High-dollar, high-tech purchases tend to be driven by the clinicians that use the equipment and the department heads overseeing and responsible for the budgets that bring them in. Materials management may or may not be recruited to "rubber stamp" a decision, according to Niklaus Fincher, senior director of capital asset services for VHA Inc., Irving, TX.

"Over the years, elements have worked to segregate the supply chain from capital," Fincher told Healthcare Purchasing News. "We need to bring these back together and re-establish the link between the two. In today’s environment, by the time [the materials manager] is engaged in a capital equipment acquisition event it’s too late.

"It’s time to get serious about capital again, particularly with the Deficit Reduction Act," he added. "Hospitals are leaving a lot of money on the table."

But price shouldn’t be the defining factor, he noted. "There’s a lot that has to be determined before you get to price," he said.

"A handful of hospitals do an excellent job in capital purchase planning, the majority do a good job, and a few on the bottom end of the bell curve need significant help to better manage their resources," he stated. "Nevertheless, there’s room for improvement across the board."

Furthermore, materials managers need to recognize and emphasize to clinicians that "I don’t treat patients but I know how to negotiate prices. And if I’m good I can get the doctor what he or she needs."

Hospitals generally come into capital equipment negotiations at a costly disadvantage, according to Fincher. They lack information, automated tools and staff to focus on the strategic management of capital spending. In fact, Fincher and his team analyzed the capital purchasing patterns of VHA’s 1,400 member hospitals and estimates that hospitals, by and large, may be overpaying between $3.5 billion to $5 billion annually for capital equipment.

As a result, Fincher identified 10 ways for hospitals to gain control over their capital spending. HPN asked Fincher to explain the reasoning behind each tip, how to achieve it and how difficult the process is on a scale of 1 to 5 with 1 being a cinch and 5 being incredibly complicated.

Why: You need to know when your clinical managers are submitting requests for capital and how these requests compare to the mission and business plan of the organization. Look at what equipment you have today, and develop a prioritization plan that specifies which units to replace and when and how, according to the budget. Think about what you’re giving up to get a replacement for something else. For example, you may add a new CT scanner but have to retain the old defibrillators for another year, flagging them for replacement at that time. Capital planning should not be a one-time, annual event. It’s an organic process.

How? You should have a solid business plan and a maintenance plan for equipment. It may make sense to rely on an outside firm to develop the plan with internal input. In fact, it may cost you less in the long run to go outside for this than to dedicate internal resources to doing it because you won’t be removing clinicians from the care delivery process. It may not be necessary to use them anyway because they may not have a global enough vision for long-term equipment planning beyond their own facility’s experience. This needs to be accomplished based on life cycle costing and not just what’s wanted.

Difficulty Rating: 3 or 4. People that do this professionally know the questions to ask, the issues involved. It’s more painless to tap outside experts with a global view and without the political skin of helping doctors with referrals.

Why: The budgeting process most facilities use [for this] is not effective and costly. Department managers may be spending hours surfing the Web, making telephone calls and getting padded numbers from suppliers. What’s needed is a software tool that serves as the single point of information needed to make budgetary decisions. It doesn’t matter whether you use the manufacturer list price or your GPO’s contract price you should be using one source as a benchmark. Most automated budgeting tools can compare pricing when linked to a common database – an equipment catalog. Without this you’ll find that department directors worried about budget cuts will estimate the dollars they need as high as possible.

How: Ask your GPO whether it offers a tool like this or simply go out and find some budgetary and planning software tools yourself. Some consulting firms that offer equipment planning services may have their own tools. You’ll need to sign for a license.

Difficulty Rating: 3. The key issue involves return on investment (ROI). The software license itself is not very expensive but you have to adopt the tools, which requires behavioral and process change. You don’t have to call the vendor reps anymore for a price. You just log into the system and find the product. Such a change could be an obstacle.

Why: You need to designate who can talk to suppliers, who can submit equipment requests, who decides on standardization, manages GPO relationships and contract commitments. Chaos works in favor of one party. Without a process in place it’s the one trying to sell you something. Suppliers thrive on that chaos. Healthcare facilities need to get control of that chaos before they commit to something not wanted in the long run.

How: Form a committee or look to your GPO for guidelines. One committee may deal with replacement equipment and another with construction and renovation issues. It’s possible to have these committees separate from a new technology committee or a technology assessment committee, which deals with the financial health of an organization as it relates to expenditures.

