Medical Equipment Support Contracts: Creating Your Own Value Equation

Healthcare organizations continually evaluate service and support contracts, exercising their tolerance for risk versus reward. Ideally, an HCO would receive a 100% (or greater) return on a contract compared to what they would spend for costly repairs and PMs and minimize downtime, thanks to proactive support. Regardless of contract coverage, this is what HTM strives to accomplish daily in supporting the medical equipment inventory.

Considering the stakeholders in a contract decision generally includes the user/owner, supply chain procurement, HTM, and finance. Each group has something to gain (or lose) in the ‘decision by committee’ to add or decline contract coverage. So, who has the loudest voice or tie-breaker vote when determining need? Historically, it’s the user/owner; however, in light of tight budgets and cost-saving initiatives, these unilateral decisions to add coverage are under greater scrutiny.

Equipment downtime and unanticipated repair costs are at least an inconvenience and, at most, a catastrophic event, especially when you’re a clinical leader. There’s a significant incentive to wrap yourself in the warm blanket of a service contract when you’re convinced that a contract offers predictable spending and an uptime guarantee and lets you avoid healthcare delivery woes. The problem is, even a platinum level, 98% uptime guarantee contract can’t solve supply chain parts issues, FSE availability, obsolescence (‘Company X will make every reasonable attempt…’), or avoid costs when a water pipe breaks in the ceiling or that expensive console falls off the cart. 98% uptime means your MR can be down for six business days in a row, which doesn’t include the weekend. And if they fail to meet the uptime guarantee, the support provider’s only punishment is to give you some money back, which won’t be near the revenue lost during downtime. Maybe a support contract isn’t the warm blanket we thought it was.

So, how do stakeholders read from the same sheet of music and make an informed decision about contracts? Our organization didn’t invent it, but it does often deploy the corporate slogan “Head and Heart, Together.”

It means educated caregivers using best practices (Head) filled with compassion and a desire to promote health and wellness (Heart) work in partnership with each other and their patients to improve lives (Together). This concept easily translates to contract analysis; here’s where you get to build your tools and solve the value equation.

Page one is the Financial Analysis (Head). My tool has columns for full support, shared support (anything from bare-bones coverage to a couple of omissions from full support), third-party (if available in your area), and in-house support provided by the local HTM team. Each option contains the following values: support hours, coverage levels, ancillary items such as cancelability and software upgrade inclusion, and total cost. Remember that in-house total costs will include parts, labor, if billable, and startup costs, including training and test equipment.

Page two is the Service Support Analysis (Heart). These are more difficult to quantify; the tool is intended to assign a number to these considerations relative to each of the support options in the Financial Analysis. I have a scoring matrix that resembles risk scoring and uses the following parameters: lost revenue/financial risk/workflow disruption; service support level; service provider reputation; and other immeasurable financial benefits (such as free user and tech support).

Put these two pages together, evaluate, and decide together, and you’ve successfully put some corporate sloganeering to good use! Once the decision is made, be sure to keep an eye on spending if you went the other direction and change course if you find the value equation is inverted.