Making the case for OEMs vs. ISOs for device repairs

Healthcare organizations generally face two options when they’re looking to repair their endoscopic devices: Original equipment manufacturers (OEMs) and independent service organizations (ISOs), which commonly are called third-party repair services. The third, and more rare, option is that some organizations may be fortunate enough to rely on a skilled and well-trained internal biomedical engineering group to handle these needs.

Outside of biomed, choosing the OEM over an ISO and vice versa comes with its own set of advantages and challenges.

To assist in the decision process, Healthcare Purchasing News reached out to four different companies for their expert opinions. Here’s what executives at Integrated Medical Systems International Inc., Karl Storz Endoscopy Inc., Lighthouse Imaging Corp. and SterilMed Inc. had to say about when and why either the OEM or the ISO makes more sense than the other, as well as specific criteria to look for when choosing a third-party repair company and traps to watch for along the way.

OEMs vs. ISOs

It makes sense to have the manufacturer repair equipment that has just been released in the marketplace. It takes most independent service organizations about a year to reverse-engineer the components for a new product. Additionally, new equipment typically comes with a one-year warranty, and during that period, it’s a good idea to seek warranty coverage. Of course, most manufacturers’ warranties do not cover user damage. If your repair involves such uncovered damage, you should send it to an independent service organization for a competitive bid.  

When there is no possibility of warranty coverage, turn to a reliable independent service organization. This option can offer shorter turnaround times, lower costs, and a higher level of service. The main goal of an independent service organization is to keep the equipment you already have in good working condition for as long as possible, while most manufacturers are focused on selling new equipment.

Jack Hower is president for surgical devices,
Integrated Medical Systems International Inc.

Karl Storz’s stance is that all devices should be returned to the OEM for repair or exchange to ensure that original product quality is maintained. For general surgical instruments (open instruments), because hospitals often have multiple OEMs’ products in their inventory, we recommend choosing a qualified vendor who is authorized by at least one of the manufacturers of the devices. These companies provide repair and refurburishment for a wide variety of general surgical instruments.

Customers often try to choose one vendor to perform all repairs. Unfortunately, this does not work out well in most cases as the vendor typically lacks the expertise to perform all repairs and therefore has to rely on subcontractors. As a result, quality controls often are substandard and lead to premature product failure. We have several customers who sacrificed quality in search of lower prices and ultimately ended up spending more money because of replacement expenses.

Gregg Agoston, M.B.A., associate director,
Protection 1 Services, Karl Storz Endoscopy Inc.

There has been a great deal of controversy surrounding the topic of OEM vs ISO endoscope repair. A scope repaired by the OEM is typically repaired to near- or at-original image quality, but may be more expensive under contract than the ISO. 

Sometimes the OEM will get blamed for a low-quality repair if the repair is done by an ISO with low-quality assurance procedures. There are also instances where an ISO may get blamed for a poor-quality repair, when in fact it was not their fault. 

In defense of their work, the ISO must then provide quantitative evidence of the repair. This is why it is important to qualify an ISO under consideration to be sure that they are using quantitative inspection methods and have the lens inventory to support a wide range of scope types. High-quality scope repair methods and practices can certainly lead to enhanced patient safety and cost savings to the hospital.

Mark Waite is CEO, Lighthouse Imaging Corp.

Using the OEM for all your repair needs has the benefit of leveraging the original parts and specifications as a new scope. For warranty repairs, using the OEM is a "no-brainer." Similarly, using the OEM for highly advanced equipment like ultrasound scopes is also a good idea.

The downside to using the OEM for common, non-warranty OEM repairs (which most repairs are since the warranty doesn’t cover many common causes of damage like water infusion, improper storage, cleaning or handling, etc.) is that it is typically cost prohibitive. Given that reducing expenses allows healthcare providers to deliver care to more patients without compromising service levels, it’s logical to have qualified ISOs (those who use high-quality parts and refurbish equipment to like-new condition using effective quality systems) perform as many repairs as possible.

For the cost conscious healthcare provider, it’s best to check with your ISO for every repair to see if they can repair it first.

Greg Wenthe, national sales director, SterilMed Inc.

Editor’s Note: At press time, Ethicon Endo-Surgery Inc. acquired SterilMed Inc.

