By Troy Kenyon
According to a 2009 Healthcare Financial Management article, $16 billion is spent per year on medical equipment, equating to about $25,000 per bed or $10 million annually for a 400-bed hospital.1 Despite this significant annual investment, hospitals rarely implement the controls, processes, and tools required to optimize equipment fleets and minimize total expenditures.
In fact, many hospitals have difficulty grasping the entire problem, and even struggle to address basic questions, such as:
- What equipment do we have?
- Should we have more?
- What should be replaced and when?
- Do we have the right service coverage?
- How much do we spend on parts?
- Is our equipment clean, compliant, and patient-ready every time we use it?
Limited visibility into the equipment lifecycle and the resulting lack of control makes these questions seem overwhelming, and can lead to inefficient use of capital, over buying and excess inventory, ballooning service costs and increased risk to patients and staff.
Despite having more equipment on site than the hospital could possibly need, ineffective control and workflows lead to frequent equipment shortages, low utilization and difficulty in maintaining regulatory and recall compliance. As a result, departments that need equipment are often at odds with the service departments that provide it, subsequently breaking down trust throughout the system.
Five Steps to Lower Costs
Although every hospital is unique and no two solutions will look exactly alike, taking a holistic approach and improving workflow efficiency and productivity across the entire equipment lifecycle can yield significant savings of up to $5,000 per bed. To achieve these savings, hospitals must apply the following five steps:
1) Implement master data management. An effective lifecycle management program starts with clean data and a standardized nomenclature for device categories, manufacturers and models. Skipping this step will hinder any attempts to apply rich, actionable data to better decision-making in managing equipment costs. Poor data quality and data silos in finance and operations often lead to inefficiencies and compliance issues. For example, without master data management in place, tying the financial asset register and the associated depreciation expense to the actual in-house operational database requires periodic physical inventories and substantial data reconciliation. This process can be costly and complex, and rarely captures the required information. Instead, linking systems across a standardized data structure allows both systems to track the same items in real time.
2) Use evidence-based planning. In many hospitals, the equipment planning process involves departmental wish lists debated in heated roundtable committee meetings. Many of these discussions result in a consolidated list of planned purchases based on who yelled the loudest rather than any real data. Instead, replacement decisions should be based on actual evidence that service departments have accumulated over time.
As Scott Skinner, System Director, Clinical Engineering at Norton Healthcare, stated, “People build up anecdotal stories about equipment, but [Clinical Engineering] has hard data that can put those experiences into perspective.” Key measures such as downtime, mean-time-between-failures, parts availability and cost, periodic and cumulative labor costs, technology obsolescence and quality drive smarter replacement decisions.
Evidence based planning also highlights inconsistent equipment utilization across departments, which may provide an opportunity to load balance and extend the life of the entire fleet. Applying real world evidence to the replacement process allows hospitals to reallocate capital budget toward strategic initiatives that help the organization grow.
3) Optimize distribution and utilization. It is essential to optimize hospital workflow to ensure that clinicians always have the necessary tools while simultaneously reducing fleet costs. As noted in a recent Healthcare Financial Management article, the average number of medical devices per staffed bed increased 62% between 1995 and 2010, while annual service and maintenance cost increased 90% to $3,144 per bed per year.2 “Coupled with low asset utilization,” the authors conclude, this finding “indicates a serious problem.”
Although many times hospitals have far more equipment than needed, the automated, closed-loop workflow processes, demand forecasting, inventory management measures, and error-proofing tools that drive availability are missing. Without this increased level of control and transparency, hospitals spend more on equipment without solving any of the core problems. With effective distribution controls in place, equipment gets where it needs to be, when it needs to be there, while reducing the burden on clinicians, allowing for increased bedside time.
4) Systemize maintenance and safety. Hospitals often overlook the value of implementing a systemized approach for maintenance and safety compliance. Clinical engineering departments must ensure that the hospital’s equipment is safe and patient-ready while also improving staff productivity and lowering service costs. Standardizing key maintenance components such as maintenance scheduling, recall compliance, service contract management and parts spend offers significant workflow efficiency and cost savings.
As noted in a 2008 profile in 24×7 of Milwaukee-based Aurora Health Care, “Integrating data and workflows can result in improved patient safety, increased productivity, enhanced service, raised satisfaction, greater access, and significant cost savings.”3
5) Maximize end-of-life value. Hospitals frequently struggle with how to efficiently remove equipment at the end of its useful life. As a result, they take pennies on the dollar for trade-in value, or end up scrapping equipment that is perfectly functional. By applying actionable asset data and a structured workflow process, hospitals can take a proactive approach to end-of-life disposition that maximizes the total return on each asset. For example, underutilized equipment can be redeployed elsewhere within the hospital or IDN, reducing your planned capital spend, while other equipment can be cost-effectively parted out to extend the lifecycle of similar, valuable assets.
Implementing a standard disposition program ensures that every box is checked —financial, clinical and ePHI compliance for example—before equipment is retired, sold, or otherwise eliminated. At Aurora Healthcare, the popularity of its disposition program was “astounding,” according to former systems logistics Vice President, Patrick Trim. “We are maximizing the value of each and every asset based on underutilization or end-of-life value. We can also fulfill capital requests without relying on the capital budget.”
Many hospitals still manage equipment in a way that creates data silos and ignores the total cost of ownership of the equipment. Hospitals can significantly improve the financial return on capital, while lowering operating costs and improving the quality of care, by taking a holistic approach that considers the entire lifecycle of the asset. The good news is that hospitals can realize meaningful and sustainable cost savings in each individual step of the process, and achieve even greater results by implementing all five.
Assessing the current situation across all of the lifecycle components, including data integrity is the best place to start.
Once the current state is understood, the following steps should be taken:
1) Identify specific opportunities and create a detailed view of the desired outcome
2) Define gaps, effort, and the high-level business case for each opportunity
3) Create a roadmap that includes a prioritized set of initiatives
By deploying the tools and enablers necessary for success, such as data management, workflow software, system interoperability, enterprise visibility and cross-department communication, hospitals can both increase patient safety and substantially reduce their costs. 24×7
Troy Kenyon is the president of Mainspring Healthcare Solutions, Waltham, Mass, a company that assists hospitals with total lifecycle management. For more information, contact 24×7 editorial director John Bethune at [email protected].
1. Schumann TM. Hospital capital spending. Healthcare Financial Management. 2009;11.
2. Horblyuk R. Out of control: little-used clinical assets are draining healthcare budgets. Healthcare Financial Management. 2012;7:68-72.
3. Diiulio R. The Benefits of Centralization. 24×7. 2008;8:12-20.
Updated April 18, 2014: An earlier version of this article incorrectly identified Scott Skinner as a “former corporate director from Norton Healthcare.”