September 2009 - Capital Equipment Guide

INSIDE THE CURRENT ISSUE

September 2009

Caveat emptor on equipment management companies, expert cautions

When hospitals are approached by companies both small and large offering capital equipment management services, they need to take each inquiry seriously, applying the same detailed sourcing strategies to all, according to Niklaus Fincher, VHA Inc.’s vice president of purchased services and capital.

Niklaus Fincher

Fincher offered nine rules of thumb for hospitals to protect themselves and their bottom lines from unscrupulous vendors.

1. If it sounds too good to be true, it probably is. It’s important to sort out the core value being offered. In many cases, capital equipment management is something that a hospital could do itself if they had the time, resources and expertise. If you can make the connection that the service is a ‘less expensive,’ ‘outsourced’ alternative to what you could or should be doing yourself than it may make sense. If you’re being offered something you wouldn’t necessarily do yourself then back away from it.

2. Find out how long they have been in business as their current entity. Don’t allow them to blend previous versions of themselves into a longer company history.

3. Check any and all resources to verify whether or not the company or service is credible. Hit online searches like Google or tap a database, such as those offered by MD Buyline or the [federal] [Office of the Inspector General]. This is actually one time I would recommend listening to what the competition has to say. There may be some truth to their competitive profiling.

4. Talk to the original manufacturer of any equipment under consideration. Have they ever heard of them? Are there any arrangements for manufacturer parts or service support to the entity?

5. Get a listing of references and make sure to call them all. Talk to multiple people at each reference. See if the competition knows of any sites that may have had experience with the company.

6. If possible, and the expense or financials warrant it, make a site visit to the company headquarters and at least one reference site.

7. Get financial information on the company. If they are privately-held, ask for information related to their profitability. Find out who they bank with and whether, and to what extent, they are in debt. Request information on whether they are licensed, bonded and insured. Ask for the names of their insurance carriers. Ask for the name of their legal firm.

1. 8. Request an up-to-date list of staff, detailing education, training and experience. An important indicator could be how long the staff has been employed at the present company.

2. 9. Be aware of your own intuition. If the company is based in an odd location, such as rural vs. urban, or not in an area with adequate distribution infrastructure it could be a negative indicator. If the business is run out of a residential setting or settings, it may indicate financial weakness.

Effective equipment planning begins in the ‘basement’

UHS chief offers 25 tips for doing it right

by Rick Dana Barlow

For healthcare supply chain managers, capital equipment planning represents the classic Catch-22 situation.

On one side, CEOs and CFOs bemoan budget overruns or clasp shut the purse strings during challenging economic times, delaying, if not sacrificing, investment in new technology unless absolutely necessary and under strict control. On the other side, supply chain managers remain more of an oversight in the planning process, only dragged in near the very end to "get something and potentially snag a decent discount along the way."

The inescapable irony is that a facility may need to invest in a technology to help patients and generate revenue but generally excludes the professionals who can help gain the most bang for the buyer’s buck.

For years, healthcare supply chain managers have called for their day-one invitation to the equipment planning process, particularly for construction and renovation projects, a logical request that by and large has fallen on deaf ears or indifference.

So what kind of intelligence can supply chain managers contribute to the heated equipment discussions between clinicians, administrators and vendors?

Healthcare Purchasing News wanted to highlight strategies and tactics for supply chain managers to involve themselves into the equipment planning process earlier on, whether through invitation or assertiveness. How should they insinuate themselves in those meetings between the healthcare facility, group purchasing organization, consulting firm and vendor? Wait for the invite or invite yourself to contribute purchasing acumen?

Gary Blackford

Gary Blackford, chairman and CEO, Universal Hospital Services Inc., Edina, MN, certainly has some ideas and a definite point of view. As one of the leading medical equipment lifecycle management companies in the nation, UHS works with hospitals to implement money-saving capital equipment planning and asset management strategies.

Due to the floundering economy, many hospitals either are postponing or eliminating equipment investments in the short term, according to several widely publicized and quoted surveys, but that may be short-sighted in the face of effective planning, according to Blackford.

Hospitals and other healthcare facilities should plan carefully when it comes to financing options, service contracts, type of equipment, physician preference and sourcing, he noted, offering a variety of useful tips to help make the optimal decisions.

On financing options, including buying vs. leasing

• Generally, it’s a good idea not to lease medical equipment that is portable, such as infusion devices, because:

◊ Portable equipment often gets misplaced, broken or lost during the lease term, and you’ll have to pay a large buy-out fee if you can’t return functioning equipment at the end of the lease term

◊ Portable equipment, especially infusion devices and respiratory therapy equipment, are increasingly the target of recalls, and since manufacturers typically do not hold the lease, you could be stuck paying for equipment that you cannot use.

