Smarter spending in the HTM department
October 14, 2020
By Valerie Dimond
As healthcare continues its evolution, so too does the job of healthcare technology management (HTM) professionals.
These days, they’re participating in contract negotiations regarding which equipment to buy, something HTM departments didn’t do 10 to 15 years ago. Heidi Horn, vice president, global enablement-healthcare for Nuvolo, recently hosted a webinar entitled, Cutting Costs Through Your Hospital Maintenance Without Compromising Quality, where she shared financial insights derived from 20 years working in a centralized HTM department at a 24-hospital health system with over 95,000 clinical devices. Horn also served as the department’s vice president for 12 years.
“The consensus is 2020 will be an unforgiving but transformational year for the healthcare industry,” she said. “Financially, things went from bad to worse for healthcare providers in a few short weeks due to COVID.” In this climate, the need for efficient spending is more critical than ever.
The cost of maintaining and managing equipment starts with in-house HTM and facilities staff salaries, but there’s also non-contracted vendor labor and non-contracted parts and supplies. “And then you have your contracts for HTM and facilities,” she said. “Those contracts could be with the original equipment manufacturers; they may be with the independent service organizations, or parts vendors, or most likely a variety of these organizations.”
Knowing exactly how each of those costs are budgeted is essential. Does it happen in one cost center, in the HTM and facilities department, or dispersed across many different departments? You may need to examine each clinical department separately to figure out your total spend on clinical equipment maintenance.
Many providers will try to compare their cost of maintenance to other organizations to see where they stand but that can be difficult, as inventories have different variables. A large hospital will have more inventory than a smaller one and a teaching or research hospital tends to have a higher value of equipment with more maintenance, compared to a non-critical hospital.
“What we use to compare these different values is what we call the cost of service ratio (COSR),” Horn explained. “It shows the ratio of the cost to buy the equipment and the annual cost to maintain it. COSR equals the annual total cost of maintenance divided by the acquisition cost of the equipment. Low-cost clinical equipment maintenance programs have a ratio roughly between 4% and 6%. That seems to be the industry standard. High-cost programs can be as high as 12%.”
For example, a 20-hospital health system with $600 million in clinical equipment assets could spend between $24 million (4% COSR) and $72 million (12% COSR) annually maintaining its clinical equipment.
However, more spend does not equal higher performance. “People think if you have more, you spend more, you have more staff, more contracts, whatever, then that equates to a better run system, and all it equates to is more spend,” Horn said. “I can’t stress that enough.”
Opportunities for cost savings
• Reduce your reliance on service contracts. The more reliant you are on service contracts, the higher the COSR will be.
• Consolidate and renegotiate service contracts. Identify all agreements you have with the same vendor and same type of equipment. Then analyze and compare vendors. “Identify which coverage levels you really need and negotiate a consolidated master service agreement,” Horn said. “If you have like-devices with the same vendor, renegotiating for a master service agreement can save significant amounts of money.”
• Establish shared service and parts-only agreements. Implement policies that allow the HTM department to troubleshoot the issue before calling in a vendor. Parts-only contracts will also decrease costs if repairs are needed.
• Never pay list price for capital, service, or parts. Everything’s negotiable. “Use your group purchasing organizations,” Horn said. “There’s a starting point, but always negotiate those costs down further.”
• Say no to point-of-sale service contracts. “Vendors will say there’s a big discount if you buy it now versus waiting until later,” Horn said. “If you buy a new car and it has a good rating, you can expect that car to run pretty well for the first few years. Equipment is the same way.”
Tap your department’s computerized maintenance management system (CMMS) to determine need for high-cost service contracts, establish baseline COSR, identify annual maintenance costs and COSR by device, compare vendor costs and trends, and improve negotiations. Data will also help you identify equipment with excessive downtime so that you can replace it instead of spending on routine repairs.
