Why You Need an Equipment Maintenance Program

As a hospital or healthcare facility, your sophisticated medical equipment is critical to your day-to-day operations. You can’t afford to lose revenue due to poor or improperly scheduled maintenance to state-of-the-art equipment (such as laboratory and diagnostic imaging tools or radiation oncology and surgical equipment).

An underwritten Equipment Maintenance Program provides a cost-effective alternative to the original equipment manufacturer’s (OEM) service contracts. The program consolidates multiple equipment service contracts into one equipment maintenance agreement. With one agreement, hospitals and healthcare facilities can better manage the upkeep of their equipment and track preventative maintenance.

There are four distinct advantages of managing your equipment maintenance through a consolidated program:

  1. Ease of managing equipment
  2. Ease of managing contracts
  3. Cost Savings
  4. Information and leverage in negotiating for new equipment

Managing Equipment

At many hospitals, equipment purchasing and management is only partly centralized, much of it is done at several levels of the administration and across various departments.  At these institutions, common equipment is managed by a central materials management function, but some specialty equipment is purchased and inventoried at the functional department level.  This makes sense because each department (Radiology, ICU, Coronary Care, etc.) has their own expertise in patient care and the knowledge of the specialty equipment they need to do their jobs.  However, it makes the CFO’s job much harder because there isn’t a complete picture of the hospital’s equipment purchasing and management available anywhere.

An Equipment Management process starts with a comprehensive audit of the equipment and maintenance contracts across all departments, so the project begins with a great opportunity to collect an all-inclusive picture of the hospital’s inventory across all departments.  Furthermore, the inventory information, along with contract details, is maintained in a central database and accessible through a portal, giving management unprecedented visibility into their equipment inventory and the state of repair across all departments.

Managing Contracts

Even before assets are rolled onto the main contract, the system can help manage individual service agreements.  Along with equipment details, the database also includes information on maintenance contracts.  If an asset is covered by a warranty with a termination penalty and can’t be added immediately to the main contract, the database will still track the OEM contract and alert management when the contract is set to renew.  As each contract comes up for renewal, it can be reviewed for terms and costs.  If it makes financial sense, the contract can be rolled onto the central contract.  If not, the correct decision may be to let the OEM contract renew or to negotiate more favorable terms.

Once assets are transitioned to the new contract, they all inherit the same contract end date, regardless of when they were rolled onto the contract.  This helps management by ensuring a single contract end and renewal date for all hospital assets and avoiding expensive auto-renewals and termination penalties. Finally, all contract information and maintenance history of the covered assets can be reviewed on the portal.

Cost Savings

One of the primary reasons for consolidating your equipment maintenance under a single contract is cost savings.  Our experience is that hospitals save anywhere from 10% to 22% on equipment maintenance costs by consolidating OEM contracts under an underwritten central contract.  This is due to the fact that an underwritten Equipment Management program uses an actuarial approach to assess the maintenance and failure history across thousands of similar assets and classes of assets.  Statistically, this allows them to spread risk for the hospital assets across many lines and dramatically reduce the costs to insure them.

More importantly, an underwritten contract, as opposed to an independent Equipment Maintenance provider, is guaranteed by the financial assets of a larger company, typically an insurance firm.  This allows you to feel secure that your policies are sound and won’t be at risk because a small independent equipment management company runs into financial trouble.

New Equipment Negotiation

Assistance in negotiating new equipment is probably the most underappreciated feature of moving to a managed equipment maintenance program.  Because they take an actuarial approach to equipment maintenance, the underwriter has developed a huge database of equipment price and performance over the years, and this wealth of information is available to clients who are in the market for new equipment.  Knowing the insurability of, and the price other hospitals are paying for, an asset gives clients a tremendous leg up in the negotiation for new equipment, negating the built-in advantages that professional salespeople have in medical equipment contract negotiations.  This goes a long way toward helping hospitals manage their capital expenditures in addition to the operational savings.

In addition, the underwriter can provide information on whether an OEM extended warranty is a good buy.  Many OEMs will let equipment go at a lower price knowing that they will make their money on the extended warranties and service contracts.  They will often bundle an expensive extended warranty in the purchase contract with steep termination penalties.  The underwriter can use their information advantage to assess all of the costs and coverages in an OEM contract to determine if the package is a good deal or if it should be unbundled and negotiated separately, or simple rolled into the central contract once the initial warranty expires.

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