Hospitals in the United States purchase billions of dollars of medical devices every year. Due to advancing technologies and earlier hardware and software obsolescence, medical equipment replacement cycles are becoming shorter, which may lead to reduced vendor support cycles. As a result, the cost of medical equipment and system support agreements can sometimes exceed the purchase cost of the instruments.
Hospital equipment and purchasing managers can help ensure the maximum value for medical equipment and systems by considering the following factors prior to the purchase of medical devices. Major equipment purchases should involve the input of purchasing, the user department and/or nursing, facility engineering, information services, and clinical/biomedical engineering. Both small community hospitals and the larger system hospitals will usually look at a 3-year capital plan for their institutions to better forecast strategic priorities and financial goals. It is at this time that negotiating for pricing, service, updates, and training are at their best. Bringing in multiple vendors to evaluate their products and share your facility’s capital plan, which includes scheduled upgrades, replacements, and new or additional services, is key to any successful negotiation.
The organization from the top down needs to be engaged and in support of the process for evaluation, and have the willingness to look at the benefits of partnering with a vendor. This facilitates secured pricing and a long-term service strategy that will enable the biomedical departments to better reduce the cost of ownership. Leveraging the vendors to work with biomedical departments through a planned strategy around training and education in the support of new or replacement devices will allow for a significant reduction in the overall cost of ownership, improve on the uptime for devices, and—with factory training—build confidence in your customers. When biomedical departments are engaged in co-op agreements, the vendors will also see a reduction in their operational budgets with the elimination of service calls and scheduled maintenance interventions.
Equipment Hardware/Software Design
As previously stated, technology advances cause significant reductions in medical equipment replacement cycles. Fifteen to twenty years ago, it was common for medical devices such as cardiac monitors or x-ray equipment to be used in hospitals for 10 years or longer before replacement was necessary. Currently, hospitals are seeing some equipment replacement cycles as short as 3 years, which can lead to significant concerns for health care facilities, such as:
- New equipment may not be compatible with older systems from a hardware and software perspective
- New equipment often contains new features that require additional user training
- Alarm settings and controls may operate differently, which is a patient safety concern
- Premature equipment replacement can lead to higher operating costs
As an example, several years ago a hospital purchased additional monitoring equipment as its current physiological monitoring systems from the same vendor. The equipment purchase included central monitoring hardware components. Upon delivery, the equipment was installed with the assistance of the vendor service technicians. Shortly after installation, it was noticed that clinical alarms such as cardiac alerts were not operating properly at the central displays. Further investigation revealed that the software version on the new hardware was incompatible with the older (2 years) equipment when installed on the same nursing unit. The costly resolution was to replace a large number of the 2-year-old hardware platforms.
New equipment may require specialized disposable accessories and single-use components. The cost of supplying these items may vary among vendors, and will add to the operating cost of the medical device. Disposable supplies typically are not a separate reimbursable charge, and can add significantly to the cost of ownership over the life of the equipment.
Previous generations of medical equipment typically operated as stand-alone devices, or over a limited vendor-specific network. The introduction of communication standards such as Health Level Seven, Ethernet, and the increasing use of standard PC technology for medical equipment all contribute to the need to purchase medical equipment that can operate with other hospital computer systems. The promotion of electronic medical records also supports the use of open-system data communication protocols.
When selecting medical equipment, make sure that communication protocols will be able to exchange data with other hospital systems without the need for expensive interfaces or programming. This is particularly important with the shorter expected useful life of medical equipment. If special interfaces are required, this should be identified and written into the equipment purchase requirements. A consortium of medical equipment vendors from diverse modalities is contributing to open data exchange. Refer to the Integrating the Healthcare Enterprise initiative at www.ihe.net.
Newer technologies such as infusion pumps are being delivered with wireless interface capability to hospital systems, such as medication administration records, alarm management, and asset location programs. These systems offer interesting benefits, but early experience suggests that the cost of ownership may be higher due to the support requirements.
Equipment and user training are important both for clinical staff and the technical staff who will handle the responsibilities for ongoing support. Current medical devices have increased features and will require additional training for all staff levels. In addition, equipment with different user interfaces and alarm capability can lead to patient safety issues. Training needs, and any cost associated with training, must be identified as part of the prepurchase negotiations. Consider the training requirements for the following:
- Clinical staff: Initial and ongoing training for nursing, physicians, practitioners, support staff, information services, and biomedical engineering. If training is not negotiated as part of the equipment purchase, the costs to the hospital may be significantly higher.
- User training is recognized as an important component of patient safety. Medical equipment selection should always include a determination of the need for an equipment evaluation. This may involve in-hospital evaluations, site visits, or comparative equipment evaluation services such as MD Buyline® or ECRI Select Plus®. Side-by-side comparisons are particularly helpful for the evaluation of clinical equipment such as infusion pumps or patient monitoring equipment.
Medical equipment service and support costs have risen along with the complexity of these technologies. Hospitals often face hardware and/or software service contracts that approach the purchase cost of equipment when analyzed over a 5-year period. This justifies the need to carefully identify and negotiate these costs and support options as part of the equipment selection process. This is true whether the hospital intends to use service contracts or rely on an in-house biomedical engineering department. Some points to negotiate include:
- Software upgrades
- First Call (Co-Op ) agreements
- Remote technical support
- Biomedical service training
- Diagnostic access “keys” for service and calibration
- Specialized test equipment
Total Cost of Ownership
Read tips on how to dispose of old equipment and on effective equipment acquisition in the November 2006 issue of 24×7.
Every medical device or system should be evaluated based on the total cost of ownership over some period of use—5 years, for example. This will identify the true cost of operating the device(s) and the effect on annual operating expense. If only the purchase cost is considered, expenses may exceed the expected return on the medical device. Variables to consider include:
- Initial purchase cost
- Disposable and single-use supplies required for use
- Personnel cost
- Annual service cost (preventive maintenance and repair)
- Software upgrades, if required
- Utility/space costs (power, A/C)
- Initial and ongoing training costs for the clinical and support staff
- Interfaces (data and networking)
- Finance charges: lease, rental, and per-use
- Present value of the device(s) at the end of analysis period.
Determining Cost of Ownership
Evaluating the cost of operating medical equipment over a set period of time will identify the actual cost of operating the devices and how it affects the bottom line. Total cost of ownership (TCO) over the lifetime of a device may be calculated by a formula such as this one:
Life Cycle Cost of Ownership = X + Y + Z + PV S (Ti + Oi + Mi – Sn)
X = negotiated purchase price
Y = facility modification, accessories, and options costs
Z = cost of required licensures
PV = net present value
Ti = training costs in year i
Oi = operating costs in year i
Mi = maintenance costs in year i
Sn = salvage value in year n
Written by members of the Biomedical Advisory Council: Gary Evans, MS,CCE, director of biomedical engineering, WakeMed Health and Hospitals, Raleigh, NC; Charles Riccardi, MLH system director, department of biomedical engineering, Main Line Health, Wynnewood, Pa; Bill Hart, supervisor, biomedical engineering, Lakeland Regional Medical Center, Lakeland, Fla. For more information, contact .