6 Critical Considerations When Purchasing Expensive Hospital Capital Equipment
2-PART BLOG SERIES
[Installment #2 of 2]
[IN INSTALLMENT 1, we focused on the importance of having in place a well-thought-out Capital Equipment Strategic Plan [CESP] in order to simplify an often complex process and strip emotion out of purchasing decisions. We also addressed the need to make decisions based on quantifiable data while factoring in key timing and budgetary guidelines. Lastly, we shared the benefit of engaging an independent, third-party partner who can guide you to the best decision given your situation. In the final installment of this two-part blog series we’ll dig deeper.]
By JEFF LITTLE
Partner
[October 24, 2023] – Now that your Capital Equipment Strategic Plan [CESP] is in place, you can feel confident you have a roadmap to purchasing success. But you can never have too much information so let’s look at six critical factors hospitals should seriously consider before pulling the purchasing trigger on big-dollar capital equipment.
To Insource or Outsource, That Is the Question – Expensive OEM service contracts can be a lifesaver … or a budget-buster. Beware. It’s safe to say 100% of hospitals and hospital systems today have prioritized cost savings [especially after having resources drained during the recent Pandemic Era] because of inflation, soaring costs of equipment and labor, and the need to deliver bottom-line results while improving patient outcomes.
One key area in which to achieve savings is making an informed decision on whether it’s better to secure an extended OEM warranty or hire in-house, professionally trained, highly skilled equipment technicians. A third option is to partner with a local third-party service technician. Like most purchasing decisions, it comes down to which option is the most cost- and operationally-efficient.
Do not automatically sign up for extended service after the initial OEM warranty period expires. Compare the cost of hiring an in-house tech or engaging a third-party tech versus the cost of the OEM plan. Also, an in-house or nearby equipment technician is likely to cost less in terms of dollars and downtime. The ability to quickly resolve an issue helps protect patient throughput which delivers directly to your bottom line.
If you’ve already signed an OEM agreement, weigh the cost of breaking the contract and taking the immediate financial hit in favor of future cost benefits of working with an in-house or third-party service tech.
Negotiate Carefully and Strategically – If you opt to go with the OEM’s extended warranty, keep your pen in your pocket until you’ve asked for and negotiated the price of ongoing training, timely software updates, and service keys as part of the agreement. If you sign too quickly, you may quickly discover you’ve lost all leverage and will have to endure delayed service response times, as well as the additional cost of initial training for future new-hires who will be using the equipment.
Classify Your Purchase Appropriately – There can be cost and tax implications involved in how you classify your capital equipment purchase. If you classify a purchase as a biomed product, for example, you may enjoy the benefits of a tax deduction or be taxed at a lower rate than other items.
Say you have a need for 50 new hospital beds [which can cost well north of $50,000 apiece these days]. Today’s sophisticated “smart beds” are much more than a piece of furniture like a set of waiting room chairs or side tables. As such, hospital beds can be purchased as part of your biomed program due to their diagnostic and therapeutic benefits.
Doing this also means their use will be periodically monitored and inspected by regulatory agencies. On the surface, this sounds like a bit of a headache but, to the contrary, can actually be a benefit since regular inspections reveal potential issues that, addressed early, reduces downtime and repair costs. These regulations are often strict for a reason and will help you stay ahead of potential problems and steer you clear of avoidable downtimes and repair costs.
Consider Standardizing Equipment – Everyone has an opinion and if you’re working in a key purchasing role, you will hear them all. Some are sound, good-for-the-team recommendations based on fact while others can be self-serving, personal-preference perspectives. Using the CESP, capital equipment planning committees must find that “sweet spot” when factoring in all requests. Somewhere in the mix is the place where you best serve end-users’ desires while adhering to organizational goals to control costs, increase profitability and improve patient outcomes.
You will likely achieve greater economies of scale when buying different products for multiple departments or hospitals from the same OEM line. Additionally, you may accelerate the “ramp-up time” since software-based devices from the same family often speak the same language. A third benefit is the likelihood of increased interoperability with existing networks and devices, as well as greater consistency in products and operation across departments and/or the hospital system at-large.
Standardizing where and when possible means an end-user – say, a nurse or a physician’s assistant – doesn’t have to be trained to operate four different styles of hospital beds or pumps. Or if they transfer to another facility within the system, they do not have to be trained on equipment they’ve used before.