Difficulty Rating: 2.5. This takes time and commitment but it’s so important to do. Even if you start out with a model that is less than optimal, start with something. It may be less than perfect but you have to establish that suppliers can only enter through this group.

Why: Define what your facility considers an accurate price and use it, whether it’s the manufacturer’s list price plus a 5 percent commission or a GPO price. The problems come from when one person uses a price found on the Web and another a price located somewhere else that may be less than list. Essentially, you’re dealing with multiple prices. You need to decide if retail or the GPO price is it. That way you’re not having to manage line item contingencies that are all different.

How: Just make a decision.

Difficulty Rating: 1.5.

It’s self-explanatory.

Why: As a GPO member you’re entitled to that pricing so why would you not start from there? Maybe you want to use the GPO pricing as ‘list’ from which to negotiate down. You’re paying for it so access it and leverage it.

How: It depends on your GPO. You may have to rely on a contract benchmark, a GPO Web site or software or call a GPO rep for information.

Difficulty Rating: 1 or less. You should be doing this already.

Why: It’s very important that the information you’re using is up to date and reflects any market changes. Generally, if it’s on a Web-based budget tool it should always be up to date. If there’s a price change after you’ve developed your budget it will notify you. That way there are no surprises.

How: Get access to automated tools.

Difficulty Rating: 3. That’s based on adoption and the behavioral and process changes.

Why: When you do a strategic long-term plan you need to factor in capital that you are buying over time. Many contracts include volume commitment or dollar throughput. For example, you may plan to buy an X-ray unit this year, 2 CT scanners next year and an MRI unit three years from now. Knowing that you may be able to negotiate some incentives with a particular vendor, particularly if you’re aggregating these purchases and committing to them up front. It also allows you to standardize. For example, you may want to purchase the same defibrillators for the operating room, ICU and imaging suites. Aggregating, standardizing and managing this purchasing volume from the start will help you reap considerable benefits down the line. This should be part of the budget development process, including standardization.

How: Use that committee or committees to look at where you can standardize and rely on GPO contracts, comparing capital dollars requested with standardization plans.

Difficulty Rating: 3-3.5. This will require some compromise over brand, model, etc. But if you’re buying wisely there may be more capital down the road as incentives for future purchases. You have to choose your battles.

Why: Aggregating volume can eliminate downtime long-term in maintenance and training. From the ER to the ICU, everyone should be working on similar equipment to not only achieve better pricing but lower costs over the equipment’s life cycle.

How: Make the decision. The committee can play a role in this but it most likely will require executive support and compromise on part of the clinical end users.

Difficulty Rating: 2. You should be able to develop a plan easily but implementing it is more of a challenge.

Why: Everybody wants to negotiate and be thought of as a ‘negotiator.’ A supplier walks in the door starting with the highest price possible and all the information on how much to give. But who is authorized to negotiate on behalf of the provider, request concessions and sign off on a deal? The selection of the equipment and the negotiation of price can be two separate things. Clinicians can select features and functions but negotiating price and costs should be left to a different individual – the materials management professional. Otherwise, this is part of the chaos that suppliers thrive on. It can’t be random the way it is now.

How: Decide that this is important, select who the negotiator is and mandate it.

Difficulty Rating: 4+. This is extremely hard to do and requires a significant amount of change because everybody wants to control this piece. It just may require executive mandate. If clinicians are willing to give this up it should make their jobs easier because they can focus on delivering patient care. It may be as simple as ‘this is what I want; now get it for me.’ Clinicians can decide on brand while the materials manager can negotiate the price. Maybe the materials manager can negotiate an upgrade path to a higher-slice CT if a lower-slice CT is purchased? For example, the clinician may want a 64-slice CT for future patient growth and market specialty expansion but could agree to a 32-slice CT for immediate use with an upgrade path to a 64 when they’re ready to launch into that new area. When clinicians pre-commit to a piece of equipment true negotiation ends.

Why: People think of this as just buying equipment and maintaining it with service contracts. But training, utilization and service are all components of the equipment’s life cycle and the total cost of ownership. The biggest chance to impact the equipment’s life cycle is when you purchase the item. You’ll hear people say that the service costs may offset the pricing concessions you gain. But that’s not always true. Service may represent a different silo than sales so a vendor may not necessarily ‘make up’ for something on service.

How: Data submitted to the committee should include projections for life cycle costing issues and at least three to four factors affecting it. This should be part of the requisition process.