From a business perspective, medical imaging remains a double-edged sword, both a significant source of revenues and often a big driver of cost. With reimbursements decreasing and no new billing codes on the way to recoup those revenues, any strategic decisions that generate bottom-line savings become, in many ways, the equivalent of new business. Many imaging departments are looking to outsource the service and maintenance of clinical equipment to cut costs. With vendors – whether original equipment manufacturers (OEMs) or independent service organizations (ISOs) – able to drive savings of 15 to 30 percent by farming out those responsibilities, the consideration is becoming less about whether to strike up such a bargain, and more to what extent.
Jim Salmons, vice-president of multivendor services for Philips Healthcare of Nashville, Tennessee, said his company has realigned itself to support in-house organizations that are built around a direct-service model. As customers become savvier about the needs of their departments, service vendors are tailoring offerings based on those specific needs. Gone are the days of limited-scope, “break-fix” contracts, Salmons said; instead, vendors are being measured against an array of customer-defined metrics.

“We scale up and down to each customer,” Salmons said. “I have customers that just want asset management software that gives them the insight into what’s happening with the equipment. On the other side, I’ve got customers who want to outsource the entire service environment. They want to cut one check and not have to manage those day-to-day activities.”

In the cases of imaging departments that are more focused on doing the bulk of their service work in-house, Salmons said “we’re happy to stand in the background and provide support.” For such clients, companies like Philips are able to transition from being a more deeply connected partner with a greater breadth of service responsibilities into a parts-and-service provider. Of course, regardless of the flexibility of services offered, if the metrics of the contracts aren’t met, clients will not hesitate to shop around.

“The custom solution probably just gets you to the table,” Salmons said. “Now that you’ve delivered on that custom solution, ‘it’s put up or shut up.’ Customers are more exact in that situation, and hold their service providers accountable.”

The average length of time in which to prove the value of those services is three to five years, which also helps shape the larger market in which ISOs operate, Salmons said. Some of the biggest drivers of change have more to do with health care industry itself, which has been in a state of merger and acquisition for years, than any individual institutional trends. As hospitals that are aligned with manufacturers are bought and sold, ownership of a given facility can have as large an impact on its service solutions as any contract agreement. Large service managers like GE, Philips, Aramark, Crothall and Sodexo typically compete for customers among the largest integrated delivery network (IDN) space; those contracts tend to be whole-hospital awards or all-of-imaging awards, and Salmons said “most customers don’t see a big difference among them.”

“As fast as we’re changing, they’re changing even faster, whether it’s from an acquisitions standpoint to consolidation on the GPO (group purchasing organization) side,” Salmons said. “Those drive a lot of the decision-making as far as what that potential selling opportunity looks like.”

Market evolution is also dictated by cost-reduction pressures and the availability of device management informatics, Salmons said. Customers design an outsourcing or in-house model depending upon the level of internal control they want to maintain around their programs. Outsourcing arrangements are typically predicated upon immediate cost savings or consistency in service delivery; insourcing models generally have more to do with the technical capacity of onsite staff and the resilience of their infrastructure to maintain day-to-day operations.

“Beyond the costs associated with equipment purchasing and utilization, those related to routine service is another key area in which ISOs offer a chance at cost savings.” – Scott Elston

“A willingness to participate is probably the greatest variable in this from the customer side,” he said; “and a long-term commitment to the plan.”

General customer savvy also creates a more competitive bidding environment, which Salmons said can be further complicated by the increasingly common inclusion of consultants in the bidding process. Often paid out of a portion of the savings the deals they negotiate generate, consultants can provide an extra level of due diligence for imaging departments or another level of relationship insulation among multiple vendors.

Scott Elston, director of strategic account development for GE Healthcare, said that although in-house service engineering is a more common arrangement among standalone imaging centers, ISOs can be recruited to support their operations “from an overall services model perspective,” whether through staff education and training or third-party technical contracts for service demands. Choosing one or another method can offer the greatest savings, he said; while the best-of-breed approach still applies to technology selection and clinical preference, it yields mixed results when overlaid on service plans.

“The organizations doing this well are either looking to outsource everything or bring everything in house,” Elston said. “This fragmented approach is no longer working.”

