Products and Services 

ASSET MANAGEMENT
• Taking charge of managing assets heightens productivity, reduces downtime

• Improving equipment management practices has hospital seeing green

• Scan the horizon for clinical success via enlightened technology planning

The 411 on 5 equipment maintenance options
 Taking charge of managing assets heightens productivity, reduces downtime
by Daniel O’Neill

Healthcare facility administrators and managers can choose between several available methods to fund the cost of high-end equipment maintenance. However, the results are not always the same. In fact, upon closer inspection, each of the five common maintenance funding methods have drawbacks that could be costing your facility more than you think. 

Service contracts

It is generally accepted in the healthcare industry that service contracts are the least cost-effective way to pay for equipment service. Typically, healthcare organizations purchase service contracts to avoid high-dollar, unexpected repairs that can be detrimental to a department’s budget. Those selling service contracts point out that they are easy to use, there is little paperwork and a phone call is all that is needed to take care of service needs. But the ease of use comes at a high price.

Inherent to service contracts, especially long-term contracts, is the elimination of money-saving alternatives, including the use of other service providers because only that organization can service the equipment under contract. For example, one Minnesota medical center had signed many long-term service contracts and now is unable to take advantage of a lower-cost alternative that could save more than $540,000 over four years. Since separate contracts are issued by the manufacturer or even by piece of equipment, administrating these contracts is cumbersome and unwieldy.

In addition, all record keeping of the cost, frequency of repairs, cause of breakdown, parts replaced, etc., is the property of the service organization and typically not shared with the facility. A rural Idaho hospital purchased original equipment manufacturer (OEM) service contracts. Unhappy that he never had the information to know his true maintenance costs, the CFO stopped using service contracts in 2000 and has saved more than $250,000 since then.

And although service contracts appear to be all-inclusive, healthcare organizations can find that their costs are not completely capped. For example, a Connecticut medical center has service contracts on a sizeable group of imaging equipment that is frequently billed for service outside of the agreement, specifically for overtime service, which is difficult to track and verify.

Multi-vendor programs

Both OEMs and independent service organizations (ISOs) offer long-term contracts with attractive pricing where they are responsible for servicing a variety of manufacturer’s equipment and equipment types.

Solely contracting with one organization for repairing all of your equipment binds your organization to their recommendations, such as determining when repairs are necessary, the type of repair and parts required, and when and which outside expert should be contacted. When the contracted service supplier is unable to perform the repair, they are likely to contact an independent service provider who may charge less but not be as qualified as the OEM. Otherwise they may call in the OEM who has no incentive to rapidly solve the problem. In fact, other manufacturers may be reluctant to repair your equipment in an attempt to discredit the contracted service supplier because they are competitors.

Without control over service provider options, your organization risks increased equipment downtime. A northern California hospital used an OEM multi-vendor program and became dissatisfied with the lack of communication and the timeliness of repairs. After canceling the program, satisfaction and equipment uptime increased because the facility now chooses the most responsive and qualified service provider for each piece of equipment.

A Connecticut medical center implemented an ISO multi-vendor program over a year ago and was promised online reports, but has yet to see anything electronically. They are unable to monitor or measure the effectiveness of the program and have no benchmarks for making capital replacements or repair decisions on the equipment.

Inexpert maintenance leads to shortened equipment life, which opens the door to replacement, perhaps earlier than necessary. The analogy "fox in the hen house" has been used to describe an OEM multi-vendor program because if that company cannot readily repair another OEM’s equipment, the natural recommendation will be to replace the item – with the contracted manufacturer’s equipment. With one organization in complete control of all repair and equipment replacement recommendations, your organization risks a gradual erosion and eventual elimination of competitive service and sales options.   

Time-and-materials

One major drawback of using time-and materials or "going bare" is that budgeting for service costs cannot be accurately determined or guaranteed. The results are often unable to be accurately measured because maintenance budget categories can include costs other than direct maintenance expenses, such as software upgrades and equipment modifications or refurbishments. Time-and-material costs can actually be higher than service contracts without the experience and expertise of how to manage service costs, especially when high-cost repairs occur.

