Calculating the cost of your services.
Many staff members of in-house hospital clinical engineering departments might have a hard time answering that question.
After all, if you only work inside the walls of the hospital, and all the costs for your department fit within the overall hospital budget, there may not be any need to know exactly what the monetary value of your services is.
But what if one of the hospital’s physicians wants you to provide services to his or her private practice outside of the hospital system? What if you ever want to venture into work for an independent service organization (ISO)? Then, you will have to determine exactly how much to charge for the services you provide—something that may not be as simple as it seems.
Frank Painter, MS, CCE, an industry expert and director of the clinical engineering department at the University of Connecticut, Storrs, Conn, says many factors need to be taken into account when determining what to charge for services. He should know: He went from directing the clinical engineering department at Bridgeport Hospital in Bridgeport, Conn, to serving as executive director of the for-profit technology-management company NovaMed Corp, Trumbull, Conn. In addition, for the last 6 years he has served as an independent consultant, helping people deal with issues just like this one.
What considerations must be taken into account to determine how much to charge for providing services? How do you establish a fee that is fair and viable in the market? Painter has developed a basic, two-pronged calculation to help you determine exactly how much you should charge, should the need arise.
Start With a List
The people this issue concerns most are the staffs of “in-house clinical engineering departments of hospitals who are well-equipped, well-trained, and really quite professional,” Painter says. “They work in the hospital as part of the hospital staff, but they don’t really know what they’re worth to the operating room, the intensive care unit, or the radiology department. They just go about their business because all of their costs are built into the hospital’s cost structure. And when the hospital charges a patient (maybe two cents of every dollar includes the cost of running the clinical engineering department), they never have to think about what their work should cost.”
However, if a physician on staff who has a separate private practice asks for biomed services, “the in-house department now needs to determine what they should charge,” Painter says.
Other situations when this may come into play include when the staff of the main facility of a hospital system is asked to help in one of the satellite hospitals of the same system. In both of these situations, “biomeds need to say, ‘Well, we spent 2,000 hours doing this work, so what would be a reasonable cost per hour for those services?’ This is the issue,” he adds.
Painter says the way to determine what to charge is a fairly straightforward equation. You must calculate the total cost of operations for the department, and then divide that sum by the amount of billable hours of the staff to come up with a price to charge per hour.
This equation starts, he explains, by adding up all of the expenses that go into running a department. These include the cost of salaries and benefits of the staff, utilities such as water and electricity, and all of the furniture in the department, such as workbenches and desks. Replaceable tools and electronic and office supplies should also be included, plus “little things that [the department] just simply likes to have a large stock of that they have to replenish,” Painter says.
What people often do not think about, but should, are things like “the actual space that the department occupies,” he adds. “This 3,000 square feet of office space may in fact be included in the hospital’s overall budget, but it should be considered. They should know what the cost of shop space and office space is in the neighborhood and what they would have to pay on the outside if they were to move their office out into a private office space.”
He says there are other things that are “buried deeply” in a hospital’s costs that should also be included, such as the insurance policy to cover the staff should they get hurt at the hospital or have a car accident while on the job.
One category that does not have to be included on the list is that of nonlabor costs that can be directly billed to customers, such as equipment makers, for example. “If the hospital had a CT scanner and I had a service contract on it … that cost is not part of running the department,” Painter says.
Putting it Together
After you have established how much it costs to run the department, you must then determine how many hours of billable work a department does per year. “For each person, you look at the amount of time they work,” Painter says, explaining that you start with the basics: 40 hours per week, 52 weeks per year.
From that amount, you subtract vacation and sick time, as well as time taken for such things as training, staff meetings, and coffee breaks. In addition, he says, “we say no one can work like a machine; there are times when people are not as productive, and that time can also be subtracted.”
In the end, about 75% to 80% of an employee’s time is billable, Painter says. You take this number of hours and multiply that by the number of staff members. Depending on the number of supervisors you have, you can also subtract a few hours that they spend overseeing others and not doing the actual billable work.
Finally, you divide the cost of running the department by the number of billable hours you have determined, and come to a charge per hour. Many people may be surprised to learn, Painter says, that “$60, $70, or $80 per hour is the actual cost to run the in-house department.”
There are a few additional factors to keep in mind when deciding on your fee. For one thing, how much you charge should be affected by the reason you are charging for services. If you are doing the work for a hospital outside of your facility but still in your system, Painter says, “you don’t really want to make money; you want to break even, because you don’t want one hospital to profit off of another.”
If, on the other hand, you are doing the work for a physician in a private office, you will want to make some profit. “They’re in business for themselves and don’t need to get the benefit of the economies of scale from the hospital that you would provide to another facility in your hospital’s system.
“You should also be aware of the competition in your area,” Painter continues. “For example, if there were a few national clinical engineering service organizations and a couple of regional ones in your area, and they were all charging in the $110 to $125 range, it would be inappropriate for you to charge $90. You might want to charge a higher rate so you’re still competitive but not giving people such a big break.”
Armed with the information above, an in-house clinical engineering department can put together a basic equation of how much to charge for its services. Painter likes to keep the calculation as simple as possible to help people understand how it works.
However, if you really want to list everything possible in your cost of operations, there are several things many people overlook that could also be included. For example, “maybe the employees get free parking,” Painter says. “You also
have housekeeping coming in and mopping the floors and emptying wastebaskets. You have a security desk in the hospital that monitors the building at night, a human resources department that does the hiring for you, a shipping and receiving department that facilitates you getting the parts you need easily and quickly, and you have payroll and accounting and an administrator overseeing everything.”
An outside organization would have to purchase all of these services, he explains, so ideally, they should be included when you calculate your costs. “Normally, when you include all of these things, the amount per hour jumps.”
Knowing what your services are worth can be beneficial, whether you are a biomed wanting to provide services outside your facility but within your hospital or in a physician’s private office, if you are considering developing an ISO, or even if you are just curious about all of the factors that go into the work you do.
Painter says this knowledge is helpful for in-house biomeds who have not had business experience or for biomeds who have not had the opportunity to work outside of an organization but may know a little bit about the structure of ISOs, and now must charge for services themselves.
So start making lists, and find out just how valuable you really are.
Sarah Schmelling is a contributing writer for 24×7.