Equipment servicing models traditionally offer full-service OEM coverage, but that can lead to costs in overtime rates when repairs are needed. A new model growing in popularity relies on a third-party service company for a fixed annual rate.
The cost of servicing and maintaining imaging equipment represents a large portion of the overall facility cost and in some cases ranks second only to labor costs. The ultimate balance between cost and risk depends on many factors such as number of operating facilities, complexity and age of imaging equipment, the hours of operation, and whether the facility covers only outpatient services or whether it services a wider platform such as a 24/7 emergency department.
Memorial Hermann comprises 11 acute care hospitals in Houston. Over the past 5 years, the Hospital System embarked on a strategy to regain and expand its outpatient imaging market share in Houston. This was achieved through initially building 13 multimodality freestanding imaging facilities and, in May 2008, acquiring an independent imaging company known as River Oaks Imaging and Diagnostics, the consequence of which has resulted in a total of 23 freestanding imaging facilities spread geographically throughout the greater Houston area. The key to this strategy has been the independent management of the outpatient imaging facilities separate and apart from the acute care hospitals. Now that the consolidation of the centers is under way, the focus is to find various ways to reduce operating costs with the ultimate goal of increasing profitability.
Equipment servicing has historically followed the traditional hospital model of having an in-house biomed first call system backed by full-service OEM coverage, especially on the more complex scanners such as PET/CT, MRI, and CT. The recent acquisition of River Oaks Imaging provided Memorial Hermann’s Outpatient Imaging Division (OPID) the opportunity to test a new equipment servicing model.
A New Model
Prior to the acquisition, servicing of equipment at River Oaks Imaging had traditionally cost the company approximately $2.5 million a year and was based on a full-service model. The new model involves having a third-party service company provide 24/7 labor at a fixed annual fee along with preventative maintenance for all equipment. OPID reviews the resume of all service engineers ahead of the engineers being allowed to work on the equipment. The cost of services also includes cryogen coverage on the MRIs. All preventative maintenance is now performed after hours as opposed to the previous model, which was done during normal operating hours and meant interference with patient scheduling. OPID opted not to include parts coverage but to take that aspect at risk. The benefit of assuming the risk is that this type of cost can be spread across all facilities, which helps to soften the financial impact on any one operating entity. In the event repairs are needed, the service company has the authorization to replace parts costing up to $10,000, and thereafter Memorial Hermann can negotiate with the service company to look for alternatives, such as reconditioned parts, to keep costs down. The servicing company, as part of the contract, provides an on-site manager to work with the OPID and direct service engineers. Monthly uptime guarantees, based on the operating hours of the equipment and not 24/7, ensure that there are clear and meaningful performance expectations between both parties. Engineers are available to cover all the tasks usually covered by an in-house biomed department. The enterprise solution is in its initial phase, but it is forecasted that even with parts replacement, the total cost savings will be in the region of $ 1 million per year.
The first stage of embarking on this project required Memorial Hermann’s Outpatient Imaging Division to send out requests for pricing (RFP) to a number of qualified OEMs and third-party servicing companies. After careful consideration of all proposals and the nuances contained in multimodality contracts such as these, the contract was finally awarded to BioCare, the ultimate deciding factor being their pricing and their ability to meet all the criteria in the RFP.
“Delivering integrated solutions to our customers’ unique needs while providing quality, best-in-class services is our commitment,” said Keith Miller, of BioCare. The company’s BioCare TotalSolution delivers an innovative and comprehensive program with a straightforward, cost-capped agreement that provides a best-in-class solution for servicing biomedical and diagnostic equipment. Performance is managed with the help of an on-site manager as part of the solution.
Software, Training Key to Success
One key factor leading to the success of this servicing solution involved the servicing company providing detailed information on the equipment using asset management software. Many servicing companies such as Medical Imaging Solutions Group Inc (MIS) have developed customized products like the Advantage Vision asset management software tool that provides the customer with very detailed information about the performance and running costs of each and every piece of equipment. Bobby Hagan, vice president at MIS, states that “The Advantage Vision allows multilocation imaging enterprises to streamline maintenance, gain efficiencies, and ensure the highest equipment performance levels. It manages detailed data about manufacturing standards, historical performance and service records, parts usage, costs, and failure. This information is evaluated, benchmarked, and analyzed for trends and then provided in customized and regular reports, real-time alerts, and scheduled events via e-mail, fax, or direct to a customer’s Blackberry; all information is accessible 24/7.”
It is very important to understand and qualify which item of equipment is problematic so that the provider can determine at what point the scanners need to be replaced. The savings generated through this effort will be accrued to offset the cost of purchasing new equipment, and the purchase decisions depend largely on operating costs of the various scanners. By assuming the risk for parts, it forces the imaging provider to actively look at which pieces of equipment are incurring costs and to consciously be weighing the benefit of replacement versus ongoing repair on a realistic time line.
Another key component to ensuring that equipment maintains longevity is to ensure that technologists are adequately trained on the correct operation of equipment and related attachments, such as MRI coils. The majority of MRI coil maintenance costs can be related to lack of training and poor handling by technologists. Asset management software quickly points to where these problems are occurring and allows the provider to implement on the job training. Furthermore, if technologists are more proactive in communicating problems with the equipment, it allows the service company time to promptly schedule the repair and prevents unscheduled downtime, which affects profitability across the entire business.
Having a fixed annual labor cost forces the service provider to manage the costs and ensure that well-trained engineers are dispatched quickly to effectively repair the equipment the first time around. In most traditional full-service contract models, the service company notches up large fees in overtime rates, especially when major repairs are necessary, such as CT tubes being replaced. Many imaging operators and business owners fail to understand that these overtime hours represent large fixed costs, which are usually unbudgeted. This servicing model represents a break from the traditional risk-adverse full-service model. Many of the OEMs are beginning to recognize that outpatient imaging providers are becoming aware of the cost savings involved in utilizing this model and are likely to be moving in this direction in the near future.
No servicing model is perfect, and with the opportunity for increased savings comes the potential for greater risk. Two major areas one should evaluate before considering this model are the age of the equipment and the potential for the replacement of multiple CT tubes during the course of the contract. Currently, Memorial Hermann OPID is going through the process of equipment evaluation and replacement at the River Oaks Imaging facilities, as most of the scanners are older than 10 years. This equipment upgrading project should be completed by May 2009; however, given current patient volumes at each site and the heavy use of equipment, there is the distinct possibility of additional repairs and parts replacement being needed in the interim.
This servicing model is yet to be proven by OPID, but initial indications are that the service company is meeting many of the fundamental needs. Management of the program falls on the shoulders of OPID’s chief operating officer who liaises directly with the service provider representative stationed in OPID’s corporate office. As imaging providers continue to battle declines in scan reimbursement, innovation will be required to reduce costs to preserve profitability and margin. Imaging providers will need to share best practices and develop new models that ensure that patients continue getting the best possible quality care while retaining profitability.
James Polfreman is CEO, Retail Healthcare Business at Memorial Hermann, and a member of IE‘s Editorial Advisory Board.