CT Service Contracts: Under the Knife?

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CT service contracts, long held as the province of the original equipment manufacturer (OEM) with the purchase of a new system, are increasingly being looked to as a potential source of cost-savings. As radiology departments contend with constant pressure to reduce costs, OEMs and independent service organizations (ISOs), in turn, are upping the ante with new offerings to lure customers in a more competitive market.

Healthcare providers have three basic options for servicing CT equipment: a service plan through the OEM, an in-house service team or a contract with a third-party ISO. Currently, OEMs handle more than 60 percent of all imaging equipment onsite service agreements with hospitals, and no ISO is holding more than 15 percent of the market for replacement parts, according to IMV, a healthcare market research firm.

But another medical technology market researcher, Millennium Research Group, says the landscape of the medical imaging equipment service market is starting to fragment. While the larger OEMs still hold a dominant position, this could change in the face of stiff competition from ISOs.

The price tag of an ISO service plan can be 30 percent less than one with an OEM. As ISOs continue to grow and increase their inventories and economies of scale, they also will increase their shares of the U.S. service market over the next four to five years, Millennium predicts.

The OEM advantage

Most providers stick with the OEM for CT service, according to Ade Lawal, COO of Atlantic Medical Imaging in southern New Jersey. One major consideration is the level of expertise, as it takes time for third-party ISOs to catch up, especially with newer CT technology. ISOs become more competitive only as they grow their understanding, and as parts become more prevalent.

"Until that happens, it makes sense to stay with the OEM," says Lawal.  

He says the in-house service model works better in the large hospital environment rather than independent imaging practices. There is a limit to cross-training beyond a few modalities. An engineer who services CT probably can't develop expertise beyond one additional modality, so a large staff is needed. Without a baseline volume of calls, it might not be worth it to employ in-house staff.

"The variety of imaging equipment and the skills required for each different modality makes it difficult to maintain an in-house service team," says Lawal.

Still, practices should ask tough questions of the OEM to ensure an optimum contract, including:
  • Can the OEM guarantee uptime more than 99 percent?
  • What is an expected response time if there's an issue?
  • What does the field service coverage look like and how many engineers are in the region?

Keys to success

Another important factor to look for in a CT service plan is whether the OEM uses remote diagnostics to monitor the equipment status. IMV found that for hospital-based CT scanners with 64 or more slices, 84 percent of the OEM service contracts cover remote diagnostics, with the OEM able to remotely repair equipment in two-thirds of contracts.

Jason Kreitner, administrative director of diagnostic imaging at Hackensack University Medical Center in Hackensack, N.J., says the facility, which has had an integrated service management plan with the OEM for the past five years, has never had an issue with uptime. A large part of this success is attributable to remote diagnostics.

"If there are issues with a scanner that we are unaware of, they call to inform us that a tube, for instance, is overheating," offers Kreitner. "We have a high level of uptime, mainly due remote monitoring."

Through Hackensack's OEM service arrangement, they have a local service manager who works onsite. Rather than calling an operator, getting a service number and waiting for a return call, Kreitner says they can coordinate service for their six CT scanners through their local contact, who also takes ownership in making sure the equipment stays up and running.

"I've heard horror stories about [service staff] living an hour and a half away," says Kreitner. "When it comes to a downtime situation at two o'clock in the morning, you want someone there quickly. When you negotiate contracts, make sure you build in uptime numbers, as well as response times."

In addition to having local service engineers, there are two parts depots within 30 miles of Hackensack, which also gives Kreitner some peace of mind knowing he can avoid most delays in parts shipping.

A reliable parts supply is essential for CT tubes, one of the more delicate and expensive components that need to be serviced. Companies might manufacture generic tubes, but tubes are specific to scanner brand and age. If a tube needs to be replaced on short notice, providers need to have access to a consistent supply of compatible tubes. Healthcare providers should ask their service organization for tube coverage as part of the service contract, says Lawal.

However, without a solid staff to keep equipment humming, rapid access to parts and remote diagnostics may not fit the bill. "You have to look at the caliber of staff that services your site. You want a seasoned individual who is comfortable with the technology," Kreitner says.

Moving in-house

Even if a healthcare provider wants to move away from full OEM support, it doesn't have to be a messy divorce, as demonstrated by Intermountain Healthcare, a 23-hospital system serving Utah and southeastern Idaho. When Intermountain completed a cost analysis of its service plan, it realized that similar large-scale organizations were saving money by moving imaging service in-house.

"We discovered we could fully fund the investment of establishing our own in-house program, and we could bring pretty significant savings back to Intermountain Healthcare," says Kim Hansen, director of capital equipment services at Intermountain. "We're driven like any other [integrated delivery network]. We'd like to reduce the overall cost of healthcare to our community. While it's relatively small, this is a way we can do that and still have a high-quality service organization."

Rather than dropping its OEM, however, Intermountain began working with its vendor to facilitate the shift to in-house service. In February 2011, the provider launched a five-year transition that will start with low-risk imaging devices such as ultrasound and portable x-ray and eventually work up to CT. Each modality will transition from full OEM support to a cooperative support program with in-house staff for six months. After that, the OEM will provide back-up support and calibration services for another six months before the full switch to in-house service.

The provider is predicting savings of about $5.5 million per year on just the low-risk equipment and a limited number of CT scanners, says Mike Busdicker, program manager for imaging equipment services at Intermountain. More CT scanners may transition from full OEM support to in-house service in the next five years.

The model relies on a tight working relationship with the current OEM, who is fully aware of Intermountain's goals and timelines to move to a hybrid service program. Intermountain even negotiated to be included in its OEM's service training.

Busdicker advises other providers considering a similar process to not lock themselves into a contract that won't allow this kind of transition. "With healthcare reform and the requirement to drive down costs wherever you can, if you are locked into a five-, seven- or 10-year contract where you can't look at alternatives like going in-house or cooperative, your ability to cut costs is limited," he says.

"When we get to CT at three years out, all those support processes will be well-established and it will be a matter of saying it is time to bring CT into the program," says Hansen. "You can't just flip the switch and say, 'Thanks, but no thanks, we're moving on.' That's a very challenging way to transition to an in-house program."

Whichever CT service model an organization decides upon, planning is key. Department managers must know the limitations of an in-house team or a potential ISO, if that's the route they choose, and make sure their OEM contracts allow them to effectively plan for the future.