Rising service costs prompt hospitals to examine new options
Article Thumbnail ImageMay 6, 2010 -- Cash-strapped hospital administrators are turning to in-house solutions with help from original equipment manufacturers (OEMs) to keep their imaging equipment in good working order, according to a new survey of the diagnostic imaging equipment service industry.
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But despite the trend toward shared-service relationships, traditional service arrangements -- such as an OEM providing onsite service -- still make up the lion's share of equipment maintenance, according to a new report from IMV Medical Information Division of Des Plaines, IL.

An unexamined industry

Diagnostic imaging insiders have long understood that the annual cost to maintain a sophisticated MRI or CT scanner is roughly 10% of a system's $1.5 million cost of acquisition. But business analysts have rarely evaluated the multibillion dollar imaging equipment service industry.

Contracts covering routine maintenance, upgrades, and nonscheduled repairs are typically negotiated with OEMs or an independent service provider when new equipment is acquired. In the past, some industry insiders have speculated that service contracting may be a more lucrative source of revenue and income for the OEMs than sales of new equipment.

In IMV's online survey, 23% of the 401 respondents complained that service agreements cost too much. Twenty-five respondents (6.2%) observed that service pricing seems to be increasing rather than decreasing.

The suspicion that vendors will raise the price of servicing imaging equipment comes at the same time that hospitals are cutting service budgets. This trend led some respondents to express doubts about their ability to budget for future contracts, according to Mary Patton, market research director at IMV.

"They feel like they are being squeezed between the cost of service and the need to cut budgetary costs, no doubt about it," she said in a telephone interview.

Hospitals looking to solve this dilemma are beginning to explore shared-service arrangements, in which they maintain relationships with OEMs to solve tough repair problems but use their own biomedical and clinical staffs first to address routine maintenance and equipment breakdowns. Such arrangements can give hospitals more flexibility to maintain their imaging systems.

The report indicates that hospitals are trying to push toward shared-service arrangements as a way to take on more of the financial risk of possible equipment downtime and more of the physical effort associated with imaging equipment maintenance and repair.

"Hospitals are trying to reduce the overall cost of maintaining equipment by shifting more of it toward internal resources," Patton said.

The survey found that hospitals have experienced some success in negotiating compromises with OEMs for maintenance training for their in-house engineers, as well as access to product keys that allow them to work with the manufacturer's proprietary software.

Though shared-service contracting is a noteworthy trend, it still ranks third among service options, behind full-time OEM or third-party coverage, in terms of market share for imaging equipment maintenance. The survey found OEM contracts cover six of every 10 hospital-based scanners, although the actual total may be larger because of an overlap from the vendors' participation in shared-service contracting, Patton said.

Another 13% of equipment (see chart) is maintained by independent service organizations (ISOs) and other third-party providers. Shared-service contracting accounts for 8%.

Equipment service market share, by provider type
Full onsite coverage, OEM 60%
Full onsite coverage, third-party 13%
Shared service, with some onsite 8%
Time and materials 8%
Service function contracted out (multivendor) 3%
Shared service, without onsite 2%
Parts-only arrangement 2%
Other spending categories 3%

OEM contracting is most popular for MRI, CT, and PET, the most expensive equipment in a hospital's imaging armamentarium and the systems that carry the biggest downtime risks. Third-party providers hold relatively larger shares of the x-ray and ultrasound markets.

ISOs still face some of the same problems that affected their acceptance when they first emerged as a competitive force for high-tech imaging maintenance 20 years ago. The survey revealed customer concerns about ISO lack of access to software that gives OEM engineers an edge for maintaining and repairing MRI, CT, and PET systems.

"There were many comments that came out of this report that indicated that many biomedical engineers at many hospitals feel that OEMs are the most qualified to service their equipment," Patton said.

Opinions about the future of the third-party market were mixed. Some survey respondents that used third-party companies are going back to an OEM because of service quality issues. Other facilities are considering using third-party providers more often as a cost-cutting measure.

Remote maintenance

The report established that vendors use remote diagnostics and sometimes remote equipment repair more often than expected. The survey found that OEMs have been surprisingly aggressive about applying Web-based tools to monitor equipment performance to predict the probability of future system failures. Remote diagnosis and repair help cut travel costs for the service firm's engineers and improve response times, especially for rural hospitals, Patton said.

But the survey also found that customers are aware that remote monitoring and intervention also raises security concerns. An OEM engineer who can breech a hospital's security firewall to repair a CT scanner can also potentially tap hospital information technology systems for financial, personnel, and medical records.

The survey also found that some hospitals have attempted to add uptime warranties, minimum hours of coverage, and minimum response times to their service contracts. IMV analysts learned that rural hospital managers are particularly hard-pressed to minimize scanner downtime because of the long distances vendor engineers must travel to make service calls.

Survey results were based on responses from 401 hospital-based biomedical engineering managers or radiology medical directors who filled out an online survey distributed to 4,886 acute care hospitals that provide diagnostic imaging services in the U.S. The report covers service contracting for CT, MRI, PET, PET/CT, and other nuclear imaging systems, nonhandheld diagnostic ultrasound scanners, general x-ray, mammography, and cardiac and noncardiac categories of C-arms.

By James Brice
AuntMinnie.com contributing writer
May 6, 2010

Disclosure notice: AuntMinnie.com is owned by IMV, Ltd.

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