This article is a follow-up to “The Ultimate Guide to Imaging Service Contracts: Part 1.”
When it comes to securing the lowest price from a vendor, competition is your friend
I suspect that for a fair number of biomeds, dealing with service contracts is one of the least pleasant aspects of the job. But as I’ve said before, they’re a necessary evil—and you’ll do a lot better if you come to the negotiating table well informed about what you’re bargaining over.
In the first half of this series, we looked at OEMs’ approach to service contracts, how to use your department’s data to determine if you need one, and some basic areas of coverage, including service access, preventive maintenance, parts, and the parts pool. Now, we get into some of the more complex types of coverage and what to do once you have quotes in hand.
More Contract Considerations
When you’re first getting started deciding what types of coverage you need, it’s good to start with areas like service access, preventive maintenance, and parts. But don’t stop there. Below are a few more options to keep in mind.
Software Updates. Like parts coverage, this is another sticking point for many facilities. OEM service providers generally provide free “optional” software updates for contracted customers that would otherwise cost thousands of dollars. This is particularly true in mammography with respect to computer-aided detection (CAD) vendors. Before purchasing, consider how often you will see software updates from a particular vendor, as well as the extent of the update.
Applications Support. Many OEMs will add this as a line item to CT and MR contracts whether the facility plans to use the applications or not. If your hospital considers them worthwhile, it’s important not to feel tied to a particular contract just to get the applications support. Most vendors will sell you a block of hours and add them to any contract. Or you can just cut a separate purchase order for applications support the technologist will use when calling the OEM.
Technical Training. As discussed in the first installment, training is mandatory for some levels of contract. If it turns out to be required, take this opportunity to negotiate reduced technical training rates, even if they are not written into the contract itself. But make sure you get a full list of prerequisites for any technical training: You don’t want a $20,000 surprise when trying to get someone trained up.
Uptime Guarantee. For our team, this is a gimmick. The OEMs have a way of calculating their uptime to ensure there is very little risk on their end. For instance, a CT in an emergency department is considered to have around-the-clock hours of operation. That means the total number of hours of operation in 1 month is 672 (24 hours per day times 7 days per week times 4 weeks per month). If the system were down for a 24-hour period in a given month, it would still technically have an uptime of 96%. However, that downtime would have caused a major disruption and forced the emergency department to divert patients for an entire day.
Coverage Hours. This consideration will be driven by the criticality of your equipment and the needs of your customer. It will generally only affect higher-end modalities such as MRI and CT that support emergency departments. Coverage hours represent the time slots when you can call in the vendor and not expect to pay time and materials (T&M) rates. Keep in mind that the predefined response windows will still apply, so you may still incur T&M costs when calls run late.
Data analysis will help here. How often do you place calls after hours? How often could those calls have waited until first thing in the morning? In many cases, paying T&M costs will be far cheaper than paying for the contracted coverage hours, but the extended hours allow you to have PMs done during nonpeak hours. This coverage also ties into the relationship you have with your service provider in providing on-call services. If they have 24/7 call support for a certain modality and you rarely use after-hours service, T&M would be the way to go. If they don’t have call support, now would be the time to negotiate that as well.
Driving a Bargain
Let’s say after considering the points above, you request a contract quote from Vendor X because the majority of your equipment was manufactured by Vendor X. The company provides you with a quote, you dicker a little over the price and types of coverage, and now you have a budgetary number. What’s next?
When you’re forced to rely on service contracts, all the areas above can be used to some degree to negotiate savings. But the most effective means we have found to reduce contract costs is simple competition. This is why when we ask for the initial quote, I explicitly ask for the vendor’s “best and final” price. We like to imply that they are not the only game in town and that shopping around is not out of the question.
Well, you ask, who else is there? We all know who’s out there to service our equipment—in-house, third-party, and OEM options. The interesting variable is that an OEM can fill two different roles. It can support its own equipment as the OEM, or it can support other OEMs’ equipment in a pseudo-third-party role manufacturers like to call multivendor service, or MVS. This is the holy grail of competition between OEMs.
Now that you have a quote from one OEM along with your research, spreadsheets, and whatnot, it’s time to employ some standard capitalist tactics. Call up the regional manager at Vendor Y (and Vendor Z, etc) and ask if the company is interested in submitting a bid on your imaging contract. Most likely, you will be contacted by a manager or director of multivendor sales. That person will want to have a sit-down meeting to talk about all the great things the company can do for you, which is fine. Essentially, the company wants an inventory of equipment to bid on and the types of coverage that interest you. (Incidentally, we are big fans of master contracts, since they tend to show greater savings due to their volume over individual contracts. Bundling is the way to go.)