Standardizing where possible means variability among vendors is reduced, familiarity between departments and hospitals increases, and parts and repair/service calls will be less costly. Trust me, your IT folks who have to integrate multiple systems will consider you their hero if you seek to standardize.
Less Is Often More – It’s easy for anyone to get caught up in the gee-whiz features of a particular piece of hospital equipment. Don’t think so …? Hmmm, take a closer look at that dishwasher, refrigerator or washing machine you just purchased for your home. How many of these bells and whistles do you actually ring or blow ? I rest my case …
There are situations when certain features or functions may not be needed today but will be needed soon in the future. In those situations, it makes sense to add the extras. But that’s not always the case.
Most importantly, consider purchasing capital equipment that, first, meets your existing needs before exploring other available “wowza” options that may lure you in but not really, in the end, be necessary. You may discover the basic model, carrying a far lower price tag, may be exactly what you need.
Like purchasing a car, make an informed, level-headed decision when considering options and leave emotion out of the equation … as much as that’s humanly possible, that is.
Engage a Clear-Thinking, Vendor-Neutral Third Party – As discussed in the first installment of this blog series, the capital equipment purchasing process can quickly become a time-consuming, complex, multi-faceted, multi-tiered mish-mash of checklists, priorities and considerations.
This is where it may be wise to engage the services of a healthcare capital expert who can partner with you and help you sort everything out. As an example, HANDLE is a leading healthcare supply-chain analytics, fulfillment and solutions-provider that focuses on gathering and improving data quality and enhancing transparency which leads to more strategic, capital equipment decision-making at purchase time.
“Knowing when and why each capital asset should be replaced in a hospital or healthcare system leads to better use of capital budget dollars,” says Ketan Patel, COO, HANDLE. “It also means improved use of capital assets throughout their useful life, and decreases the likelihood of emergency capital spend.”
Paradoxically, while healthcare capital is typically one of the largest [if not the largest] expenditures for hospitals or hospital systems, it is also one of the most under-resourced from a people and technology perspective. Integrated Delivery Networks [IDN] having a go-to group such as HANDLE helps optimize all matters related to capital equipment expenses and increases the likelihood you’ll know precisely when a particular piece of capital equipment truly needs to be replaced.
If you do choose to partner with a third-party, share your CESP with them and let them help you identify options, negotiate costs including initial purchase and extended service warranties, and assess the likely total cost of ownership over the life of the product.
With a third-party negotiating on your behalf, armed with knowledge you may not have, you’ll have greater peace-of-mind and confidence knowing you’re making the right CE purchasing decision for all key constituents. It also means you’re getting valuable guidance that will serve you well and help you avoid making hefty purchasing mistakes, or replacing equipment too early or too late [risking costly down time].
Finally, engaging a third party allows hospitals and hospital systems to spend less time focusing on Capital Planning & Management and more on Planning Care which is, after all, the provider’s core function.
If you’d like to know more, please contact Excelerant Consulting today. We’re here for you. info@excelerantconsulting.com
ABOUT JEFF LITTLE
Jeff is a recognized thought-leader in hospital supply chain, purchased services, hospital operations, facilities and construction, and medical capital equipment. He brings a unique perspective and is well-connected throughout the healthcare industry, having worked in clinical settings within world-class hospitals, and multiple Integrated Delivery Networks [IDN] and Group Purchasing Organizations [GPO]. He is able to educate clients on subtleties and nuances of the complex healthcare ecosystem and excels at the development of commercial strategies.
Jeff is an active member of Association for Health Care Resource & Materials Management [AHRMM], American College of Healthcare Executives [ACHE], Federation of American Hospitals [FAH], the IDN Summit, and serves on the board of the ACE Summit.
___________________________
ABOUT EXCELERANT CONSULTING
Excelerant Consulting is the go-to organization for med-tech companies that need to position products and services successfully for value analysis committees, contract acquisition, and sales modeling and execution to commercialize the launch of medical devices or services with Group Purchasing Organizations [GPO], Integrated Delivery Networks [IDN], or Regional Purchasing Coalitions [RPC]. Clients rely on Excelerant to enhance their product positioning, navigate corporate contracting opportunities, and provide sales support to accelerate growth and profits.
For more info, contact Excelerant Consulting at info@excelerantconsulting.com