Some facilities feel they do not have the purchasing clout to demand satisfactory response time from their vendors without a contract. Healthcare organizations do not have to put their equipment under a service contract in order to receive good quality and responsive service. Reputable service organizations provide high-quality service to all customers regardless if they have a contract with that facility or not. The reality is that these companies are in the business of selling both equipment and service and will properly respond to your service needs to keep your business.

 Additionally, most healthcare organizations have either reduced staff or not added staff and do not have the time required to actively manage repair suppliers and to identify alternative service and parts sources. Managing costs on time-and-materials does require dedicated time to manage both the vendors and the associated maintenance documentation and invoicing. Typically this is done at a department level but some healthcare organizations manage all repairs through a central source, such as clinical engineering. Over time, equipment considered to be "high risk" will frequently be put back under service contract, eliminating savings.

A medical center in southern California, for example, went bare anticipating their in-house staff would have the resources and expertise to actively manage their high-end equipment on time-and-materials. Over a five-year period they have gone back to purchasing many multi-year service agreements, negating any initial savings they had gained.

In-house expertise

In-house service can be the least expensive option to servicing equipment. The quality of the service depends on the expertise and experience of the in-house staff. Often, the resources, training and test equipment for hospital staff is very limited. Budgeting is not easily determined because of the use of outside service when in-house staff has reached their technical ability or when back-up occurs, due to vacations or sick days.

Often, in-house service on lower and mid-range technology is combined with service contracts on the highest level of technology, resulting in increased costs for high-value equipment. While the facility is aware of the true costs, it does require time to monitor the costs and develop the reports. Because of the busy schedule of the in-house staff, routine preventive maintenance (PM) may not be performed, creating more risk.

A Washington state hospital has a strong in-house team of biomedical engineers. However, all five of their magnetic resonance imaging (MRI) units are on full service contracts. If this hospital put their MRI units on a well-managed time and material program they could save at least $85,000 a year on this equipment alone.

Maintenance insurance

Over the years, maintenance insurance has been viewed as a first step to driving down the cost of maintenance. However, due to an insurance company’s use of combined experience rating, the adverse claims experience of others can drive a medical center’s future costs up. This type of "pooling" counteracts long-term cost control efforts. Because insurance agents earn a commission when the insurance policy is sold, there is little incentive to work to control costs on a long-term basis.

Limitations on PM payments (by hour and event) discourage PMs. Failure to follow high loss notification procedures results in total denial of repair costs, and reimbursements are limited according to an item’s limit of liability.

If there is a parts sourcing service, some insurance brokers earn commission on the use of recommended partner companies, which can lead to limited and subjective choices that are in the best interest of the broker, but not necessarily in the best interest of the healthcare organization. When a medical center in Oregon expanded their facility in 2002, they decided to switch from an insurance-based program to a time-and-material agreement and saved more than $100,000 in the first year. Since the implementation of the program, they have saved more than $300,000 compared to what they were paying the insurance company.

Managed time-and-materials

The last option is applying management expertise and data-driven experience to managing the cost of service on a time-and-materials basis. Through this method the healthcare facility can choose the best service provider for any particular service event – either the manufacturer, in-house or an ISO.

A managed maintenance program provides a budget guarantee, and the most effective programs offer a variety of asset management services such as real-time engineering assistance, analysis of all service reports and invoices for billing errors, online maintenance records, inventory management, analysis of poor performing equipment and equipment acquisition support. And if equipment has a service contract or is under warranty, it is tracked to determine service history.

The healthcare organization has the choice of service provider but these programs do not provide for guaranteed service response because they are time-and-material based and do not include non-maintenance activities unless specifically included, such as software upgrades. But the guaranteed savings plus the cost management services are attractive to many organizations. An Illinois medical center found that their managed time-and-material program increasingly drove down their costs year after year. From 1996 to 2002 savings increased to 60 percent from 19 percent.

