime will produce the revenue to cover the costs and uptime results in better patient outcomes.”

“In the grand scheme of things, what we pay for service compared to the uptime we experience supports our business strategy,” Teahan says. “It does not make sense to risk uptime for a percentage drop in service costs. We need to be running 24/7/365 and we cannot afford to have a system go down because it could delay a patient going to surgery.”

Teahan believes his philosophy also gives his hospital better positioning with OEMs because they’re not looking to distance themselves from OEM services. Instead, they’re bringing them in as partners. That approach may be refreshing to the OEMs. “Especially in today’s environment where they are being squeezed by everybody, we stand out. We get the part because we’re paying for it.”

To Teahan, with all the talk of patients coming first, people aren’t putting their money where their mouths are. “In my opinion, people are placing too much emphasis on cost of service at the expense of patient outcomes and patient satisfaction.”

When a system goes down, that broken link disrupts the whole chain of care. “It’s not just the imaging portion — it’s the back up all down the line in the hospital,” Teahan says. “We can’t get a patient discharged, we can’t get a patient admitted.”

By maintaining service contracts and avoiding in-house options, Teahan is also able to reduce the time spent playing politics. “Bringing it in-house becomes more stressful and there’s more administrative arguments and bureaucratic wrangling internally if all of a sudden you have to purchase a part that’s $250,000. I never run into that problem. Do I have to pay a premium for that? Yes. Do I think the premium has value? Absolutely.”

Although Teahan holds partnerships with OEMs in high regard, they shouldn’t look at his way of thinking as a free pass. In the spirit of true partnership, he wants it to be a two-way street. According to Teahan going forward OEMs will need to better demonstrate the added value their service and parts supply delivers. They’ll need to more clearly define the total cost of ownership on equipment as well. “The OEMs also have a better ability, when they finally listen, to create an infrastructure that helps us all in the long run.”

With technology allowing more systems to be remotely monitored, that means there should be ample warning in most cases that maintenance is needed. “No piece of high-end imaging equipment doesn’t tell you electronically in advance that it is going to have a problem and the OEMs should develop systems to monitor that more than they do now,” says Teahan.

He points to MR scanners as prime example of that notification. “Ask anyone who takes care of MRI scanners and they will tell you that 95 percent of significant downtime is caused by the environmental specs not being met by the end user, e.g., chilled water conditioning, humidity and power — all of which can be monitored remotely.”

But the process needs improving. Teahan believes the OEMs need to be more proactive in tapping into that technology and providing solutions or preventing issues from occurring. He says he hasn’t had an OEM come in for an install yet to say they want data points to monitor not just the things on their side, but the issues on the hospitals side as well. So for instance, if the MR’s chiller shuts down in the middle of the night and sets off an alarm on their side, they could call to tell Teahan to turn it back on so that the machine is ready for patients in the morning. “My OEMs are in the process of doing this, we monitor everything else, but we’re not monitoring our machines,” he says.

That type of data monitoring and infrastructure is difficult to come by for in-house departments in his opinion. “If you go to the administration and ask for the tens if not hundreds of thousands of dollars to accomplish that, you’re probably not going to get it. OEMs should ask for the specs. It’s a proof of concept — you will save money.”

The monitoring requires a shift in thinking and a change to historic roles. Teahan stresses that responsibilities should be clearly outlined for the OEM and if there’s in-house or third party, they should know their roles as well. So that there’s not a situation where everyone thinks the other group is handling a problem.

Ultimately, he believes regardless of whether you use OEM coverage or clinical engineering internal, there has to be an independent monitoring system that monitors both sides of the equation — the equipment and the house environmental side, so that the appropriate group can access the logs and see what the problems are.

“This is the future,” Teahan says. His facility has been using OEMs for parts and service for more than a decade and he feels strongly that it’s the right decision. “Do I want my budget to go down? Yes. But there’s a balance and I see the other side of it,” he says. “If a CT scanner in a hospital setting is down for any period of time, forget the cost in money, what about the cost to the patient waiting to get in or be discharged? I believe in five-year’s time, when hospitals and OEMs actively monitor systems that we can cut the cost of service significantly and provide better service and uptime to the end user, and the end user — me, the docs, the patient — will be much happier. A 24/7 hospital has to happen because you can’t have downtime for these types of equipment. Maybe there is a balance between all in-house and all out-house. I have that balance because I have in house engineers provided by the OEM. I know there’s a cost attached to that. But we have proven over 10 years that it works,” Teahan concludes.

