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Service Contracts

Managing Reduction: Cost Reduction Best Practices

by K. Richard Douglas

A healthcare industry panel discussion at the 2013 Medical Dealer Leadership Summit in Chicago turned up a curious fact. The ranks of biomeds in the U.S. would likely grow by 30 percent in the next few years, according to those in attendance. Much of the impetus for this growth would be just the opposite of what would seem to be the intuitive reason — to save money. Yes, hiring more folks would save a hospital money at a time when budgets are strained.

The thinking is that more people, specializing in more types of equipment repair, means that more costs are kept in-house. The net effect is cost savings because of the disparity of the salary of a technician and the cost of service contracts. It is not always a cut-and-dry conclusion though, since many variables exist that must be accounted for.

Reducing the number of service contracts may require getting existing personnel up to speed on devices of a particular modality, or it might mean an addition to staff. There are many principles involved in the thought process. What is the time frame to get a return on investment from the training? Would the in-house technician work on a piece of equipment often enough to gain proficiency on that device, or would it just be once or twice annually?

The process also has other considerations that aren’t linked to staffing or in-house capabilities.

“I think the most important questions to ask about service contract decisions are whether you have a complete, accurate set of the information required to make an effective decision, and whether you can make an objective decision,” says Ken Maddock, vice president of Facility Support Services at Baylor Health Care System.

“If you can’t be objective about the decision, you should recuse yourself and give that responsibility to someone who can be objective,” Maddock says.

Once you find an impartial decision maker, there are some questions to ask to frame the issue of service contracts correctly.

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