By Barry Dyer and Dawn Plimmer
The COVID-19 pandemic has placed significant financial strain on hospitals and health systems across the United States and Europe. As economic recovery plans are put in place, finding new ways to improve the bottom line without negatively impacting patient care is a top priority. In the scramble to find opportunities for significant cost savings, areas such as biomedical for example, are typically not addressed because they are considered “too complex to tackle.” With the right strategic approach and data, this is no longer the case. ‘Biomed’ is fast becoming an appealing option due to its sheer savings potential. Hospitals and health systems are realizing millions of dollars in annual savings through data-based pricing insights and strategies that steer biomedical contract renegotiations in a favorable direction.
Biomed is a category that receives focused attention from hospital and health system finance teams because of its significant cost. After spending millions of dollars on sophisticated imaging equipment, for example, a health system must then pay for service agreements that can easily cost between $100K and $200K per year per device. Service and maintenance for today’s complex biomed equipment is an expensive proposition. A report by MarketsandMarkets Research predicts that the medical equipment maintenance market will reach $47.49 billion by 2023. When service and maintenance are taken into account, the cheapest equipment isn’t always the “cheapest.”
Service agreements cover hundreds of pieces of equipment from multiple vendors with varying coverages, including leases, rentals, and owned equipment. This equipment ranges from MRI machines to bedside monitoring equipment and is integrated into every clinical area of every hospital. The sheer volume of equipment, vendors, services, and associated contracts creates a spaghetti mess that few are willing to untangle. This is especially true when you consider the number of organizational stakeholders projects of this size touch. Furthermore, excessive downtime can result in lost revenue and patient services leaving the provider potentially open to liability issues. These factors make servicing medical technology both a clinical and a cost control issue.
Undertaking a project of this scale is clearly a daunting task. However, the promise of substantial savings and improved service make it a smart investment of time and effort. Doing important legwork upfront can make the process less complex and intimidating.
Don’t Underestimate the Value of Benchmark Data
The popular quote, “If you can’t measure it, you can’t improve it,” certainly rings true when it comes to pricing and service levels. Without unbiased benchmark data there is no way to know if one is paying the best possible price for any given product or service. As a result, hospitals and health systems around the country absorb substantial, often unnecessary, biomed costs because they failed to benchmark.
Benchmark analysis is much more than a price comparison of a piece of equipment. It includes terms and conditions of a contract and service levels for each piece of equipment. This analysis requires that a complete biomedical agreement is reviewed to determine whether what is in place is a good fit for a hospital’s unique needs.
Equipment service levels are dependent on the criticality and quantity of equipment. Consider, for example, ultrasound equipment—which for some is considered a high revenue generator and critical for the patient population. Without backup equipment, a tier-one service level ensures machines are quickly repaired when necessary. However, if backup equipment is available, lower-level service agreements often are sufficient, as there is significantly less urgency to repair the equipment.
Another example of where benchmark analysis is useful is infusion pumps, which cost much less per unit than ultrasound equipment. Infusion pumps are often considered a lower-level item because of their cost per unit, but if a hospital has 500 pumps in inventory, repairs can quickly add up to millions of dollars when service levels are overlooked. A review of historical repair spend will help identify opportunities to adjust service level support.
It is important to note that there is a common misconception that benchmark data is being used when hospitals/health systems utilize a group purchasing organization (GPO). In reality, benchmark data is seldom used by GPOs. And, for those that do use such data, it is rare that the data is sourced from a neutral third party. Hospitals and health systems often assume they are getting a good price simply because they are working with a GPO, however, without neutral benchmark data it is impossible to be certain.
Biomed contracts are particularly complex. Enlisting a neutral third party to assist with analysis of benchmark data and contracts can yield millions of dollars in biomed savings. It also introduces hospitals to vendors they otherwise might not have considered. For example, GPOs frequently work with a set group of national providers. As a result, hospitals/health systems may overlook local vendors that are less costly without sacrificing service. Working with a national vendor does not have to be an all-or-nothing proposition. A local vendor may complement national vendors in unique, cost-effective ways. Furthermore, with benchmark data in hand, a system can create healthy competition among vendors and that is always advantageous to buyers.
A neutral third-party consultant—armed with benchmark analysis—can minimize politics, which is good news for supply chain professionals. Benchmark data alleviates scenarios where vendor biases are strong, but supporting data is weak. An independent third party ensures that everyone’s interests and needs are considered. Having a neutral voice and ambassador is important if a GPO is hesitant, or unwilling, to analyze biomed contracts using neutral third-party benchmark data.
Navigating the Pitfalls of Biomed Contracting
Hospitals should approach biomed as an opportunity. The degree of effort and amount of time required to properly address contracting can be long—six months to a year—based on number of facilities, complexity of the contract, and stakeholder alignment. Yet, for those willing to take on the biomed category, the payoff is substantial and well worth the effort. With benchmarking analysis and data-based contract negotiations, hospitals and health systems are improving service levels while saving millions of dollars a year in a single biomed category.
Strong executive support is essential to success, and the right parties must be represented at the decision-making table. A group of eight to ten stakeholders representing the needs of all the departments in a specific equipment category is ideal. Stakeholders must be knowledgeable about the equipment and empowered to make decisions that benefit their departments. They must be committed and responsive; meetings must be a priority to keep the process on track.
Because stakeholders may not always reach unanimity on service levels and selection of providers, executive sponsorship is critical. An executive sponsor, from either finance or supply chain, will look at the big picture from an ROI perspective, considering both the clinical and financial needs of a hospital. The executive sponsor will be the ultimate decision-maker on the final selection.
Today, hospitals and health systems are revitalizing their bottom lines by considering biomed contracts that were once thought of as “too complex to tackle,” as too valuable to ignore. With a clear understanding of the process, unbiased benchmark data, and a neutral third-party consultant, substantial savings can be achieved.
Barry Dyer is a Senior Vice President at symplr, an industry leader in healthcare governance, risk management and compliance (GRC) solutions. Dawn Plimmer is symplr’sPurchased Services Director.