Ideas for Hospitals, Centers, and Practices

Protecting the Value of Equipment Investments
Peer Review Management Tool Improves Quality

Protecting the Value of Equipment Investments

Manufacturers can charge up to $100,000 or more for a software license.

Failure to negotiate software license agreements is a costly mistake you can avoid.

When purchasing new medical imaging equipment from a manufacturer, there are many important factors to consider that will affect your decision. Like most purchasers, you probably have researched the technology, the financing, the revenue-producing capabilities, and the length of time you anticipate using the equipment. You may buy the equipment, planning to use it for 5 years and resell it in order to offset a portion of the cost of its replacement in the future, keeping your facility outfitted with the “latest and greatest” technology. The market for used and refurbished medical imaging equipment continues to grow as physicians and radiologists recognize the value of “recycling” equipment that is still in or can be returned to excellent condition. The demand and value for preowned equipment has never been higher. However, unless you are careful, the calculation for your return on your initial investment could be tens or hundreds of thousands of dollars off.

For economically minded physicians, hospital administrators, lending institutions, and other purchasers, the idea of losing such value is not acceptable. The purpose of this article is to bring to light one of the most common (and costly) mistakes made during the purchase of medical imaging equipment: failure to negotiate the equipment’s software license agreement.

Software is a vital part of the equipment and its functionality. In fact, many buyers’ purchase decisions are based on the software level or revision of a piece of equipment. A little known intricacy of the manufacturer’s sale of medical imaging equipment is that they do not actually sell the software itself. They sell the customer the right to use the software while they own the equipment (license). This is done for a variety of reasons, but mainly to protect the copyrighted material in the software. When you enter into a purchase agreement with a manufacturer, the terms and conditions will include a software license agreement. The software agreement will likely include statements prohibiting you from transferring the software to a third party. Some manufacturers make the license nontransferable without the manufacturer’s prior written consent, but most will prohibit you from transferring it completely. How might this impact your business?

Adam Desjardins Trish Payne

Simply put, this means that the value of the equipment is likely less than you think. Unless the manufacturer gives you fair market value for your trade-in, your expensive and once-valuable equipment has depreciated tens or hundreds of thousands of dollars. Because you purchased the right to only use the software, you cannot sell it with the system. A purchaser can buy the equipment but, without a license to use the software (which only the manufacturer can issue), use of the equipment can be restricted. Depending on the equipment, manufacturers can charge up to $100,000 or more for a software license(s). If a user attempts to operate the equipment without a valid software license, some manufacturers may (and have) threaten to disable the equipment. As the economy continues to burden manufacturers, it appears software license enforcement may be one method that manufacturers use to minimize losses. Accordingly, the price available on the secondary market for medical imaging equipment will decrease as purchasers try to avoid liability and seek licenses, costs that will factor into their purchase offers. What does this mean for you? When you are looking to upgrade to the latest technology and sell your existing equipment for the highest amount, its value will have declined significantly. Worst of all, by the time you realize this, it may be too late.

The time to protect the value of your investment is before you purchase. The terms of the agreement signed at the time of purchase control your rights. But keep in mind that the terms and conditions of the contract are not set in stone until you sign. So, take the time to negotiate your terms with the manufacturer. Make sure that you will be able to transfer the software license. If they say that is impossible, ask why. We have seen two different contracts from the same manufacturer, one stating that the license was transferable and the other stating that it was not. They can make the contract read whatever they wish, so make it say what you want. Take control of your purchase; you are paying hundreds of thousands or perhaps millions of dollars for this equipment and the manufacturers are not interested in maximizing its long-term value. In fact, if your equipment’s software license is nontransferable, the manufacturer benefits. Nontransferability of the right to legally use the software on your equipment means fewer interested buyers; we all know demand drives prices. Manufacturers will pay less on trade-ins, because they won’t have to outbid anyone for your equipment and you will not receive the return on your investment you anticipated. Question phrases in the contract like: nontransferable, nonexclusive, and prior written consent. Better yet, express your concerns to your legal department or attorney.

