Service sells equipment: contract negotiation insights for providers

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Service sells equipment: contract negotiation insights for providers

John W. Mitchell, Senior Correspondent | August 06, 2018
Parts And Service
Pity the imaging department director when administration finds out that the hospital spent twice the average cost of service for an ultrasound unit. It may sound far-fetched but, according to a three-year retroactive study, such is the case for 10 percent of hospitals in the country.

The study, conducted by Alpha Source and published in 2016, evaluated service finances for 673 identical ultrasound units in hospitals, physician offices, and imaging centers from 2011 to 2014. The study also found that a quarter of all hospitals spent 50 percent more than the average service contract cost.

So how can providers make sure they’re not overspending? Well, for one thing, it pays to read service contracts closely and between the lines.

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Donal Teahan
“Everyone signs a base service contract,” Donal Teahan, senior director of practice development in the Department of Radiology at NYU Langone Health, told HealthCare Business News. “Most current contracts are based on old business formats with vendors selling what they want, not what we actually need. Vendors need to think about service offerings outside of patient scan hours that do not impact the ability to treat patients. Our patient hours are first and second shift. Elective service should be third shift.”

Teahan explained that costs for service are secondary to uptime for NYU. “We have a capacity challenge, not a volume problem”.

“Any service during scanning hours is a lost opportunity,” said Teahan. “Service is not just a cost of doing business … we want our scanners up and functioning all the time.”

Teahan is passionate about the subject of service and keeps a finger on the pulse of the sector. As such, he counsels that a service contract might seem like a good deal if it includes all the PMs (preventive maintenance). But the catch is when the PMs or system upgrades take place during patient hours. It is as important to negotiate hours of coverage not just what is covered.

Teahan said it’s surprising how often providers agree to contracts and end up paying high hourly rates for coverage that should be included upfront.

Rural hospitals should be ready to negotiate
Halfway across the country from New York, in the small Colorado town of Delta, the stand-alone 50-bed Delta Community Memorial Hospital (DCMH) operates on a tight budget to primarily serve a Medicare and Medicaid population. As with any rural facility with a tight operating budget, a poorly negotiated service contract for some of the most expensive technology in the hospital can offer an unpleasant surprise to the bottom line. DCMH’s longtime director of radiology, Jeff Richmond, has learned a few things about service contracts over the years.

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