Neighbors to the north

While the same rules dictating service and maintenance in the U.S. don’t apply to Canada, the basic challenges still hold true. That is, hospitals still look to maximize equipment uptime while minimizing service and parts expenditures. Chris Buck, executive director for the Lower Mainland Biomedical Engineering program, offered insight into how his group handles service and parts. LMBE services four health authorities, including Fraser Health in Vancouver B.C. and provides service to 26 acute hospitals with approximately 5,000 beds total. The largest facility they service is Vancouver General with just over 1,000 acute beds. His full-time staff numbers 193 with 172 being technologists.

According to Buck, Fraser Health has only a few service contracts with companies. In part, that’s because of the difference in Canada’s equipment maintenance requirements. “We canceled a lot of service contracts, particularly for imaging and some in monitoring,” Buck says. “We use outside service providers for some specialty work, particularly MRI cryogen work as this is more cost effective and safer than training our own people who would not get sufficient hands-on time to stay competent,” he says.

As a general rule, they don’t enlist the services of OEMs citing the higher costs involved. When it comes to parts however, the options are wide open. “We give everyone a fair shot with price, quality and delivery key components,” Buck says.

Still, with price concerns being a top factor, OEMs are not typically the supplier of parts for Fraser Health. “Buying from OEMs has gone down a lot over the past three to four years because of cost which has gone up, but sometimes the OEM part is the best choice,” he says.

Generally, they work with alternative parts providers, but the OEMs have been working to be more competitive with their pricing since Fraser is such a large organization, according to Buck. “We buy in excess of 60 percent on the open market, but of course, that’s hard to do with newer technology,” he says.
Bucks’ experience seems to mirror that of many of the other providers we spoke with. There seems to be a trend to buy more parts in the open market. And while independent parts dealers are not eclipsing OEMs in terms of parts sales, their market share is definitely growing.

Buck says by collapsing $6.5 million (roughly $6 million U.S.) in service contracts by bringing them in-house, the organization saved just shy of $2.8 million U.S. He acknowledges that overall spend is going up because the organization is growing, but total cost of ownership on individual pieces of equipment has gone down.

Parts supplies present a little more of a challenge due to the geographical location. “We found third party vendors have been very good with standing by their products. Parts become an issue when it is time sensitive,” Buck says. For instance, they can get CT tubes by overnight delivery from Chicago most times, but sometimes the delivery is held up in customs for a few days. “For a CT tube, we can’t afford those three days, so we keep two tubes on consignment at all times. They are in a warehouse here on consignment and we pay when we use it and order another.”

Freedom of choice

Legacy Health is the largest nonprofit, locally owned health system in the Portland-Vancouver area, according to information on the organization’s website. The organization largely depends on in-house service for equipment no longer under warranty, handling about 85 percent of the work, according to Russell Magoon, an imaging service technician at Legacy as well as the president of the Oregon Biomedical Association. “The OEM percentage is 13 to 14 percent with ISOs making up the last one or two percent,” says Magoon. “For things that we have OEM contracts on, it makes sense to use them. The driver for using OEMs is the lack of downtime,” he says.

Magoon adds that there are some modalities that no one can do as well as the OEM and their hospital relies on the OEM to service that equipment. When it comes to parts, the decision for most purchases are left to those that will be working with those parts. “The techs make the decision to use the vendor they feel most comfortable with,” says Magoon. That means some techs may look to the OEMs while others may have a familiarity and comfort level with third party parts vendors, so they’ll go there. “The relationship between suppliers is so important,” says Magoon.

Before bringing most of their services in-house nearly eight years ago, Legacy’s service and maintenance needs were managed by Aramark. Today, although techs have the freedom of choice when it comes to who they’re getting parts supplied by it’s rare that they do actually use OEMs for parts. “When it makes sense we do, when it’s a quick turnaround situation,” says Magoon. He puts the amount of parts sourced directly from the OEMs at around 20 percent with the remaining 80 percent being left up to what makes sense to the techs.

The asset management company MedAssets negotiates capital purchases and service agreements for Legacy but the health system doesn’t use the company for parts purchases and non-contract service needs. “We do have a reduced price on parts and service from GE and that’s due to the MedAssets negotiation,” says Magoon.
During the course of reporting this story, we’ve found that GPOs don’t play much of a role in the purchase of spare parts or noncontract service.

While the current system has served Legacy well, Magoon says things can get shaky when there are management changes. “When there are management changes, sometimes new managers will look to reduce expenses and make changes. In some ways, ISOs deal with this better because the ISOs have more experience working with management changes that the average in-house service team would. That’s why ISOs do well. They are very good at knowing when there is a management change and when they can offer a low price on something.”