We highly recommend you give the Vendor Y reps what they need, understanding, of course, that you cannot provide them with their competitors’ pricing. This is not only unethical, but it may violate your existing service agreement and may keep your contacts from giving you their rock-bottom price. (Keeping them in the dark when it comes to pricing is a good thing.) There will be several conversations, a few meetings, and a bunch of emails to “clarify,” but the end result will be a fairly close approximation to the quote you received from Vendor X. This will allow you to make an apples to apples comparison of the two (or three, etc).
It is very important not to wait until the month before your existing contract or warranty expires to begin these discussions. Starting 9 to 12 months early gives you the leverage and time to compare the various levels of service offerings from multiple vendors. It may also give a particular vendor time to create a customized offering to fit your needs. Remember, this is about them satisfying you.
At the end of the day, you will end up with better pricing, even if it’s from your current service provider, along with coverage more tailored to your specific needs. The most important thing about contract savings is engaging multiple vendors and forcing them to compete for your business.
The Fine Print
Once you have settled on a few vendors to pit against each other, you now have the responsibility of setting expectations regarding their performance. You want to make sure vendors are equipped to meet your standards as far as response times, technical capability, parts quality, etc. It could be that the organization has serviced similar contracts before, but not necessarily in your region. Communicating your needs clearly is particularly important with MVS, as the vendors may be ramping up their ability to support you based on this contract.
It may seem a little scary at first, wondering if you can trust a vendor to support every model and modality you need. But with some documented escalation processes in place, can easily negotiate any problems down the road. The three main areas of concern are call escalation, alternative resolution, and parts.
MVS Call Escalation. This term refers to the ability of your service provider to get on-site and get you back up and running. This is particularly important for those mission-critical systems such as CT and MRI. You will need to establish, in writing, how long they are allowed to linger at a particular service level, when the local field service engineer must escalate a repair issue to a regional level of support, and so on. These terms may actually vary by system. If you have a site with five CT machines and a site with one CT, the single-CT site may need some added attention and a shortened escalation chain.
MVS Alternative Resolution. No MVS service provider can be the absolute expert on every failure that could occur, especially for something they did not manufacture. For those situations, alternative resolution is your “get out of jail free” card: If you have Vendor X servicing a number of CT systems manufactured by Vendor Z during a critical failure, at what point are you allowed to call off Vendor X and call in Vendor Z (at Vendor X’s expense)? This threshold needs to be in writing. Define the point in the escalation process at which you, the customer, can act in the best interest of your patients, and call in the OEM at no cost to you (other than normal after-hours T&M costs).
MVS Parts. It is also very important to know where your parts are coming from and how comfortable you are with the source. If you are engaged in MVS service, your provider does not manufacture parts for the systems it is servicing. Given the opportunity, it will occasionally elect to supply the cheapest replacement options possible. It is not necessarily a bad thing to use “refurbished” or “remanufactured” parts, but I would stay away from those that are “used”—and it’s not always easy to tell the difference. During contract negotiation, you have the opportunity to define what you expect. Maybe you’re OK with a certain item being “preowned,” but you have had bad experience with other components in the past. Now is the time to talk about it.
Sealing the Deal
Now comes the fun part. Review the quotes line item by line item and figure out who really wants your business. Go back to whomever has the highest quote and tell the company reps they need to do better. Let them know they are bidding against another service provider or two—this will surely get their attention, especially if they are your current service provider. Far too often, service providers get away with dictating what the pricing will be because they believe themselves to be the only game in town, or do not believe we have the guts to test them.
As a side note, it is imperative that you build a strong, highly engaged clinical engineering team known for delivering quality service. A trustworthy reputation will not only gain the respect and admiration of your customer, but that of your service providers as well. This will make it much easier to request certain concessions in areas like training and service access, which in the long run reduce your bottom line.
Good luck, and remember to share your successes in dollars and cents with your leadership chain and your customers. No one is going to toot your horn for you.
Dallas T. Sutton, Jr, CRES, is Supervisor, Clinical Engineering at WakeMed Health and Hospitals in Raleigh, NC. Bhavesh Patel, Director, Clinical Engineering, served as a collaborator on this article. For more information, contact chief editor Jenny Lower at firstname.lastname@example.org.
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