Why More Hospitals Are Bringing Their Imaging Services Back In-House

By Matt Skoufalos


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As medical procedures become increasingly more inclusive of big-ticket imaging technologies, the cost of servicing the equipment at the heart of high-demand, revenue-generating procedures is the subject of greater scrutiny. Particularly as imaging studies suffer additional reimbursement rate cuts and competition increases for similar patient populations, the value to be recouped from reducing equipment expenses has become a selling feature, not only for the independent service organizations (ISOs) that compete to service those devices, but from the original equipment manufacturers (OEMs) themselves. The alternative to buying into expensive service contracts is bringing the work in-house, but without the necessary technical expertise, that’s not much of an option – which means OEMs who know that are changing their approach.

“We’re investing pretty heavily in supporting our in-house customers,” said Matthew McCallum, Vice President of Services Business Management at Siemens Healthineers North America in Cary, North Carolina.

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“We’re seeing that investment from our customers grow, and it’s something we want to capitalize on and support,” McCallum said.

For one thing, he points out that “the economics are supportive” of such a model, in which hospitals view the in-house service arrangement as being more cost-effective over an outsourcing agreement. As most ISOs get the same OEM-direct training, he said that finding the staff inside an organization to handle preventive maintenance and onsite repairs can create continuity of experience at a system-wide level.

“Health care enterprises are getting larger, and some of the business models that OEMs have are very equipment-driven,” McCallum said. “They don’t typically do a good job of addressing an enterprise-level service strategy. How do we provide services at a system level rather than at a device level? This new service offering is tailored around streamlining.”

McCallum said building biomed programs is “very complicated, and we’ve seen varying degrees of success.” The new Siemens Healthineers tiered service offering is intended to eliminate the varying quality of effectiveness that departments can experience from contracted providers while helping directors control their costs with fixed numbers. McCallum said its priority is allowing customers to manage both the clinical and financial risks associated with their service needs, and the principal intersection of those occasionally competing variables is found in the operating room. As hybrid ORs and imaging-guided procedures become more of the standard in clinical care, hospitals are pursuing solutions that reduce their liability, maximize their in-house expertise, and add redundant supports.

“The service strategy for us is becoming very modular as opposed to very component driven,” McCallum said. “I think that given the prevalence of third parties and in-house biomed groups, there’s a lot of people vying for the same pool of resources.”

For a manufacturer like Siemens Healthineers, building better product support means empowering more effective end-users of its equipment, and ultimately, improving the patient experience. That’s why the company is offering more in-house biomed training support for its customers. McCallum said expanding the onsite knowledge base of service personnel on device-specific protocols makes them more valuable to their employers.

“That’s something we’ve identified that our in-house biomed customers can offer,” he said. “When you go into the OR and you’re talking to a surgeon or anesthetist or nurse, they speak a clinical language and they want to be spoken to in a clinical language.”

One challenge that all biomedical departments will face, whether in-house or outsourced, is a community of professionals that is heading toward retirement age en masse. Once that happens, there’s going to be a deficit of qualified workers and a broad need for their replacements to get up to speed quickly. McCallum cautions that “there’s a real danger of losing some of that systematic knowledge.”

“I think biomeds are becoming more savvy on alternative service delivery models,” he said. “There’s a lot more availability of spare parts on the open market. There’s also a lot more knowledge, either through training or inherent knowledge. However, what I hear from our competition and our customers is there is a very static, if not diminishing, supply of service engineers; people who actually choose this as a career path. I’m very interested to see how this grows and develops as the workforce ages. Everybody’s talking about this impending retirement wave.”

Dealing with an aging workforce is just one of the staffing challenges that biomed directors will face in the coming years, said John Garrett, Clinical Engineering Manager at Catholic Health Initiatives of Cincinnati, Ohio. Garrett said addressing that generational bubble will require a departure from traditional thinking about how costs are reflected in departmental budgets.

“When you look at imaging service, what you’re really doing is looking at risk management,” he said. “Full-service contracts on a five- to 10-year trend is a losing prospect. You’re going to pay more than you would for time and materials over that lifespan. What it comes down to is, can you hire and train qualified people, and do you have to have the capital to invest in their training?”

Training the right biomed can yield a 30-year return on investment, Garrett said. In the case of an imaging technician, he said the average, capable staffer who repairs and maintains X-ray and CT technologies can yield a maximum return of 20-1 over the cost of his or her full-service outsourced equivalent, and a 10-1 return at minimum. In back-of-the-napkin dollars, that’s the difference between paying a $150,000 annual salary and a $1.5-million yearly service contract on some CT and X-ray equipment. Those figures exclude the cost of parts, Garrett said; otherwise he believes the rate of return would be something like 100 to 1.

One unavoidable cost of homegrown talent involves the price of technical training and service education. Sending biomeds to OEM technical schools can spike the price of investment in their training by tens of thousands of dollars, but on a long enough timeline, Garrett said that money is well spent.

“If you get a guy who knows how to do more than just the bare minimum on a PM, you know what’s cost-effective,” he said. “You know what’s really saving you money, not just in the first dollars up front, but in the next few years. It all comes with knowing how the machine works.”