Selection criteria

1. Does the third-party repair company perform sterility and durability testing to make sure that seals and materials utilized in the repair process will perform to the same standard as the manufacturer’s original design?

2. How many engineers does the third-party company employ, and do these include qualified optical, mechanical, manufacturing, electrical and material engineers? What engineering software do they use when engineering specific components and assemblies?

3. Are you able to go tour their facility? Will they allow you to interact with the engineers and technicians?  

4. What is the typical repair turn time? Do they have an on-site van to perform repairs at your facility?

5. Can the repair company prove they do not use inferior parts and materials? Do they reuse parts or try to repair parts that should be replaced?

6. Is there transparency in pricing? For example, if you are offered a $595 flat rate for rigid endoscopes, will you be charged more for more extensive repairs? When comparing flat rates, ensure you are comparing apples to apples by looking for clauses that allow additional charges.

 Jack Hower, president for surgical devices, IMS

When considering the use of an ISO/third-party repair company for endoscope repair as an alternative to repair-exchange services provided by OEMs it’s essential to have a clear understanding of the ISO’s quality standards. All too often, a hospital will contract with an ISO based on price without scrutinizing the repair quality methods, procedures and practices. Here are some important criteria to consider, when considering an ISO:

1. Scope components inventory – if a scope repair is performed using lenses that are a close approximation, but not the exact replacement of the original, then the scope’s image characteristics can be adversely altered. An ISO who has the capability to competently perform a repair to or near OEM quality, will have an extensive inventory of replacement lenses. The majority of the lenses used in endoscopes are sourced primarily from manufacturers in Germany, and secondarily from suppliers in China. Ask the ISO about the extent of their optical and mechanical components inventory, which should be at least six figures in size.

2. Technician knowledge and training – ask the ISO how repair technicians are trained and how they maintain their skills to be able to repair rigid scopes as well as flexible (fiber or video) scopes. Have they been trained on how to repair specific, e.g., Olympus "chip-on-tip" scopes and some of more rare, German-made "rod lens" scopes from Olympus, Karl Storz, Wolf, Smith & Nephew, or Stryker? Compare this to your hospital’s inventory of scopes.

3. Repair turn-around time – some ISOs offer a standard repair cycle time for "all" or "most" types of scopes relative to the type of repair needed. The typical range is overnight to upwards of one week, for a difficult repair. Be sure to ask the ISO about their fee structure, relative to response time and repair difficulty.

4. Scope loaner inventory – a well-established full service endoscope repair company will have available an extensive offering of loaner scopes, in the event that a particular repair might take longer than expected. The ISO should be able to offer various laparoscopes, arthroscopes, cystoscopes, flexible scopes from most major OEMs, as potential temporary loaners.

5. Quality inspection – ask the ISO if they use quantitative methods of measuring important scope characteristics before and after repairs are performed. Examples of essential quantitative measurements are field of view, modulation transfer function (image sharpness), coloration, distortion, and vignetting. If the ISO is able to measure scope quality using a quantitative test instrument, such as the Endobench endoscope image quality tester, then a high quality repair is more likely. These type of measurements are important to make because they are clinically relevant and if used, reduce the potential for a surgeon to begin a procedure with a defective scope.

6. Quantitative performance data – assuming the ISO is measuring optical or image characteristics before and after repair, be sure to ask about the source of scope measurement data. How are they measuring field of view (FOV) and/or any of the other parameters?

7. Scope tracking – the Joint Commission recently imposed a requirement on member hospitals to track all endoscopes in medical equipment inventory. Therefore, when a scope is sent out for repair and returns, the tracking of the scope to and from the ISO, must be seamless. Ask the ISO how they track scopes and if they are tracked by serial number and quality data.

8. Costly unnecessary repairs – it is estimated that at least 10 percent of scopes that are tagged for repair at the hospital, do not need repair. Ask the ISO how much or if they charge for unnecessary repairs and seek clues as to whether the ISO might be inclined to "invent" reasons to repair an otherwise known good scope. An efficient hospital and partner ISO will have quantitative inspection procedures in place to reduce the likelihood of scopes being sent out for repair, when not warranted.

Mark Waite, CEO, Lighthouse Imaging Corp.