The bottom line

There is a wide variety of ways to manage the high cost of maintenance, all with varying degrees of pros and cons determined by the needs and priorities of the institution. The key is having a program in place after evaluating all options against measurable future management decisions. The most important point for each healthcare organization is to actively take charge of this process in order to most cost effectively manage these costs. HPN 

Improving equipment management practices has hospital seeing green
by Joseph P. Schiesl

Hospitals across the nation are faced with quite a dilemma — balancing the cost of accessing and properly managing state-of-the-art medical equipment technology with the ability to maintain and provide a high standard of patient care. Standardizing and upgrading medical equipment is essential to maintaining high-care standards, while on the other hand, the cost and complexity of enterprise equipment maintenance and management can divert valuable facility resources away from this core mission.

Partnering with a trusted third-party source that offers experienced people, state-of-the-art equipment technology access and proven equipment management processes can assist even the best-run facilities with maintaining that balance between managing equipment and providing a best-care environment for patients. Implementing an Asset Management Partnership Program (AMPP) helps overcome the challenges of gaining access to state-of-the-art equipment technology, while reducing capital costs, operating expenses and equipment maintenance and management challenges.

Virginia Mason Medical Center, a private, non-profit organization that provides acute, emergent and outpatient care services, is no exception in that it found itself struggling with balancing equipment management issues and creating quality care environments. [Editor’s Note: Virginia Mason was Healthcare Purchasing News’ 2004 CS/SPD Department of the Year.] With a system of integrated health services — including 390 physicians, a regional network of neighborhood clinics and occupational medical facilities, a 336-bed acute care facility and a research center — Virginia Mason knew it needed to increase its revenues, update equipment and ensure that its equipment would still meet patient needs and nursing staff expectations.

Diagnosing equipment management challenges

That’s when Virginia Mason turned to UHS for help. Through consultative discussions, UHS learned that although the hospital’s fleet of equipment was sufficient in size to meet patient needs, nursing staff often experienced equipment shortages and instances of receiving equipment improperly prepared for patient use.

The hospital’s own equipment maintenance processes, originally designed to be efficient, ended up causing an equipment supply bottleneck as equipment moved from discontinued patient use to central supply. Because the department gave maintenance and processing priority to equipment slated for use in the operating room (O.R.), other equipment, such as infusion pumps, ventilators and suction units were either not processed quickly enough to meet patient needs or were not cleaned thoroughly enough to be ready in time for the next patient use.

Implementing an asset management program

The AMPP places UHS employees and proprietary equipment tracking software inside medical facilities to manage all aspects of moveable medical equipment, including the cleaning, maintenance, distribution, tracking and documentation tasks, freeing up clinical staff to focus on its most important job — caring for the patient.

UHS designed and instituted a comprehensive and customized program for Virginia Mason, combining equipment lease buyouts, capital avoidance strategies, revenue enhancements and equipment maintenance savings. Virginia Mason turned over all of its equipment management responsibilities to UHS, which helped the healthcare organization acquire and standardize on an upgraded fleet of state-of-the-art medical equipment. The AMPP also included UHS personnel handling other equipment management and maintenance tasks, such as efficiently and quickly cleaning and reprocessing the equipment for next patient use, performed by 10 full-time, onsite UHS employees, plus routine maintenance performed by UHS’ network of regional technical service providers.

Getting results

Following the equipment management work of UHS, the Joint Commission on Accreditation of Healthcare Organizations (JCAHO) surveyed Virginia Mason and found that its equipment maintenance and safety check processes were compliant with industry standards. In fact, the JCAHO surveyors commended the organization for its UHS-instituted equipment management procedures.

Because equipment acquisition costs and equipment management tasks were the responsibilities of UHS, Virginia Mason experienced the following savings results:

• $694,200 total in immediate capital infusion upon program inception in 1999. Of that total, $411,000 came from the first initial UHS buyout of hospital-owned, older equipment and $283,200 in additional capital outlay to help the hospital standardize on newer pacemakers, O.R. warm air units, and wall suction and compression devices. Once the AMPP was implemented, one of the first tasks UHS tackled was to purchase the hospital’s older IV pump technology and upgrade and standardize several other critical equipment categories. This helped Virginia Mason increase its ability to provide better quality care for its patients.

