I have invested a significant amount of time over the last 24 years value-justifying my client’s clinical equipment service contracts to identify flaws in them and then fix them at a significant savings for my clients. It has been a real eye opener to audit these contracts as it will be for you if you decide to deep dive into your clinical equipment service contracts to identify savings.
The reason that I have targeted these cost drivers is that at a typical 300-bed hospital you could have 4,000 devices covered by 100 different service contracts with 50 or more different vendors. I have seen this as a blueprint for waste and inefficiency since most hospital’s cost accounting systems do a poor job of tracking these contracts. When you consider that the average cost of clinical equipment maintenance for a 300-bed hospital is about $1 million dollars annually this is a high-value target for savings at any and all healthcare organizations.
One of the biggest culprits is the actual number of devices under contract. A study by General Electric that investigated the accuracy of clinical equipment inventories, based on 500 hospitals’ physical inventories, found that the typical device inventory is 60 percent inaccurate. This means that most hospitals are paying for clinical equipment service on hundreds of devices that aren’t even located at their hospital. To fix this glaring and costly problem you will need to conduct a physical inventory of all of your clinical devices, at least annually, to ensure that you are only paying for service on clinical equipment that is verified to be on your premises.
The next big issue that you will need to investigate to ratchet down your clinical equipment contract cost is to make sure that you don’t have redundant clinical services with multiple contractors for the same devices and that you have the proper service level mix for your devices based on their intensity and criticality. For example, do you require 24/7 service on some high capacity devices or only 9 to 5 service on low intensity devices. Or, can you bring back more of your clinical equipment under your in-house biomedical group that was previous contracted. These two tactics, based on national studies, alone could result in a 40 percent reduction in your clinical equipment contract.
I think that the most egregious error that can be made by a hospital with their clinical equipment service contracts is to decentralize the contract administration of these service contracts. Or, to believe that their biomedical group has all the correct strategies and tactics in place to control their hospital’s clinical equipment contracts. Nothing could be further from the truth!
It’s been my experience that it takes fresh eyes and a different “mindset” to uncover these hidden, but obvious, clinical service contract savings that can best be accomplished by a value analysis team with no biases and with flexible thinking. By following the blueprint that I have just laid out, a typical hospital can achieve clinical contract savings in the range of 10 to 15 percent in the first year. Isn’t it time to invest the resources to do so, when we are all looking to squeeze the last dollars out of our supply and services streams? My vote would be “yes”!
Robert T. Yokl
Chief Value Strategist
Strategic Value Analysis® in Healthcare