As you approach your next purchase, take the time to consider what the real value of your equipment will be when it comes time to sell. Ask yourself, “What will this investment be worth in 5 years?” That assessment cannot be done accurately without understanding what you are buying (and not buying). Educate yourself about software licenses and their terms of use. Each manufacturer’s terms and conditions vary; understanding and negotiating the terms and software licenses found in the boilerplate of the purchase agreement can have a lasting impact on the future use of the equipment and its future value. What you might otherwise overlook is too important not to negotiate. It could mean the difference between upgrading to the latest (and most profitable) technology years sooner and having to finance differently, because you could not trade your old equipment in at the price you expected. For lenders, it could mean the residual values you are now carrying on your books are dramatically overstated!

Some reading this article may be coming to the realization that they have already entered into this kind of agreement with the manufacturer, and are now concerned about the value of their equipment. One thing purchasers and finance companies can do is find leverage. One advantage might be found where the equipment is under a service contract that is approaching renewal. Or perhaps you are considering a software upgrade? Simply ask to make your license transferable. If the manufacturer will not cooperate, use another manufacturer for your next purchase, or try the secondary market. Protect the value of your investment and consider what nontransferable software licenses could mean for your company, hospital, or imaging center.

—Adam Desjardins and Trish Payne

Adam Desjardins is a member of the State Bar of Michigan and general counsel for Block Imaging Inc. Trish Payne is compliance manager for Block Imaging Inc.

Peer Review Management Tool Improves Quality

Rhode Island-based Insight Health Solutions (IHS), a developer of risk management and quality improvement software solutions for the health care industry, has released RadiologyInsight, an automated peer review management system designed to improve radiologist workflow and ensure regulatory compliance. It hopes that the new product can remove the overtime aspect out of the overread process.

The company says the technology is the only statistically valid peer review system that assigns overreads to qualified physicians by subspecialty. Total review steps are minimized to as few as four mouse clicks.

A percentage of cases are randomly selected based on the facility’s requirements and assigned to another reader who is a specialist in the type of exam. Explaining further, Gita Afshar, president of IHS, said, “It then randomly distributes the cases among the pool of readers in each subspecialty group. The software application identifies standard of care issues and escalates discrepant cases for investigation and final disposition. In addition, RadiologyInsight integrates with the hospital’s overall quality improvement initiatives and physician reappointment process.”

Jonathan Movson, radiologist for Lifespan, affiliated with Brown University in Rhode Island, said his practice approached IHS to co-develop the tailored solution. His practice already was using a suite of quality control applications from the company, and its radiologists hoped to create a product that addressed some of their unmet needs.

“We were using a paper-based system to do physician overreads,” Movson said, describing radiologists’ work environment prior to RadiologyInsight. “It was very cumbersome, difficult to manage, and had poor compliance.”

Recalling the earlier inefficient process, Movson said back then radiologists themselves selected cases for overread and pulled them out. As a result, “they weren’t randomly selected at all and there was a lot of bias in the way people chose their cases,” he continued. Additionally, doctors were required to fill out a form and manually add the patient’s name, age, medical record number, the modality used, the date, etc. “Now they don’t have to do any of that,” Movson said. “All of the information is captured in the background. The application (RadiologyInsight) interfaces with our radiology information system and gets all the information from there.”

After radiologists complete the American College of Radiology’s agreement scale, every case gets ranked and all of the information is collected and reviewed by Lifespan’s quality control officers. Quality control then makes a determination as to whether the radiologist who performed the read is correct or incorrect.

According to IHS, RadiologyInsight meets the evolving compliance requirements from The Joint Commission and anticipated “meaningful use” standards. The company points out that the new application enables facilities to produce physician profile reports for evaluation, feedback, and reappointment processes in support of The Joint Commission’s Ongoing Professional Practice Evaluation requirements.

“Plus, it is intuitive and fits into the radiologist’s workflow without disruption,” Afshar said.

Fully customizable, the Web-based system uses an HL7 interface data feed and is available for integration into information systems in facilities with and without a PACS. Pricing is based on the number of radiologists, as well as the number of exams performed.

—Elaine Sanchez