• $1,994,603 in capital expenditure avoidance. Since the AMPP included UHS managing all equipment types, Virginia Mason generated additional savings when UHS began helping the hospital standardize other equipment technologies. UHS assisted Virginia Mason in purchasing some of its other outdated equipment, such as patient-controlled analgesic devices (PCAs), foot pumps, wall suction units and pacemakers and provided access to newer equipment technologies, resulting in several successive equipment upgrades.

• In 2004, UHS purchased more than $1.3 million in state-of- the-art infusion devices and PCA/PCEA devices. In addition to that equipment acquisition, UHS provided Virginia Mason’s pharmacy department with operational support of the equipment’s drug libraries and software upgrades to ensure the above technology was standardized hospital-wide with the appropriate clinical parameters and drug databases.

Following the implementation of the AMPP program, Virginia Mason also experienced substantial improvements in nursing satisfaction and improved patient care. Nursing staff surveys revealed:

• Equipment was delivered functional and clean 100 percent of the time

• 94 percent of nurses were satisfied with equipment delivery times

• 100 percent of nurses were satisfied with UHS’ customer service and onsite staff

Moving forward, Virginia Mason is positioned to experience the continuation of substantial financial benefits and savings as a result of UHS’ customized asset management strategies. HPN

For more information about Virginia Mason, visit its web site at www.virginiamason.org. To learn more about equipment lifecycle management solutions from UHS, visit www.uhs.com.


Scan the horizon for clinical success via enlightened technology planning
by Jennifer Sisk

Have you ever been caught unaware — and unprepared — when a new technology hit the market? For hospitals looking for an advantage in a highly competitive market and hoping to project a cutting-edge image, lacking advance knowledge of new technologies has negative financial and marketing ramifications. By utilizing information obtained from a process called horizon scanning, hospitals can ensure that they will remain on the leading edge of new technology adoption.

What is horizon scanning? The phrase literally refers to watching the distant horizon for approaching danger or assistance. Think of the desert sentry monitoring the far horizon for clouds of dust that signal an approaching enemy, or the shipwrecked castaway watching the horizon for a ship to come to the rescue. As our society advances technologically, so has the term horizon scanning. As it is now applied in a number of settings, including government, business, healthcare and environmental management, horizon scanning refers to the process of assessing future developments, trends and risks. In healthcare, horizon scanning specifically refers to the early identification and prioritization of innovative medical technologies that are likely to significantly influence healthcare delivery, utilization and/or costs. The horizon scanning process can act as an "early warning system" that prepares healthcare facilities for potential shifts in clinical practice in time to support technology acquisition decisions by providing information about emerging devices, drugs, biologics, procedures and tests well in advance of commercial availability.

The first link in supply chain management

Because it can help project future technology availability and costs, horizon scanning represents the first link in the hospital supply chain. Hospitals can strategically use the knowledge obtained from horizon scanning to forecast future capital and operational expenditures, prepare for upcoming technology acquisitions, assess future staffing and supply needs and forecast the economic impact of a new technology.

Horizon scanning also represents the first step in the value analysis and technology assessment process. Value analysis — the process of evaluating and selecting an equivalent or better alternative to some technology at the lowest possible cost — can also benefit from horizon scanning. Information obtained via horizon scanning can be used to initiate an internal evaluation of a new technology well in advance of the actual purchase, which aids in the comparison of the new technology with existing competing technologies. Horizon scanning also provides the background to assist in a more in-depth technology assessment involving systematic literature searches and review of published evidence. In addition to improving supply chain management, value analysis, and technology assessment, horizon scanning can also enhance strategic technology planning, materials management and contract negotiation.

How to horizon scan

The horizon scanning process involves ongoing (daily, weekly, monthly) and diligent monitoring of healthcare trends and medical technology developments using various information sources, including the following:

• Key medical news sources and healthcare information Web sites

• Proceedings and abstracts from professional medical society conferences

• Press releases from manufacturers, academic research institutions and professional societies

• Manufacturer Websites — research pipeline

• Government clinical trial databases

• Food and Drug Administration (FDA) Advisory Committee reviews

• International drug/device approval databases

• Published and unpublished clinical studies.

