Managing medical imaging departments used to be a lot less complicated. Until the early 1970s, a typical X-ray machine came with a standard warranty; when that expired and the machine needed repair, the vendor was summoned to fix it. Who paid for those repair expenses? Someone’s insurance company (or Medicare or Medicaid) handily gobbled them up.

CT’s introduction in 1973 complicated things by forcing the advent of service contracts to appease CFOs, who were alarmed by those unexpected service bills for tens of thousands of dollars. But imaging departments still thrived, at least for the time being. Sure, contract prices were steep, but who cared? Once again, compliant coverage providers picked up the tab.

The mid-1970s found the FDA issuing a host of regulations on equipment, which increased expenses. Then, in 1983, the government decided to reel in healthcare costs, and the party officially ended. Goodbye repair-bill reimbursements, name-that-price procedures, and short-term returns on investments in capital equipment. Hello leasing considerations, independent service organization (ISO) service contracts, medical equipment insurance, and better-priced OEM contracts. Also, hello to a huge array of service-contract options catering to an organization’s growing fleet of high-tech equipment.

So how do now-budget-conscious imaging departments thrive in the world of lofty-priced service contracts on this equipment? It isn’t easy. But it starts with a basic element of survival: understanding one’s needs.

“The most important thing is to determine what the customer’s needs are when going into an agreement,” says Robert Dakessian, president of Genesis Medical Imaging Inc (Huntley, Ill). “Contract pricing varies on how much or how little risk a customer is willing to take.” According to Dakessian, contract providers should help steer an imaging department or center in the right direction to determine risk and exposure of its equipment?or the unit’s capacity to fail?and then accommodate its requirements through flexible service packages.

Should the service contract be for an urban hospital’s 4-year-old CT machine that’s used 50 times a day and is a large revenue-generator? Or should it be on a newer machine that’s used relatively infrequently? An organization with the former unit, facing increased risk and a need for guaranteed uptime, will likely seek a contract covering everything. An organization with the latter could bet on a contract that introduces a bit more risk, Dakessian says.

Doug Brown, director of field service for Global Medical Imaging (Charlotte, NC), agrees that a fair, extensive review of the organization’s equipment is the key to tailoring a suitable service agreement. “It all depends on the history of the equipment and its vintage,” he notes. Certain newer equipment might not necessarily require full-service plans, but systems that are more than 5 years old and are used frequently will likely benefit from a plan addressing the increased risk. Well-crafted contract proposals should include a detailed review of the imaging equipment and should make cost-efficient recommendations to the organization, according to Brown.

One need that hospitals usually consider paramount is equipment uptime. Loss of service from such equipment as CT scanners can not only cut off the considerable revenue that these machines bring in, but also can seriously compromise patient safety in trauma and emergency situations. Luckily, providers of these premium contracts?which come at a premium price, however?have never been better geared to handle uptime and response-time demands, with the availability of remote servicing and diagnostics.

“Remote support capabilities allow us to help respond to customers faster and provide them with the immediate level of support that’s so important [when considering] uptime,” says Kristin Cusolito, director of service marketing for Philips Medical Systems (Bothell, Wash). Philips Medical includes uptime guarantees in these types of contracts that allow the customer compensation or contract credit if time frames are not met.

Service Contracts: From $ to $$$$

Once equipment needs are determined, most service-contract providers, be they ISOs or OEMs, offer a range of service options.

Full-service or comprehensive contracts (aka the Porsche of agreements) provide full coverage on imaging equipment. This coverage generally includes parts, labor, preventive maintenance (PM), remote diagnostics, technical telephone support, travel expenses, software upgrades, and guaranteed uptimes and response times. Usually, variations of full-service contracts are available to address an organization’s critical needs, such as improved response time, improved uptime, and better phone or off-hours support.

It should be noted that full-service contracts on older equipment usually aren’t written before the machine is preinspected and the higher-risk parts are replaced, according to healthcare consultant C. Wayne Hibbs (Dallas). He also notes that the figure determining the price of the contract?around 6%?10% of the machine’s price?generally addresses the machine’s list replacement cost rather than its used value.

Shared-risk contracts are less pricey, with its purchasers gambling that the equipment will stay relatively trouble-free. Variations abound, however. Such contracts might offer a discount on a full-service contract with a penalty for a catastrophic event, or might simply cover a limited number of service visits per year.

Organizations that use in-house personnel to service equipment often share the service workload with service providers in various degrees. Common partnerships include first-call contracts, whereas in-house personnel handle preventive maintenance on the equipment as well as first-call situations, and service providers handle issues beyond the staff’s technical expertise. Often, service-contract providers teaming up with in-house staff will furnish training, sometimes free of charge.

PM contracts allow for periodic preventive servicing on equipment to help decrease its malfunction. PM technicians generally keep detailed records chronicling work performed, parts replaced, downtime issues, and the like. Machines covered with PM agreements only or no contract at all are repaired on a time-and-materials (T&M) basis, in which the organization calls its preferred service provider and is charged for labor, parts, and travel time.

Incentives, Anyone?

