Consider the Total Cost of Medical Equipment Ownership When Making Purchasing Decisions
Over the last decade, since the passing of the Affordable Care Act, much attention has been given to lowering healthcare costs while improving the overall quality of care. Hospital administrators and medical practice managers well know just how challenging it is to reach that balance. Americans spent a staggering $3.2 trillion on healthcare in 2016. One key area of medical equipment spending. According to Modern Healthcare, medical supplies and equipment account for the biggest spike in healthcare spending. Hospitals are spending $93 billion per year on medical equipment lifecycle costs. Becker’s CFO Report estimates hospitals are missing savings as much as 12 to 16 percent due to “lack of accurate information, internal resources, bandwidth, and specialized expertise.” That averages out to $12,000 per bed per year! How can your healthcare organization effectively plan for and reduce the total cost of ownership (TCO)? Consider these four tips.
Know What’s Included
First, familiarize yourself with the factors that contribute to TCO and the process of the actual lifecycle.
Factors that Affect TCO:
Carefully analyze each of these pieces of the lifecycle and the factors that affect it. For example, what financing options are available? What will I pay in interest? Is it possible to save money by buying a refurbished model? If it’s cheaper to not buy local, what will freight and logistics cost? What preventive maintenance can be done to reduce repair costs? How much staff time will be devoted to training and implementation? What will we save in increased productivity? What about the service contract and warranty? How soon will we possibly have to pay for a repair?
Technology adds a whole new dimension to medical equipment. One study estimates medical practices are spending $32,500 per year per full-time physician to buy, maintain and manage health information technology. Before equipment is purchased, managers must determine how IT will be affected. Will the new equipment work with the current technology? If upgrades are needed, what are those costs? Will staff have to learn a new technology to operate the equipment? How flexible is the equipment to future changes in technology?
Manage Priorities Effectively
Whether you are managing a medical practice or a large healthcare organization, you must delicately balance risk, cost and the benefits. Is the TCO worth the return on investment? Here are five main areas to help you make that decision.
- Will it provide better care? This is at the top of the list because providing top care is the biggest priority. Will the new equipment improve patient care or provide better overall outcomes? In addition to the ethical reasons involved, improving care may result in meeting new quality care measures laid out by the Centers for Medicare and Medicaid, as well as other insurers.
- Will it improve efficiency? Technological advances has yielded faster and smarter equipment. Newer equipment is typically more user-friendly, lessening the learning curve for new employees and making it easier to integrate with electronic health records.
- Will it bring in revenue? If a piece of equipment allows you to bring certain procedures in-house, a new revenue stream is likely possible. For example, bringing lab equipment in-house not only allows you to treat specific conditions quickly, but it will bring in revenue that you were previously outsourcing.
- Will is lower maintenance costs? Constantly paying for repairs is expensive. If you are spending a lot on maintenance, service, and warranty extensions for old equipment, old equipment, it often makes sense to invest in new technology.
- Will you attract new patients? Being an early adopter of new technology may attract patients simply because other offices or hospitals don’t have the equipment needed to treat them. Investing in new equipment sends a message that your office is cutting edge and up-to-date on the latest trends and treatments.
The biggest part of the decision-making process is gathering intel. Gather data from various sources to make the best procurement decision, including clinicians, facilities and construction, IT and telecoms, biomedical engineering, finance, vendors and system integrators. Analyze your current asset base, maintenance history of the old equipment and projected maintenance on the new equipment. Carefully compare product specifications, installation requirements and gather price benchmarking data. Gather a robust database of sources, models, manufacturers, new and used equipment, as well as trade-in options.
It’s critical to have a transparent information pool. While healthcare technology has grown exponentially, many parts of healthcare are not connected. They exist in isolated silos. Numerous healthcare functions are sophisticated and tech-savvy, but they often produce disconnected data streams, rendering decision making impossible. Make a decision by connecting data streams. For example, RFQ capital (supply chain) provides your benchmarking data. Project capital (facilities) provides product specifications. Routine capital (finance) gives insight into your current asset base. Replacement capital (clinical engineering) gives you data on maintenance history, and project capital (facilitators) provides installation requirements.
Have a Cost-Reducing Strategy
Here are just some of the ways to make TCO work for the entire organization.
- Equipment standardization has the potential to simplify employee training, minimize errors, reduce maintenance costs and the number of service contracts. Additionally, organizations can stock an inventory of small parts when equipment is standardized. This allows them to make minor repairs in-house.
- Contract compliance brings the benefits of a robust warranty and service terms, and increased visibility to the “starting” price. Uphold your end of the contract to get the most out of your service.
- Early decision support gets everyone on board from day one. This reduces the chance that costly adjustments will be needed down the road, and lets you reap the benefits of increased productivity right away in all affected departments.
- Strategic sourcing results in aggregated purchase savings, controlled procurement timeframes, and automated supplier administration fees.
- Enterprise Asset Lifecycle Management involves setting priorities by analyzing tangible data, planning for future replacements, making educated purchase decisions, and planning for disposal, reuse or the sale of used equipment.
In order to remain competitive and provide the highest quality care, physicians and healthcare organizations must have a strategy for keeping their equipment up-to-date. Taking into consideration the total cost of ownership, as well as cost saving strategies will help your organization save money, become more productive, attract new patients and possibly find new revenue sources.