In-house service personnel also dramatically reduce downtime, Garrett pointed out, shaving the average manufacturer response time from three to four hours on a guaranteed, full-service contract to a theoretically immediate response, depending upon staffing. Even for a smaller hospital, the costs of lost revenue from a nonfunctioning imaging device might spiral into the tens of thousands of dollars in a single day while waiting for the first call to respond. Garrett said that instead of recouping nothing on that loss, investing a comparable amount in professional development can shorten future service interruptions.

“To get a guy up to sped on CT and a couple different modalities, that might cost you $50,000, but it’s going to pay for itself in a couple years,” he said. “People lose track of rates. They see a six-figure salary and they go, ‘We need to cut that,’ versus, ‘How much are we saving on contracts by paying this guy $100,000 a year?’ How many people are asking, ‘If you’d give us another guy, we could get rid of these contracts?’ ”

More broadly, Garrett said that in the current market of hospital acquisitions and the systemization of providers into longer service delivery chains, the increasing size of more and more health networks means they’ll typically choose to keep an in-house support staff for continuity of care. As that expansion continues, independent institutions will find a growing need for localized service providers – which means it’s in the interests of most institutions to bring biomed services in-house sooner rather than later.

“The way systems are going, if they don’t have [a department], they’re going to,” Garrett said. “Bigger hospitals will purchase hospitals that couldn’t afford that imaging guy because of scale, but those systems can only take on so much more before they start employing more people.”

Garrett also agrees with McCallum about the need to “build the next generation” of service engineers, and part of the way he foresees that happening is by taking on a shared assumption of the risk in terms of human capital. Biomeds may be more likely to stay with employers who train them if there’s the opportunity for career advancement within the company along a certain timeline; likewise, employers may be more likely to invest in a staffer’s professional development if there’s a commitment to stay and apply the knowledge he or she gains on the institution’s dime. Nonetheless, he said it’s the job of management to recruit viable talent, and part of that means knowing where to look for it. Garrett favors a graduated approach.

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“I’ll look to get a biomed and then get them into an introduction to X-ray course, and have him doing PMs with the X-ray guys, and then sit them down and decide if he’s worth the investment,” he said. “The second place I look is guys getting out of the Navy who have an electronics background. You can take someone who’s just out of the Navy and say, ‘I’m willing to invest in you, but I need you to invest three to five years.’ ”

“The other place we look is someone who’s done electronic trade schools,” Garrett said. “That’s really a case-by-case basis because you might have two of the same company’s graduates, but the result is horribly different.”

Still, if more and more service is transferred in-house, what becomes of the ISO business in such a climate? Garrett thinks there will always be room for an intermediate option between internal staff and the company store, particularly in the case of more distributed health care networks and rural facilities.

“Right now it’s cheaper for me to hire an ISO to go to one of my remote systems than it is to send one of my guys,” Garrett said. “I need a second set of hands, or training, or someone to back him up. The smaller hospitals need to start looking at alliances for service for a buying block. There’s some rural hospitals that are so far out that they’re going to have to make an agreement with the manufacturer.

“ISOs are going to be the ones who can reverse-engineer or come out at a price that just makes sense to pay them instead of that other guy,” he said. “The other place you’re going to find their work is if they deal in parts too. Too many hospitals are pinching pennies in the wrong places when it comes to that kind of stuff. You have to be able to draw on that downtime that you’re not experiencing.”

Career biomed Pat Lynch, who solves problems for technology companies on a freelance basis, said lateral thinking is instrumental in resolving the affordability question for imaging service needs “because there are absolutely fantastic amounts of savings to be had from moving in-house.” When outsourced, the annual cost of service ratio for maintaining an imaging device can run anywhere from 18 to 35 percent of its purchase price, Lynch said; but with in-house service, that cost can fall to as little as six to seven percent of the original equipment cost.

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“When you’re talking about millions and millions of dollars of imaging devices in a hospital system, you’re talking about a considerable impact to the bottom line,” Lynch said. One reliable approach to handling escalating service costs had been to negotiate fixed service costs at the time of purchase, “but now manufacturers are starting to escalate that,” he said.

“I know one company that absolutely refuses to sell the owner of the equipment any part unless their hospital has a service contract on it,” he said. “They will not sell you a wheel; they will not sell you a caster. This is perfectly legal and this is the way that manufacturers are beginning to pressure hospitals into having service contracts, and it’s absolutely outrageous.”

Just as much as institutions are aware of the pressing retirement bubble among biomeds, Lynch added that OEMs are similarly positioned to use this information as a pressure point. He said it’s not uncommon in his home state of Tennessee for imaging vendors to sell full-service contracts to managers who see the light at the end of their career tunnels.

“They say, ‘How about we make the length of service contract until your retirement date?’ ” Lynch said. “Then, the directors brag to all their friends that they will never have to negotiate service contracts for the rest of their careers. If OEMs are able to lock out professionals, they have a high likelihood of gaining the service edge.”

The best investment in a healthy imaging department is an investment in a team that supports the needs of its individual service engineers, Lynch said. The expenses of salaries and training can require “some real soul-searching,” he said.

“If you’re not able to retain people, if you’ve got a poor geography that people don’t want to live in, if your HR conditions are not conducive to keeping people in long-term, you should probably not enter into an in-house imaging arrangement,” Lynch said. “You’ve got to be creative in where you look and how you look.”