This report originally appeared in the January 2011 issue of DOTmed Business News

One of the busiest ERs in Chicago had an emergency of its own on a Friday afternoon. The hospital’s CT encountered a problem that would keep the system inoperable for days. That’s when Genesis Medical Imaging came to the rescue. “We decided to take a Lightspeed 16 from our stock and we delivered it to the site that afternoon,” recalls Robert Dakessian, president and CEO of Genesis. “Our crew deinstalled the customer's scanner and installed the loaner. The hospital resumed scanning patients 6:00 a.m. Saturday.”

Fortunately for that hospital, it had a contract in place with a service provider willing and able to rise to the challenge. But others aren’t always so lucky. For as many different service companies in existence, chances are there are just as many different levels of professionalism, knowledge and capabilities on display. That’s why it’s crucial for facilities to insulate themselves against scenarios that could prevent them from doing their jobs. For providers fortunate enough to have qualified in-house technicians with ready access to replacement parts, the answer to solution for maximum equipment uptime is obvious. However, for facilities not as blessed, there are often more questions than answers.

Warranties help to protect a hospital’s equipment investment against manufacturer defects, but won’t cover the typical wear and tear on equipment. While a warranty may be enough for some equipment, for other pieces worth millions of dollars with repair costs for neglected equipment potentially in the tens of thousands of dollars range, just having a warranty isn’t going to let most end-users sleep easy at night.

When a facility is investigating service contract options, there can be a daunting amount of homework required to ensure it’s getting the best deal. Still, it’s imperative to put in the time to research options, levels of service and terms of contract.

To help with the homework, DOTmed News surveyed some of the biggest medical equipment manufacturers in the industry today and spoke with some independent service organizations for their take on the topic. The responses provide answers to a number of questions any budget-planner should ask.

Who provides the service?
Across the board, the original equipment manufacturers queried responded that they provide service for all the modalities they manufacture, but there were some variations regarding who actually carried out the work.
“Hitachi does not use any contract labor for service,” said Rick Miller, sales manager for the company in an e-mailed response. “Each time [customers] place a service call, they will be visited by a manufacturer trained and certified e service engineer employed by Hitachi.”

The responses from Philips Healthcare and Siemens Healthcare differed just slightly. Siemens provides service largely under the company banner, but did note some secondary components could be serviced by other vendors depending on the contract offerings. “We also have a multi-vendor service offering that manages the overall service needs of a hospital and that group regularly engages service technicians from various companies,” said Rose Wynne Brooks, marketing director for customer service, Siemens Healthcare in a written response.

Justine Kennelly, director of imaging systems customer services for Philips shared similar information in an e-mail. “We have more than 2500 field service engineers in North America along with a U.S.-based customer care solutions center,” she said. She also highlighted the technological capabilities that allow for remote access to many of their systems via a secure link, allowing a diagnosis or system monitor from afar. Like Siemens, Kennelly said Philips will occasionally “leverage [its] buying power to private label the service provided,” if there’s a manufacturer better-suited to provide a fix.

Benefits of OEM service
Each manufacturer responding to the query indicating it offers multiple levels of service agreements and typical service contract lengths extend from a couple of years to about five. Beyond the assurance customers receive by enlisting the services of technicians intimately familiar with the brand, buyers also benefit from a bundling discount received when an equipment purchase and related service contract agreement are combined.

With all the benefits OEMs offer and their ready-access to factory produced parts for their machines, it’s a wonder there’s room for any other business model. Yet, independent service organizations have taken a piece of the pie and for some, it’s a thriving business model.

ISOs carve their niche
ISOs have the advantage of low overhead, a marked lack of corporate red-tape to cut through and in many cases, the ability to provide service at a regional level, meaning they can quickly respond to a service call. These advantages hint at the reason they can compete in a market with the OEMs — cost. ISOs are able to compete because many, at least on paper, have prices that beat OEMs and that can save hospitals big money when one considers the cost of a service contract. For example, a CT service contract averages about 30 to 45 percent of the total cost of ownership for the equipment over a three year period, according to Charles Gauthier, general manager for Imaging Services.

Gauthier says those numbers basically hold close for all imaging equipment. With the equipment in the hundreds of thousands of dollars, it’s easy to see why service contract costs can be a big deal.

Another reason ISOs are able to carve out a niche goes back to the lack of corporate red-tape. “With ISOs, our agreements and prices need to be more flexible,” Gauthier says.

Be sure the savings are worth the price
Whether OEM or ISO, when it comes to advice for deciding on a service contract, the advice was similar. “Beware of the deal that seems too good to be true and look carefully at the full cost of the services needed over the life of the contract, including access to upgrades and applications support,” suggested Siemens’ Wynne Brooks.

Genesis’ Dakessian, offers the caveat that the savings should significantly outweigh the risks. “Recently, a customer shared with us a quote they received that was less expensive that the one we provided,” he said. “After navigating through the offer, we discovered their MRI service agreement excluded quench protection and some coils were not covered. In this case, I believe the savings didn’t justify the risks.”

It’s also worthwhile to work with a company that can stop a problem before it starts, or prevent a minor problem from becoming a major one. For this, a company with “predict and prevent” capabilities is crucial. More than just keeping equipment up and running and profitable, it also offers a savings. “The fact that we can reduce catastrophic failures across all our contracts helps lower our service costs and those savings can be passed along to our customers,” says Dakessian.

Philips’ Kennelly provided some further relevant advice. She recommended customers consider the purpose of the equipment being considered for coverage and base coverage decision on the level of critical importance for the uptime of the machine. If for example, it’s the sole machine of its type in a facility and it’s a major revenue generator, uptime will be more important and a higher level service agreement could be warranted.

She also recommended facilities consider the skill sets of their in-house engineers where applicable and determine what level of support they might need. Finally, she says it’s important for a facility to consider its risk tolerance and determine if it can financially absorb an expensive failure.

Gaulthier advises potential customers to focus on key points of service quality and reputation of a company, flexibility in crafting a tailored solution and longevity and financial strength. He also highly recommends customers be aware of two other potential contract landmines. “The traditional agreement will offer extended coverage for poor performance. This means, if you’re not happy with the service, you get more time to have a bad experience. In our contract, if we don’t provide the service up to the promised quality, you can fire us,” he says. “Another contract point to be aware of are the exit clauses, or lack of them. If a hospital decommissions a machine or sells it, they shouldn’t have to continue to foot a service contract bill. Yet, many contracts will require that. It’s something to be aware of and to try to avoid.”

Hitachi’s Miller also offered some words of advice. “In an environment where reimbursement rates are being slashed, private pay customers are not able to pay and competition is high, it’s easy to focus only on the cost of the service contract,” he said. “To make the most educated, complete decision, the factors of consideration should include cost, quality of parts, education of on-the-ground service providers, history of success and the ability to offer technical support. The end goal should be a complete service provider that is going to maintain the system at its peak performance level.”