Networking to keep equipment working
Helen Jones is the unit director I of MedWest Harris, MedWest/Swain, which have 100 beds total. Like Magoon at Legacy, Jones says that once equipment is out from under warranty, effort is made to move the servicing in-house. Jones says that generally, the equipment serviced in-house has been in use for a long time and is rarely still supported by the OEM. Moving away from outside service is Jones’ ideal. “We try and minimize it, but a specialty like tissue pathology you have to use OEM service. For 4,000 pieces of inventory, we only have 10 contracts that cover about 19 pieces,” she says. But there are challenges with providing in-house service for equipment OEMs have ceased to support. “It’s frustrating because it’s hard to find parts,” she says.

Getting those hard-to-find parts is all about who you know. “You have to find out who your reliable second source vendors are,” she says. “About 90 percent we do it ourselves. I remember who’s good because I still use them. My networking and relationships help me find parts.”

OEMs are still relied on though. “We do buy from them and sometimes we buy refurbished parts from them, many times we have to,” Jones says. She estimates that about 25 percent of the parts they use come from the OEM. For the rest, it’s getting in touch with contacts or getting creative. “We’ve bought from the Internet,” she says. Networking with peers and organizations also yields results. “We ask around, ‘do you have this part or know where to get it?’”

By getting a little creative, building relationships, networking and doing some investigative work, Jones has managed to minimize many expenses. She also uses a tool at nearly everyone’s disposal —the Internet. “The Internet has changed the way we do business,” she says. “To buy a bed cable from a bed manufacturer cost $120, but just $30 from a cable manufacturer. But it’s a generic item. We have to search, but it’s a perfectly fine part and not putting anybody at risk.”
Although they do buy from non-approved GPO vendors, there are limits to who she will and can buy from. “There are certain vendors the company does not want us to buy from. So we buy from both (GPO-approved and non-approved) but we give preference to good proven history,” she says.

Total in-house service

Some hospitals fully rely on OEM service, others may tap ISOs or use a mix of the two along with their own in-house. None of that applies at NC Baptist Medical Center when it comes to servicing their radiology imaging equipment. “We are 100 percent in-house,” says Stuart Grogan, radiology equipment manager at the center.

While the biomed department is serviced by Aramark, Grogan’s department has autonomy when it comes to their service needs. “We are a separate department with the responsibility of servicing our own equipment,” he explains. To be at 100 percent in-house service requires, in addition to experience, quick and accurate parts acquisition. For that, Grogan says it’s a mix. “It’s a complete mix, it’s whatever the situation requires,” says Grogan.

Grogan says if the OEM is more expensive, but has the needed part on-hand and it’s critical, they’ll move forward with the purchase. “It’s situation driven and machine driven,” he says.

Although the purchase decision is situation driven, there are checks in place to make sure the system isn’t abused. “We look on the open market and our engineers are measured on how well they do on cost savings and time in getting the parts,” Grogan says. “The OEMs try to sell us service contracts; they say they can save us time. But we have good independent vendors. We do have some parts agreements with the OEMs,” Grogan says. “Some vendors’ parts are more prevalent on the open market than others. If we can’t get it we go to the OEMs.”

Grogan says they have negotiated parts support contracts with OEMs in the past and it wouldn’t be off the table in the future —the decision is financially driven, but with the ultimate goal of providing a high level of patient care.

Grogan says their spending on parts has increased slightly as they have actually had to turn to OEMs for parts more in recent years because they’ve been replacing technology with more current models. Newer equipment usually means a scarcity of parts and it means the OEMs are sometimes the only game in town when it comes to acquiring those parts. “We have new state-of-the-art MRs, so we are of course on parts contracts that we’ve negotiated for that equipment,” he says. “You don’t need that for 15-yearold X-ray machines.”

Get a number, find a part
“The only things that are outsourced are CAD systems, the treatment planning systems and anything that has a hot radioactive load,” says Joe Kaminski, director of imaging services at Geisinger Health System. “We generally go the OEMs because it’s purely software driven and they make sure the software is up-to-date. In that case, the OEM is your only option,” he says.

With just those systems outsourced, he estimates in-house probably takes care of about 90 percent of the equipment service. For parts, again while they might go to the OEMs for hard-to-find newer components, generally they have staff hit the open market to find parts. “We rely on our engineers when we can. Our sourcing team also hunts for parts when the model number is straight forward.”

Kaminski says the overall part spend has gone up over the past three years, but not because of an increase in parts costs, but rather because of an increase in the size of Geisinger and the increased demand for parts. But he maintains that they work hard to drive the total cost of ownership down. They do this in part by managing well from cradle to grave.

Kaminski says they not only manage the equipment, but they also manage their own assets in the department and are not interested in employing the services of an outside asset manager or insurance company. “Did it once, got burned , won’t happen again,” he says.