“How many times, — and I guarantee you this happens all the time — where you may have a $50,000 device and somebody buys something [needed to fix] that 10-year-old device, [do you find] it costs $10,000, or $20,000?” Horn said. “Those are the times when you need to start having conversations about replacing this device versus throwing good money at bad equipment. But you need to have the data to know if this is happening.”
As healthcare continues its evolution, so too does the job of healthcare technology management (HTM) professionals.
These days, they’re participating in contract negotiations regarding which equipment to buy, something HTM departments didn’t do 10 to 15 years ago. Heidi Horn, vice president, global enablement-healthcare for Nuvolo, recently hosted a webinar entitled, Cutting Costs Through Your Hospital Maintenance Without Compromising Quality, where she shared financial insights derived from 20 years working in a centralized HTM department at a 24-hospital health system with over 95,000 clinical devices. Horn also served as the department’s vice president for 12 years.
“The consensus is 2020 will be an unforgiving but transformational year for the healthcare industry,” she said. “Financially, things went from bad to worse for healthcare providers in a few short weeks due to COVID.” In this climate, the need for efficient spending is more critical than ever.
The cost of maintaining and managing equipment starts with in-house HTM and facilities staff salaries, but there’s also non-contracted vendor labor and non-contracted parts and supplies. “And then you have your contracts for HTM and facilities,” she said. “Those contracts could be with the original equipment manufacturers; they may be with the independent service organizations, or parts vendors, or most likely a variety of these organizations.”
Knowing exactly how each of those costs are budgeted is essential. Does it happen in one cost center, in the HTM and facilities department, or dispersed across many different departments? You may need to examine each clinical department separately to figure out your total spend on clinical equipment maintenance.
Many providers will try to compare their cost of maintenance to other organizations to see where they stand but that can be difficult, as inventories have different variables. A large hospital will have more inventory than a smaller one and a teaching or research hospital tends to have a higher value of equipment with more maintenance, compared to a non-critical hospital.
Heidi Horn
For example, a 20-hospital health system with $600 million in clinical equipment assets could spend between $24 million (4% COSR) and $72 million (12% COSR) annually maintaining its clinical equipment.
However, more spend does not equal higher performance. “People think if you have more, you spend more, you have more staff, more contracts, whatever, then that equates to a better run system, and all it equates to is more spend,” Horn said. “I can’t stress that enough.”
Opportunities for cost savings
• Reduce your reliance on service contracts. The more reliant you are on service contracts, the higher the COSR will be.
• Consolidate and renegotiate service contracts. Identify all agreements you have with the same vendor and same type of equipment. Then analyze and compare vendors. “Identify which coverage levels you really need and negotiate a consolidated master service agreement,” Horn said. “If you have like-devices with the same vendor, renegotiating for a master service agreement can save significant amounts of money.”
• Establish shared service and parts-only agreements. Implement policies that allow the HTM department to troubleshoot the issue before calling in a vendor. Parts-only contracts will also decrease costs if repairs are needed.
• Never pay list price for capital, service, or parts. Everything’s negotiable. “Use your group purchasing organizations,” Horn said. “There’s a starting point, but always negotiate those costs down further.”
• Say no to point-of-sale service contracts. “Vendors will say there’s a big discount if you buy it now versus waiting until later,” Horn said. “If you buy a new car and it has a good rating, you can expect that car to run pretty well for the first few years. Equipment is the same way.”
Tap your department’s computerized maintenance management system (CMMS) to determine need for high-cost service contracts, establish baseline COSR, identify annual maintenance costs and COSR by device, compare vendor costs and trends, and improve negotiations. Data will also help you identify equipment with excessive downtime so that you can replace it instead of spending on routine repairs.
“How many times, — and I guarantee you this happens all the time — where you may have a $50,000 device and somebody buys something [needed to fix] that 10-year-old device, [do you find] it costs $10,000, or $20,000?” Horn said. “Those are the times when you need to start having conversations about replacing this device versus throwing good money at bad equipment. But you need to have the data to know if this is happening.”