Probing the benefits of outsourcing

Healthcare providers in the various western European countries tackle the cost constraints they face in delivering their vital services via a variety of different routes. For many hospital managers the most sensible approach appears to be to focus on providing therapy and nursing care using in-house resources, while outsourcing other tasks.  

However, handing over the management and operation of a cafeteria or laundry facility to external specialists is generally viewed as significantly less risky and critical than outsourcing maintenance of medical devices. To address the issue, some prominent hospital chains have chosen to create their own medical equipment maintenance companies. This presentation will cover the present situation in selected European countries and attempt to forecast future developments.  

For 30 years, OEM-independent service providers have offered medical device maintenance in European hospitals. In response, well-known device manufacturers have increasingly established their own divisions undertaking maintenance on the full inventory of medical equipment irrespective of the devices’ origins.  

Initial offerings differed  

The initial offering differed country by country. In Italy, contracts in the early days specified provision of qualified biotechnicians to understaffed hospitals, while in Germany, healthcare organisations sought a clear indication from early on of the overall cost of the complete equipment maintenance package. We know of instances where only certain devices were sent to external companies for maintenance, with the service offered being similar to that offered under the equipment manufacturers’ own maintenance contracts. A good example is flexible endoscopes, a source of significant repair costs. There are many specialist companies known for repairing such instruments, often, they claim, at a significantly lower cost than the devices’ manufacturers.  

The separate healthcare systems in the various European countries originally saw maintenance providers purely providing a service within their own domestic market. However, the situation has changed in recent years, with OEM-independent providers now increasingly active across national borders within Europe.  

Figure 1 shows how the medical device maintenance market in Italy developed between 1999 and 2004.  

Ten key guidelines for hospital managers  

From our own experience of negotiations with hospitals, we know the information hospital managers need to enable them to effectively outsource device maintenance is not always available to them. To maximise the benefits derivable from such outsourcing we therefore suggest they follow the 10 key guidelines set out in Table 1.  

Given the numerous details to be negotiated, it is not surprising that a market for consultants in device management has developed. However, as outsourcing can offer real opportunities to optimise equipment maintenance and repair, we recommend hospital managers take a very close look at the pros and cons and do not simply delegate this important task totally. Since the hospital is paying for maintenance expertise, it should use the resulting know-how to carefully check its existing maintenance contracts, established repair processes and decision-making procedures for buying new equipment.  

Greater price uniformity in prospect  

Strictly speaking, service contracts can only be awarded following a European Call for Tender. While generally today such contracts are concluded with regional providers, we are convinced the situation will change when the market matures and tender rules are applied more strictly. By the same reckoning, we forecast that prices for device maintenance and repair will become more homogeneous throughout Europe, with less variation than there is today.  

It is generally accepted that annual maintenance costs range from about 4-8% of the inventory’s initial purchase price. This “range” of costs is dictated by the clinical specialisation, e.g. the number of digital imaging devices or the size of the ICU where the equipment is used. In order to calculate overall market values, it is helpful to study the revenues of device manufacturers. In Germany’s case a good reference point is the research report Die Medizintechnik am Standort Deutschland, DIW Berlin, 2006. (Medical Technology in Germany – Opportunities and Risks through Technological Innovation Repercussions of, and for, the National Health System, as well as Potential Growth Markets Abroad, published by the Federal Ministry of Economics and Technology).  

In 2004 Germany had healthcare expenses of e234 billion, with turnover in electromedical devices and instruments amounting to e1.2 billion the same year. Present Calls for Tender in Germany give an indication of two future trends that go well beyond the outsourcing agreements described in the first part of this paper. On the one hand we are likely to see an extension of the practice that currently mainly occurs with digital imaging devices – where rather than actually buying the device, the hospital instead pays a fee per diagnostic or therapeutic session. Such an approach allows hospitals to manage both their usage and maintenance costs very efficiently, and we predict growth in the use of such models in future with smaller devices, flexible endoscopes being a good example.  

