August 2015

Managing to Succeed: Value-Based OEM Service Contracts — 5 Things Every Administrator Should Consider Before Signing

By David Franklin
Radiology Today
Vol. 16 No. 8 P. 6

Hospitals can spend $11 per second per patient in the United States, according to one analysis I read. That observation is borne out in my experience.

Given that sobering statistic, it’s no surprise that hospital administrators are tasked with finding practical, less costly ways to speed patient throughput. Health care organizations need to move the patient quickly and efficiently through the system while delivering quality care, heightening patient satisfaction, and lowering readmissions—all in a lower cost model.

As part of meeting these challenges, many hospitals are adopting value-based service agreements with original equipment manufacturers (OEMs), as reported in an April 2014 article about managing service contracts published online in The Journal of Healthcare Contracting. In the past, hospitals often viewed OEM service contracts simply as a cost to the organization. In my opinion, more administrators are shedding this narrow view, opting instead for service contracts that offer improved service, continuous upkeep, and ongoing management of their biomedical equipment. They understand that functioning equipment goes a long way toward ensuring that patients move efficiently through the system to a prompt discharge.
This increase in efficiency shaves treatment time and reduces overall costs for hospitals and, ultimately, leads to improvements in patient care and satisfaction.
While the value-based contracting model is now more widely accepted in the equipment service arena, like any contract in the health care space, service proposals can differ widely, requiring administrators to proceed with caution, ask questions, and closely examine the offerings before committing the care and upkeep of their capital equipment to a vendor that meets their needs. Here are five essential questions hospitals and organizations should ask prospective vendors to help ensure a successful OEM relationship:

1. What is the breadth of the service offering? Hospital leadership, understandably, doesn’t want to manage a flock of service providers in addition to the many other administrative issues they face on a daily basis. Thus, many are moving toward multivendor agreements that provide service across a wide range of equipment, regardless of original manufacturer.

When negotiating the service contract, administrators should ask the prospective vendor: Can you service all of my equipment? If not, for the equipment you are unable to service, how would you manage procurement of service for that equipment?

Qualified OEMs should have the capability to provide cost-effective service to all non–end-of-life clinical equipment, regardless of complexity. It’s up to the individual administrator to determine whether the OEM’s service range is beneficial to the organization or not.

2. How well-trained are the service technicians? Always verify, as thoroughly as possible, with the OEM vendor that they’re able to deliver services as presented. Asking for competencies and authenticating that OEM technicians have undergone the necessary training is a good starting point. The OEM will be operating on hospital time. It’s beneficial to know that they have the required experience to complement, not hinder, daily operations.

A well-trained OEM should be able to locate potential pain points that can contribute to delays that either slow down or stop the patient from efficiently and effectively moving through the system.

3. What is the OEM’s service history with The Joint Commission? Consider all of the previous hospitals with which the prospective OEM has worked. Are there any prior incidents related to the service they’ve provided? It’s wise to take the extra steps necessary to verify that past Joint Commission surveys have yielded positive results. Does the vendor maintain service records to the standard The Joint Commission expects? It’s important to recognize that if The Joint Commission were to conduct a review and not find sufficient service records, it could impact the hospital negatively in the long run.

4. Can a longer lifecycle be expected for the equipment? Reducing lifecycle cost is integral to implementing a value-based contract model. A hospital’s capital equipment budget is already limited, especially if new facility construction or other capital projects are under way. Administrators will want to make sure that any service contract includes clear paths for equipment upgrades, where applicable, that extend equipment life and efficiency.

It’s a good idea to request the service vendor’s documentation to help determine if they have demonstrated lifecycle capabilities and can assist with the capital planning/capital equipment replacement program.

5. Does the contractor offer an obsolescence plan? While a service contract should look toward extending equipment lifecycle whenever possible, there comes a day when a piece of equipment is neither serviceable nor upgradable. Administrators will want to confirm with the service vendor that the service agreement includes an obsolescence plan. Of course, in order to truly plan for obsolescence, the service provider needs to have access to the age, condition, and service records of older equipment to ensure high clinical standards.

Remember, the purpose of a service agreement is not only to repair equipment, but also to ensure that the facility maintains optimal equipment uptime in order to move patients quickly and efficiently through the system. When hospitals and other health care organizations adopt this mindset, it allows the value-based model to genuinely take shape.

While it’s up to the individual health care systems to determine what agreement best fits with their organizational needs and goals, the bottom line is that an OEM service agreement may appear as a cost on the front end, but ultimately could prove to be a major cost mitigator on the back end.

— David Franklin is finance director of Philips Healthcare Customer Service Solutions.