• Make sure the lease term is for the true functional life of the equipment

◊ Too often hospitals enter into leases where the term extends well beyond the true life of the equipment, and paying for equipment that you cannot, or won’t, use is painful

• Be careful of "got cha" lease terms, such as:

◊ Adding additional items to the lease can sometime extend the lease terms for all items

◊ Waivers of responsibility of manufacturers for defects or recalls

◊ Tie-ins for unrelated equipment or disposables

• Perform a feasibility study to determine the costs of leasing vs. buying over the lease period. Also look at renting and pay-per-use programs as viable solutions to make equipment available to your facility with the least amount of capital spending. It is critical to understand the full "lifecycle" costs of the equipment, such as:

◊ Parts & service

◊ Breakage of equipment

◊ Software upgrades & management

◊ Disposables related to the equipment

◊ End of life costs (disposal)

◊ Lost or misplaced items

◊ Logistics management

◊ Support/training

On negotiating service contracts

• Understand your total cost of repair when negotiating service contracts. Factors include:

◊ Shipping expense to the service center

◊ Renting extra equipment or paying for loaner equipment while the product is being repaired, which sometimes takes 60 to 90 days

◊ Lost revenue for equipment downtime

• Don’t sign contracts when purchasing equipment. Negotiate the best purchase price with the best warranty, and then negotiate for service agreements in a more competitive environment when the warranty expires.

• Compare a cross section of service coverage: Preventive maintenance-only agreements, Labor Only, Full Service, etc.

• Seek out third-party vendors in addition to the original equipment manufacturer (OEM) for service quotes.

• Track your corrective repair activity to determine if taking the risk in future years makes sense.

• If you have an in-house biomedical engineering group, seek cooperative agreements where the OEM trains hospital employees to perform preventive maintenance and first call service.

On considering new or used equipment, based on clinical application, financial consideration and operational functionality

• Seek out the useful life information on the equipment you are looking to acquire and compare to the age of used equipment. Determine whether the manufacturer has, or intends to issue, an end-of-life notice for the used device so that you can be assured that parts and consumables will remain available for the near future.

• Determine the testing/clinical capabilities of the equipment needed now or in the near future, making sure your purchase is not more robust than needed.

• Understand the refurbishment process. This is especially important for laboratory and imaging equipment. Has the equipment been factory remanufactured? Is the glassware new?

• Consider the stability of the technology and your expected utilization. Technology that is relatively stable and equipment with a long useful life are good candidates since the buyer will likely realize sufficient additional life from the equipment. Similarly, if the facility intends to use the equipment relatively infrequently and/or for backup purposes, used equipment is a good choice.

• Compare the cost of the equipment with the new equipment equivalent. Does the price difference justify the increased risk, shortened warranty, and potential service costs that would be covered under the new equipment warranty?

On working with clinicians to determine and standardize brand preference

• Phase out your equipment purchases over the next three fiscal years.

• Speak to the staff about equipment preferences and skill level.

• Standardization of make and model supports a number of hospital initiatives including staff efficiency, patient safety and reduced capital and operating expenses.

• Standardization facilitates staff training and improves staff familiarization of the equipment, improving efficiency and reducing the risk of an incident caused by user error.

• Standardization also reduces the inventory of consumables and parts that must be stored on-site and makes it easy to swap these components between devices.

• Standardization can help improve buying power by increasing the total amount of goods acquired from a single vendor.

On equipment planning internally, through a group purchasing organization or through a third-party consulting services firm

• Make sure that any outside agents (GPOs, consultants) are truly vendor-neutral and therefore can help your facility identify the best and most effective options.

• Get them involved in the process early!

• Make sure the hospital administration team is leading the charge and holding the department managers responsible for their capital requests.

• Align equipment planning strategies with the facility’s strategic, operational and financial goals.

• Construction projects represent an ideal time to install major equipment that is permanently installed or affixed to the building. Therefore, equipment planning should begin early, even before the building project is underway, so that major equipment purchases (imaging equipment, nurse call systems, central monitoring, etc.) are postponed and coordinated with the building project to avoid the expense and risks associated with moving major equipment and systems.

• Select a project champion early in the process. This individual will then serve as the primary point of contact between the internal committee, the architects, engineers and any third parties.

For more information about UHS, visit their website at www.uhs.com.

Capital pains: Tech tools eclipsed by turbulent economy?

Effective equipment planning begins in the ‘basement’

Coming to terms with used equipment definitions

Capital spending caught in the Web