Most hospitals lack the resources to dedicate personnel to in-depth horizon scanning. In some hospitals and health systems, a technology assessment committee may be formed and some horizon scanning tasks may be delegated to committee members. For example, when a physician requests that a new technology be purchased, the TA committee may research the technology and any competing technologies in development, project costs and potential patient population, and forecast demand. Tracking health technology developments in one specialty or clinical service line, or approaching horizon scanning on an "as-needed" basis, may be manageable with the assistance of an in-house technology assessment committee. However, because in-house staff have other job priorities, keeping up with horizon scanning and technology assessment can quickly become overwhelming. Therefore, many hospitals and health systems prefer to outsource horizon scanning and health technology assessment to independent companies with substantial resources and multiple staff members dedicated to healthcare horizon scanning and technology assessment. An annual subscription to a horizon scanning service may cost less than the annual salary for one full-time employee, making an external horizon scanning service a cost-effective option for many facilities.

Practical applications of horizon scanning

In 2003, the introduction of the first drug-eluting stent revolutionized the treatment of blocked coronary arteries — at triple the cost of a bare metal stent. Despite the hype that preceded FDA marketing clearance in April 2003, many hospitals were unprepared for the increase in supply costs associated with the $3,000 price tag on the new drug-eluting stent. Some hospitals took an additional financial hit from private payers. Having done their horizon scanning homework, some payers negotiated contracts for the new drug-eluting stents prior to their clearance — reimbursing the new, more expensive stent at the same cost as bare-metal stents. So for the duration of the contract, these hospitals were reimbursed for only the cost of a bare-metal stent.

Drug-eluting stents were also anticipated to decrease repeat interventional procedures, thereby resulting in lost procedural revenue. Those hospitals performing horizon scanning were able to plan for increased supply costs, better prepare for potential lost revenue, and negotiate more effectively with payers, as well as anticipate lower stent prices with the FDA clearance of a second drug-eluting stent in early 2004.

After the fact, it is very easy to describe the benefits of horizon scanning. How can horizon scanning now help with planning for the future? In the case of drug-eluting stents, current drug-eluting stents may face competition from a new, less expensive stent likely to be introduced by 2007. In another few years, drug-eluting stents may be supplanted by bioabsorbable stents.

In orthopedics, a quick scan of the healthcare technology horizon suggests that, by 2007, the first artificial cervical discs will reach the market, potentially impacting the practice of cervical spine surgery. Artificial cervical disc replacement has several potential advantages over anterior cervical fusion including, faster and less restrictive post-procedure recovery, preservation of cervical spine mobility and prevention of adjacent segment degeneration. Unlike artificial disc replacement for the lumbar spine, which requires a different and more complex surgical approach than lumbar spinal fusion, artificial cervical discs are implanted using the same surgical approach as anterior cervical fusion. Therefore, it is likely that artificial cervical disc replacement will diffuse more rapidly among experienced cervical spine surgeons. While the new cervical implants may cost $5,000 or more, they may also reduce costs of patient care by eliminating the morbidity and costs associated with bone grafting and fusion.

The bottom line is that when hospitals implement a horizon scanning process they can:

1. Identify innovative technologies likely to significantly impact healthcare delivery and/or facility operations.

2. Estimate commercial availability and timeframe for acquiring a new technology.

3. Anticipate reimbursement issues associated with a new technology.

4. Prepare for the cost and economic impact of technology implementation.

5. Make proactive decisions on new technology adoption and acquisition. HPN

Jennifer Sisk, M.A. is a senior research analyst for Hayes Inc., a health technology assessment company, where she is responsible for researching and tracking the impact of new and emerging medical technologies for healthcare providers and payers. Sisk has 15 years experience in healthcare technology assessment, horizon scanning and consulting, and is a published author on new trends and technologies in medical imaging. She has performed strategic technology planning and equipment planning in hospitals and health systems in the United States and internationally. Sisk can be reached at jsisk@hayesinc.com.

For additional information, visit www.hayesinc.com.

January
2006