It can be difficult to compare ISOs, however, there are a few key things to look for:

1. Quality. Find out how they will ensure that the repair will be similar to that of the original equipment manufacturer. What engineering capabilities do they have? What OEM testing equipment is used to verify repairs are at OEM specs? Selection of replacement parts, repair processes, ISO certification and thorough quality assurance tests are critical to repairing an endoscope. The ISO should have all necessary equipment to both disassemble a device without causing further damage and the ability to reassemble a device using the same equipment used in the manufacturing process. Ask for copies of the test results and to visit their facilities to see for yourself how repairs are done. Also asking for referrals is also a good idea.

2. Capabilities. Many ISOs may outsource repairs because they don’t have the capabilities to do them themselves. This can increase costs, lead times and may defer their responsibility for the quality of the repair. Ask questions about the details of their in house capabilities and what repairs are outsourced.

3. Cost. How will the ISO work with you to reduce repair costs? Don’t be fooled into thinking the cheapest repairs will save you money. Using high quality parts last longer than inexpensive ones which ultimately reduce your costs. Ask questions about their approach to cost containment and the resources they’ll provide to drive down total costs by helping address the things which cause repairs in the first place.

4. Support. Find out how the ISO will help you manage the logistics of equipment repair. Who prepares equipment for shipment? How large is the loaner inventory and who coordinates getting one? What type of reports are available to you to identify repair status, history or trends? You should look for an ISO that takes work of your plate rather than adds to it. Do they use ISO-controlled processes for addressing warranties and customer complaints?

Greg Wenthe, national sales director, SterilMed Inc.

Watching for traps

When considering a repair vendor there is one trap that hospitals seem to fall victim to most often: They get hung up on line-item pricing.

Many repair companies that offer the lowest line-item prices do not include labor charges, which can be well over $100 per hour. Additionally, within an endoscope there are many intertwined systems. Even the most basic repairs usually require replacing more than one part. A repair company may look cheaper on paper when you compare baseline costs for individual repairs, but add up every repair item plus labor charges and the total easily becomes more costly.

The other pitfall of choosing the lowest bidder as your repair vendor is compromising quality. Some companies can offer unbelievably low prices on their repairs because they use generic "one-size-fits-all" parts available on the open market. Endoscopes require model-specific parts. Using substandard parts compromises performance standards. High-definition equipment is often downgraded to standard definition because the HD parts are not readily available on the open market. Attempts to save money in repairs can cost hospitals the premium dollars they invested in having the best and latest equipment.

When choosing a repair vendor, look for the total package. Cost-effective repairs that don’t compromise quality are available. A 90- to 120-day trial should give a snapshot of their service, quality, and overall cost. Taking this short amount of time could prevent signing away hundreds of thousands of dollars.

Leticia Zirkle is product manager, IMS

The most common trap is trying to get to a one-stop shop. Many customers want to streamline their vendors by consolidating. The ultimate purpose for this is to gain greater control/leverage in negotiations/pricing.

Unfortunately, there is not any one vendor who is authorized by all OEMs or can perform OEM-quality repairs for the vast and variable inventory of instruments and equipment that hospitals own. When one-stop shopping is the goal, the result is a vendor who is forced to subcontract for devices that they do not have the skill set or components to make the repairs.

Many components are proprietary and, thus, are not available to anyone other than the OEM. Due to this, repair vendors resort to reverse engineering to create the component or they try to substitute a similar component for the damaged one. This results in the eventual degradation of the original OEM quality, leading to product failure and possible patient harm. In addition, substituting non-OEM parts can also affect sterilization, as stated by ASP.

Gregg Agoston, M.B.A., associate director,
Protection 1 Services, Karl Storz Endoscopy Inc.

It’s common for cost-conscious hospitals to think that capitated "all-inclusive" agreements are the safest way to reduce expenses. However, the old saying "there is no free lunch" is certainly true. If you don’t have a program which addresses the behaviors that cause repairs, you’ll need more repairs. If you need more repairs, the amount you pay will increase since no company, an ISO or OEM, can do repairs for free. Ultimately, if you consume more repairs, your annual capitated fee will go up.

Don’t be fooled by offers that give you "unlimited" repairs. If you really want repair costs to go down, find a company that will partner with you on identifying and reducing avoidable repairs.

Greg Wenthe, national sales director, SterilMed Inc.