More demand for FM services  

Conversely, we expect more hospitals to demand facility management services for medical equipment; when new healthcare facilities are built in future the contract will increasingly include a requirement for medical device management. This is a very radical change when one compares it to the classical way of purchasing equipment. The hospital demands the technical service and is ready to pay for this service only. External specialists are brought in to support the hospital and are charged with optimising the equipment maintenance arrangements in cooperation with hospital management. Another obvious change will be the fusion of the hitherto independent areas of facility management, medical device management and IT. The position of the biotechnical department will evolve towards the management of procurement and maintenance, with priority set on cost control and quality. Hospital managements will thus be freed up to focus on the key diagnostic, therapy and nursing care tasks.  

The content of this article is an adaptation of a paper presented at the 2nd European Conference on Healthcare Engineering held in Vienna, Austria, last autumn. The event was hosted by the Austrian Association of Hospital Engineers (ÖKVT), in cooperation with other International Federation of Hospital Engineering – Europe associations, including IHEEM.                                                          

Ten key guidelines for hospital managers 
• The hospital manager should establish a fixed overall annual maintenance budget, with the external service provider (s) receiving a set amount to cover the maintenance and repair of equipment, any safety checks required by law, the provision of all necessary documentation, and any “consulting” services.  

• The hospital should select an outsource partner for a long-term relationship, as contracts generally last for three years. It should be understood, from the outset, that optimal results will only start to be seen after a month or two of the agreement running. Hospital managers should also ensure the outsource company employs, and makes available, highly qualified biotechnicians.  

• The contractual parties need a reliable inventory of devices covered by the agreement. In addition, the division of tasks to be performed by the service provider and those to be undertaken by the hospital’s facility management staff needs to be clearly defined. One potentially particularly delicate issue is who has (physical and fiscal) responsibility for the replacement of specified, expensive consumables, for example X-ray-tubes and ultrasound probes. This should be stipulated in the contract. Generally speaking, service providers do not cover the costs of parts for one time use, or of gases and liquids used in the clinical environment.  

• Ensure a close working relationship between hospital biotechnicians and staff at the external service provider. We know of quite a number of successful working models.  

• Ask for clear indication from potential partners of the typical “scale” of their customers and the size of their customer base. This should give a good idea of whether the outsource partner has the necessary “clout” to purchase spare parts and repair services at a favourable rate (and to your advantage). Your outsource partner’s market position should be such that they can renegotiate existing maintenance contracts favourably or, where appropriate, secure a better deal.  

• Note that hospitals are generally legally responsible for ensuring that outsource partners provide all the resources needed to perform according to legal requirements. Request a project plan, and seek assurances that the partner organisation has an internal quality assurance system.  

• Ensure that it is crystal clear both who will bear the cost of repairs due to equipment mishandling and what happens as regards faulty devices which, due to their age, are uneconomical to repair.  

• Ensure your agreement specifically states that devices exchanged for old ones, or any new instruments, will become part of the contract, with an appropriate adjustment to the budget. The same principle should apply whenever devices are removed from the inventory list.  

• Take particular care over clauses dealing with the contract’s conclusion. Ask for an assurance that your hospital will be free to become a contractual partner in newly negotiated maintenance contracts, and that, if necessary, it may cancel an existing agreement. The outsource partner should be in a position to provide a complete, up-to-date inventory and each device’s “history” in machine-readable form at the contract’s end.  

• It is your right to insist on written reports on any problems. These will help you identify critical issues and negotiate solutions in tandem with your service provider.  

References 
Jörg Höhne, Krankenhaus Technik + Management, p26, Finning, March 2007. See also Arnd Köhler, Praktische Umsetzung des Outsourcing der Medizintechnik, September 2006; http://www.technischesgesundheitswesen.de/uploads/media/ LV_Koehler_Internet.pdf