Elston said GE is making inroads among large IDNs with a longstanding tradition of in-house clinical engineering programs, including customers like Aurora Healthcare of Milwaukee, Wisconsin and Sanford Health of Sioux Falls, South Dakota. Companies like GE are driving down costs by leveraging the scale of their operations, which Elston said dwarfs even that of the largest IDNs. He cited GE’s entry into the ISO market 20 years ago as having been driven by a request from Hospital Corporation of America (HCA) of Nashville, Tennessee to take on the management of their medical device infrastructure. With more than 1,000 IDNs in the United States – and fewer every day, thanks to mergers and acquisitions – volume becomes a key part of the conversation in any ISO arrangement. In many cases, Elston said simply outlining the scope of device inventory and management services offers the greatest opportunity for savings.

“One of the number one drivers of service costs is that organizations have more clinical assets today than they’ve ever had,” he said. “Part of that is valid because of clinical need. Part of it is a function of not the right level of rigor around how you’re using and deploying your assets. Where that plays into imaging is the planning for this technology.”

Typically, a baseline cost and inventory assessment can reveal system-wide opportunities for savings through the reallocation of resources or simply defining the age and condition of equipment. Particularly when dealing with million-dollar imaging devices like CT and MR scanners, eliminating even one device from service or future purchasing plans can have a demonstrable financial impact.

“Does the organization have the right level and numbers of technologies that they need for their care delivery?” Elston said. “In many cases, there’s an overage where they’re buying more than they really need, or nobody’s looking at what’s really needed versus who’s screaming the loudest.”

“Beyond the costs associated with equipment purchasing and utilization, those related to routine service is another key area in which ISOs offer a chance at cost savings. A good contract will build in ‘real service delivery teeth’ as well as ‘a significant quality component,’ with a timeline for preventive maintenance, equipment uptime, and Joint Commission compliance,” Elston said. It all goes to creating “a quality program based on rigorous ISO standards,” he said. Yet none of these commitments works without clearly defined roles and responsibilities on both the client and provider sides of the relationship.

“This does need to be a partnership,” Elston said. “When you’re coming in and doing an outsource program, it’s never lost on us that this is a big deal to an organization. For many [customers], it’s a very new endeavor for them.”

In forming a successful service agreement, Elston said there’s “a real emotional component” that must be considered to help drive success. The partnerships that drive the best return on investment are those that secure the greatest organizational buy-in from both parties. For the ISO, that means establishing relationships with critical client stakeholders, and forming “ongoing programs to bring ideas of value to each organization,” he said. Those can take the form of executive sponsorships, quarterly meetings, and the like, but “where it works best is where it’s seen like a partnership,” Elston said; “that the organization has an obligation to communicate and drive this internally to make sure it’s done right.”

“Even if the dollars make sense, the quality makes sense, there’s still an amazing commitment to people,” he said. “I think the fear on the part of many organizations is that this is going to have an adverse negative effect on those people who are currently employed by them. For the most part, 90-95 percent of everyone we hire is hired within, and why wouldn’t we want to do that?”

Here, too is another area where a company like GE can win on scale, Elston said. If a third-party agreement means layoffs of in-house staff, many times they’re snapped up by the contracting company. He said larger ISOs can offer a comparable or better total benefits package to their employees plus additional training and career opportunities that translate all the way to leadership roles.

“Outsourcing doesn’t have to be this evil, four-letter word,” he said. “There’s some real positives that go along with it, to even the people involved.”

Nonetheless, outsourcing isn’t for every kind of circumstance. Elston maintains that the smaller the organization is, the less having an in-house team makes sense (“If you’re a 100-bed hospital with one CT, does it pay to have someone in-house to service one or two high-end scanners?”) But when there are opportunities to leverage greater economies of scale – say an imaging team spread out over a large metro region – the benefit of devoting an ISO exclusively to that aspect of the business can pay dividends.

“There are some organizations where the in-house philosophy is 100-percent valid,” he said. “I think we have a point of view that it’s a very viable and beneficial alternative that should be looked at, but if you feel your in-house strategy is right for you culturally, we can bring value to that by bringing some of our scale.”

For companies that don’t want to tether their imaging service and maintenance needs to a “big three” OEM vendor, imaging specialist ISOs are another solution. Unlike many of the biggest players in the market, which seek to sign clients to management contracts that encapsulate the entirety of their clinical engineering equipment, Renovo Solutions has made a name for itself in the intermediate market by focusing exclusively on servicing imaging equipment.

