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

Consequently, Johnson said, Ivy has negotiated the purchase of a lot of imaging equipment and service contracts for its customers.

“[In the past] purchasing managers, rad directors, and senior hospital executives spent a lot of time looking at the capital acquisition price, but not the total five- to ten-year cost of ownership with the service contracts," said Johnson. “So, it’s a good thing to look at that up front.”

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Increasingly, he finds that OEMs are looking to bundle the cost of service contracts in with the purchase price. For example, they will offer annual or semiannual upgrades as part of the service package. Like Bailey, he cautioned that this work should be done at the convenience of the hospital, rather than the vendor. But he also stressed that OEMs are not the only source of service contracts, a consideration that he said is more likely to be overlooked in smaller hospitals.

"There is sometimes a knee-jerk reaction that when you buy equipment you should sign that OEM’s service contract. In some cases, that’s true…”, Johnson said. “But I think there are real value opportunities in looking at risk management and self-insured products that were more popular five, ten years ago. If you're a system with some scale, you can take the first-dollar risk (high deductible) up to a certain amount.”

Another trend he has noticed is that service providers are now willing to negotiate on "uptime" guarantees. For example, in an emergency department where the CT scanner is mission critical (the hospital will likely have a backup CT available), a target such as 99.1 percent uptime is negotiable, along with the response time for repair.

With the pressure on reimbursement due to the advent of value billing and population health models, there is an evolving tendency for hospital imaging departments to not replace equipment as often, according to Johnson. This, of course, makes good service even more vital.

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