Luckily, amid the myriad of service contracts and the highly competitive world of contract providers, accommodations are found easily.

Worried about being locked into a seemingly interminable service contract on ultrasound equipment? Global Medical Imaging is so sure you’ll like its service, it’s willing to toss the dictionary definition of “contract” right out the window. “There is no risk,” Brown explains. “If we don’t perform to a customer’s standards, then a customer can cancel at any time, and we’ll give [the prorated portion of] their money back without a penalty.”

Want to create your own CT or MRI contract rather than adapt to a generic one? Genesis Medical Imaging aims for yoga-like flexibility when tailoring an agreement. “[Some OEMs] say, ?What would you like: the diamond, gold, or platinum service plan?’ These three options don’t address every need a customer could have,” Dakessian notes. Rather than offering limited-choice menus, Genesis personalizes contracts to better suit its customers.

Want just the high-cost glassware covered on your CT scanner? Dunlee Inc (Aurora, Ill) offers monthlong, flat-fee contracts covering only glassware, which the company manufactures itself, says Mike Brokloff, manager of glassware solutions (Milwaukee). Labor is not provided, but it can be arranged through other sources if necessary. “The program is targeted toward [organizations that] typically do a lot of their own in-house maintenance. They can handle doing the PMs and most of the service. But the problem is when a tube blows, they have a $100,000 to $200,000 event,” Brokloff explains. “That’s where we come in.” Dunlee’s tubes are priced around 10%?15% lower than those from OEMs, he says.

Caveat Emptor

The abundance of service-contract providers available allows healthcare organizations to be selective. Asking the right questions about the provider and the contract before making a commitment is the first step toward a lasting relationship.

Find out the proximity of the engineer to the site, advises Christine Heynysh, marketing manager for SourceOne Healthcare Technologies (Mentor, Ohio). “Say you’re in a crucial downtime situation. You’re in Cleveland, and your rep is covering from Pittsburgh. You’re going to be in trouble.” She also recommends inquiring about the engineer’s skill set. How long has he or she been working on the equipment? What does the company’s training involve? Heynysh suggests researching the organization as well, including its reputation and longevity.

Dakessian concurs, adding, “Know the depth and breadth of a company’s infrastructure; it will ultimately translate into what kind of service [you’ll] receive. Service companies should invest a lot of their income into resources to maintain the infrastructure, with tools, testing, training of engineers, and inventory of parts.” For example, Genesis Medical Imaging developed remote servicing and diagnostic capabilities for equipment in an effort to compete on the same level as the OEMs.

Prior to signing, challenge all signs of vagueness in a contract, Brown declares. Ask a barrage of questions, and get the answers in writing. What exactly is “transducer coverage”? Are there cases when a replacement will not be received free of charge? What does 24/7 coverage truly mean?is it on-site coverage or technical support? How do you specifically define uptime guarantees? According to Brown, less-reputable contract providers can purposely inject ambiguity into a contract; it’s up to the savvy healthcare administrator to catch it.

Cutting Costs Using Asset Management

Although service contracts can provide real peace of mind for an organization’s imaging department, they can induce migraine headaches for the CFO. Organizations bent on reducing the exorbitant cost of these contracts usually consider implementing an asset-management program?or the consolidation, tracking, and documentation of resources (physical and staff) and their applications, according to Hibbs. “[The organizations] that are primarily doing asset management now are [those] with the most assets to worry about,” he says. Generally, that means mid- to full-size hospitals, but Hibbs believes smaller organizations could benefit from a well-crafted program as well.

As opposed to assessing just one machine on a single level (as a service-contract provider would do prior to drafting an agreement), asset management in imaging focuses on the relativity of all available resources to better make informed decisions and forecasts, according to Hibbs. “I have only one CT scanner in the emergency room, and it’s going to cost me this much if it goes out. That’s a completely different decision than if I have two CT scanners, and one goes out, because I have a backup.” He adds that the existing equipment’s age, usage, service costs, available backups, and users are all components involved in the process.

Hibbs notes that healthcare organizations can “build or buy” an imaging department’s asset-management program, generally in three ways:

  1. In-house. This option involves using one of the organization’s in-house departments whose personnel have the training and resources to service the imaging equipment. Although in-house staff can be trained to take on a variety of service arrangements, at least some service aspects will need to be contracted out, Hibbs says. Examples are the aforementioned first-call contracts and parts-only contracts, whereas the contractor supplies the equipment parts; the in-house staff handles the labor.
  2. Service provider. Under this option, a service-contract provider administers the asset-management program for the organization and services the entire fleet of equipment, regardless of make, generally through discounted multivendor-bundled contracts. “The bundling [results in just] one management report that allows an organization to see the total amount of downtime, labor, and parts and service costs,” Hibbs says.

    Software systems help streamline the reporting process. “[Our software] system produces dozens of customer-friendly reports,” says Shawn Miller, who markets Philips Medical’s asset-management program. “It is basically an inventory-management system [that] tracks things for you, like PM histories, service histories, open work orders, service costs?anything you need to know for that equipment. It allows customers to start to make decisions about what equipment they need to replace based on downtime, service costs, and more.”