“Hospitals and health systems are shying away from putting a full-service contract out for everything,” said Renovo CEO Sandy Morford. “A service contract in and of itself is nothing more than an insurance contract. You’re paying a fixed price per year. As this equipment becomes more reliable and they fail less, hospitals are saying, ‘Maybe this isn’t the only way for us to get this done.’ ”

Some Renovo clients are choosing to sign on with the company in a shared-risk arrangement, Morford said. If their in-house staffers can handle scheduled maintenance needs, they may contract out for a time-and-materials agreement. Offloading the risk of the program is a key way in which imaging centers are able to save on their service agreements, he said. With a majority of service calls able to be resolved within the first hour or so, the more needs that can be met by in-house staff, the less the institutional cost outlay.

“OEMs make the most money on full-service contracts that cover everything,” Morford said. “If they’re not making 50-plus-percent gross margins on that contract, they don’t take those contracts. It’s a company cultural thing. As a private company, we don’t have the same margin expectations that they do.”

Renovo also offers a vendor-neutral position that enables its negotiation of master service agreements with OEMs to return cost savings on specific pieces of equipment across its client base that may enable customers to get more favorable pricing or access to service technicians who have been trained at dedicated OEM schools.

“I see more and more hospitals looking outside their organizations, saying, ‘There’s no more sacred cows,’ ” Morford said. “Everything’s up for grabs these days.”

Shawn Chatfield, vice-president of imaging services for The InterMed Group of Alachua, Florida, said his ISO is most commonly tapped for troubleshooting, parts and service calls, as well as asset management. Uptime is typically among his clients’ greatest concerns, although Chatfield said the smoothness of integration among the client and ISO teams factors heavily in the decision to go with a custom service agreement

“Our customers are educated that we are a partner with their facility,” Chatfield said. “InterMed has to respect their position within the facility and not come prepared with the notion to take over the services.”

There are also some services that an ISO can perform that an OEM may not. Equipment inventories are aging amid lean capital cycles, and Chatfield said InterMed is often asked to service end-of-life devices that are no longer supported by OEMs. The flexibility to address those needs is just one key differentiator that ISOs offer, but Chatfield said ISOs must first overturn a conventional narrative that only the OEM is fit to service its own equipment.

“In days past, most in-house teams would defer the more difficult issues to the OEM,” Chatfield said. “The mindset nationally is [that] only the OEM is capable. We have proven this wrong over many years, but as everyone says, ‘You won’t get fired for signing a contract with the OEM.’ ”

Chatfield believes that as costs continue to pressure hospital decision-makers, more will turn to ISOs to service their imaging departments. In the meantime, however, “we will just continue to position ourselves to provide the best services possible when requested,” he said.

“It really comes down to a resource issue for hospitals. Are they going to spend time investing in figuring out clinical engineering, or are they going to be focused on patient care?” – Tim Riehm

Tim Riehm, regional vice president of Sodexo Clinical Technology Management, agreed that institutional flexibility is one of the keys to winning new business. The ability to create a structured, comprehensive program around clients’ needs starts with understanding what they want, from repair and preventive maintenance plans to those that help maintain regulatory compliance and manage inventory. Riehm said companies like Sodexo can help offload critical strategic functions that hospitals don’t necessarily have the opportunity to focus on amid questions of patient throughput and health outcomes.

“It really comes down to a resource issue for hospitals,” he said. “Are they going to spend time investing in figuring out clinical engineering, or are they going to be focused on patient care? When you’re looking at an ISO or an OEM, that is your core competency. Everybody in the organization understands what clinical engineering is and what they need to do to improve quality.”

ISOs can also support in-house imaging staff simply by adding extra sets of hands. When resources are maximized in the performance of normal duties, it can be impossible to find staff to help deploy new equipment, rewrite policies and procedures, or tweak a Computerized Maintenance Management System (CMMS).

“Now you’re trying to do a project mandated by the administration, and unfortunately, the biomed department comes back and says, ‘We can do that, but here’s the things we won’t be able to do because of it,’” Riehm said. “Access to resources is huge.”

When an ISO can tightly integrate with a hospital’s in-house staff, the facility gets the best of both worlds, according to Riehm: onsite equipment support with back-end support that offers a regional level of backup and greater technical expertise for higher-end devices. That expertise can even extend to help with longer-term planning to counteract the effects of existing service contracts institutions may be locked into.

“They’re becoming much more conversations around the imaging service component when it comes time for RFPs,” Riehm said. “They might say, ‘We know the cost is too expensive today, but how do we shift it two to three years from now? [Clients are] looking for long-term imaging strategy instead of a quick glance today.”