    Providers tailor the asset-management program for an organization based on its size, location (urban or rural), on-site service capabilities, and whether an on-site person is deemed necessary to manage the program, according to Hibbs.

  3. Equipment insurance. Under this asset-management program, the organization purchases insurance on the entire fleet of imaging equipment, spreading risk factors. This program is commonly used while an organization is making a transition to an in-house asset-management program. Provisions typically vary, but most equipment insurance companies specialize in risk management, cost avoidance, or service billing audit functions, Hibbs says.

    Dollars and cents drive the call for an asset-management program; however, Hibbs notes that such factors as downtime and quality of service play integral roles in deciding which direction to go. In-house paradigms are clearly the most cost-efficient for large organizations with the assets, but the parties involved still have to buy into it. “If you don’t have the support and endorsement of the in-house users,” he says, “whatever service you [choose] is going to fail.”

Final Thoughts

Ever since the fast-chugging healthcare gravy train broke down in the 1980s (sans a service contract), organizations have sought creative measures to cut costs. Obviously, high-priced service contracts on imaging equipment have made for tempting targets. Some organizations opt to stand by trusted service-contract providers, and others seek financial relief through an asset-management program.

But that road can be rockier than anticipated. If an organization takes a half-hearted stab at designing such a program, the service could well end up disappearing along with the contract. Will the chosen “solution” to high-priced contracts decrease equipment uptime a skosh? Will revenue decrease in turn? What about expeditious care? Patient safety? Patient satisfaction? Employee satisfaction? So, is it really a fix after all?

It is up to the healthcare organization to judiciously implement and monitor an adopted asset-management program to ensure it delivers all of its expected dividends. Such a program can reduce imaging costs and maintain?and even improve upon?preempted standards of service, but not without the energy required to forge it into shape. With that effort, hospital administrators should be able to balance the needs of the imaging department, the patient, and the budget as well.

PACS Service Contracts: Pushing the Budget to the Max?

On the surface, PACS seems like an excellent candidate for a relatively quick return on investment, as the system provides increased workforce efficiency and decreased costs associated with film. Enter service contracts to muddy that prognosis. “The average service contract costs between 14 and 16 percent of the list price of a PACS, which can double the purchase cost over five years,” says Michael Cannavo, president of Image Management Consultants (Winter Springs, Fla).

Is the expense worth it? That’s up for spirited?and often prickly?debate. Cannavo believes, in general, it is not. “You bought a $2 million PACS solution, and you’re paying 15 percent [or $300,000] per year for a [full-service] contract,” he explains. “Take that cost and divide it by $500 an hour [for a service visit], and it gives you 600 hours of service. A vendor typically gives you 99 percent uptime, so if they have over 90 hours of service [a year], they’re in default. Where’s the logic [in the purchase]?”

Organizations that consider downtime less critical can better justify avoiding this major expense. Trauma or emergency centers have a tougher call. These organizations, by habit, often equate uptime with service contracts?but that needn’t be the case, Cannavo says. The focus should be choosing the right PACS at the beginning.

“Having a service contract isn’t nearly as critical as designing the system properly,” he says. “[In hospitals where uptime is critical,] what you want to have is redundant servers?two servers running simultaneously?that run with a ‘heartbeat,’ so when the primary server is going down, the secondary server picks up.” At that juncture, the system administrator is notified, and the problem can be addressed seamlessly and without downtime.

Having a test server that tests the software before it goes live can provide additional security against downtime, Cannavo notes. He also believes a well-trained in-house staff can address both hardware and software service issues that arise. “Typically, when you don’t have a service contract, your first line [of defense] is always your system’s administrator, your second line is your IT and/or your biomed departments, and your third line is vendor dial-in.”

But what about the peace of mind that PACS service contracts can provide? That could be somewhat illusory, according to Cannavo. “[When worst-case scenarios arise] and you have hard failures, [standard] service contracts won’t help much anyway. The average service contract gives you only four-hour response on-site times, based on a Monday through Friday, 8 am to 5 pm response. If [the tech] is there past 5, he or she is on overtime?and the service is now excluded from the service contract.”

Cannavo mentions that software upgrades, or the latest revisions of software that provide added features and functionality, generally aren’t included in service contracts. Software updates/bug fixes are included, but organizations should attempt to negotiate for these updates apart from a contract in the initial PACS purchase, he says.

This isn’t always easily done, says healthcare consultant C. Wayne Hibbs, fresh from a discussion of this topic at the February meeting of the Hospital Information Management Systems Society (HIMSS) in Dallas.

Hibbs agrees that service contracts on PACS hardware can and should be bypassed, but says that PACS vendors are making it difficult to do the same with software contracts, which usually are about half the price of full-service contracts.

“If you don’t subscribe to [many of these] software agreements, here’s what happens: [The vendor] comes out with questionable updates twice a year, and they’ll tell you if you get more than two releases behind, [you won’t receive] technical support,” Hibbs says. “They’re forcing you to buy the software agreement, even if there’s nothing valuable in it.”


Mark Dye, RT, is a contributing writer for Medical Imaging.