When a stock is bought or sold on an exchange, there have to be two parties to the transaction. The same can be said for gold or for something that was lying around the house before showing up on eBay. For any item sold, to have a value, there must be a buyer willing to pay a particular price for it.
Although XYZ stock might have been bought at $20 a share, because the company’s future prospects and sales figures look promising, there may be a buyer who values XYZ’s stock at $25 a share and a seller could realize a profit. The idea of buyers providing the value to goods and services extends beyond the stock market or the commerce that occurs on eBay.
The concept of free markets is as American as apple pie. In the U.S., if a person realizes a need or market for a product or service, they can bring that product or service to market and satisfy the market’s need for something that might not have existed before. These new providers are bolstered by the availability of financing from banks and other sources, while being restrained through regulations, taxes or licensing requirements.
The free markets could be considered pure capitalism, except that these government-imposed restraints make it more of a mixed capitalist environment, while a system without restraints would be a true free enterprise system.
When free market forces are brought to the medical equipment sector, then the need for a third-party source for parts, service or repairs fills a void that exists because of pricing, flexibility or availability.
Enterprising entrepreneurs realized a need existed in the medical equipment market and took a risk that they could fill that need and that there would be a continuing market for their products or services. This has created several industries, beyond the OEM or the in-house biomed department, that offer needed products and services where there is demand.
This demand is created by pricing or a lack of resources or the need for supplemental expertise. And, if anecdotal evidence can include stock prices, it would appear that the major ISOs are on to something. The stock performance of several ISO parent companies has been impressive in recent years. Positive feedback from biomed department leadership supports that contention.
With shrinking hospital budgets, the opportunities for third-party providers to offer services or parts at attractive price points helps health care facilities and promotes a more robust market for competition and choice.
In light of these successes and the growth of the third-party market, the FDA has solicited comments from all “stakeholders” regarding “the service, repair, refurbishment, reconditioning, rebuilding, remarketing, and remanufacturing of medical devices.” During a two-day FDA Public Workshop last October, the agency listened to comments from a broad cross section of interested parties.
The gathering followed a period where the agency solicited comments from stakeholders that were due in by early June of last year. A number of sources responded.
AAMI pointed out, in a March article, that it was important that all stakeholders respond.
“If the information that the FDA receives is incomplete (because not enough organizations respond or because one or more segments of the industry do not provide detailed information), then it will make decisions using incomplete information. The FDA can only base its decisions on the information it receives or already have on hand,” AAMI concluded.
The dynamics of this discussion are complex because there are not only competing interests, but concerns about intellectual property and the quality of service or parts versus the benefits that come from a free market, including the reduced cost of parts and services because of increased competition.
Without a substantial body of evidence that would suggest that non-OEM service or parts compromise patient safety, then the premise for the FDA’s inquiry becomes bewildering to many.
The agency said that the discussion was sparked because “various stakeholders have expressed concerns about the quality, safety, and continued effectiveness of medical devices that have been subject to one or more of these activities that are performed by both original equipment manufacturers (OEM) and third parties, including health care establishment.”
The OEMs argue that they are the ones with their collective feet held to the fire. For this reason, they argue that they need to exercise more control over the maintenance, servicing and parts replacement of the equipment they manufacturer. Anybody else, whether an in-house biomed department or an ISO, is a third-party, and their work or parts selection, should be held up to scrutiny.
Regulators can see something different than the market does. It may be that from a bureaucratic standpoint, some type of standardization is always the most reassuring state of affairs. This may be a practical consideration for approaching PMs, but the need for cost savings and availability of resources, challenges this mindset.
The comments submitted to the FDA were, in many cases, self-serving. This is not a slight, since the FDA has the power, as a regulator, to impact the business success or failure of an ISO, require more time-consuming requirements from biomeds, or award exclusivity to OEMs; all with patient safety as the overriding and primary consideration. In the process, somebody’s toes are unintentionally stepped on.
A Growing Sector
Third-party providers come in all shapes and sizes, with some mom-and-pop operations providing local services and some massive enterprises offering services internationally.
Compass Group (CPG), which owns Crothall Healthcare, has seen its stock price rise by 56.14 percent from March 16, 2014 to March 19, 2017. Sodexo, S.A. stock (SJ7), has seen a stock increase of 37.40 percent in that time and Aramark (ARMK) stock has experienced a 35.35 percent increase during the same period. These are just a few examples that would illustrate that these companies provide a needed service, reflected in the value that investors place on them.
The success of these stocks could reflect the success that this market sector has enjoyed in recent years, or it may be something else.
“Does that mean that smaller ISOs are being bought up or pushed out? Does it mean that mergers of systems have benefited the large ISOs that can assume such large risk? Is there no correlation of the companies HTM portfolios and their success over the past five years?” asks Benjamin Lewis, MBA, CHTM, director of Clinical Engineering GA/FL for Adept Health Inc.
While Lewis poses some good questions, he also has an insight and appreciation for the value an ISO brings; his department is an ISO.
“My department is an ISO, and as such, we have a healthy relationship with many specialized ISOs. We use ISOs to compliment the services we provide, which helps keep uptime high and costs low,” he says.
“We use ISOs for a variety of needs, from high-end modalities to simple screen repairs on monitors. All of our business relationships have to make good financial sense along with great quality. On the biomedical front, companies that that are set up to complete component-level board repairs are very helpful at reducing repair costs and high-end modality technical and parts support can help keep your budget intact.”
That budget impact can be accomplished in more than one way. The ISO is working at gaining more market share, while their presence can also prove to be a bargaining chip.
“We utilize ISOs for an alternative to OEM service for cost savings and buying leverage with the OEM. They also work harder for our business as most are competing with OEMs,” says Matt Royal, CHTM, CLSO-M, CHC, CHFM, CBET, director of Biomedical Engineering at Eskenazi Health in Indianapolis.
The clinical engineering department at Rochester Regional Health System in Rochester, New York has found a good balance in their use of ISOs.
“We use ISOs at times to perform PMs when we are short staff due to vacation, long-term disability, or training,” says Tony Alongi, MBA, the department’s technology management supervisor. “In addition, we would use an ISO for corrective maintenance if we are overwhelmed with service requests and our in-house team could not get to an issue in a timely fashion.”
Alongi’s department utilizes ISOs in a ratio that is about 80 percent for repairs and 20 percent for PMs.
“We also use ISOs for a particular service such as rigid or flexible surgical scope repairs and ultrasound probe repairs due to the cost effectiveness for the ISOs pricing structure. Moreover, we have used ISOs to source parts if we can’t get them from an OEM at a competitive price,” Alongi adds.
“We utilize ISOs mostly for parts and board repairs. We will on occasion utilize them for flat-rate repairs, refurb parts, repairs, and PMs,” says Joshua Virnoche, MBA, CBET, manager of Clinical Engineering for JPS Health Network in Fort Worth, Texas.
Resources and parts availability play into the decision to use ISOs at Baycare Health System in Clearwater, Florida.
“We evaluate ISOs based on their ability to perform timely quality repairs for which we are unable to due to workload or competency or to procure repair parts which the OEM no longer has available,” says Walter Barrionuevo, director of Clinical Engineering and Client Services at Baycare Health System.
Although the need to fill in when resources are needed is usually a temporary scenario, the ISO does fill an important niché that can often become long term.
Hospitals are know to use ISOs for service, which includes both repairs and preventive maintenance. Some have established long-term partnerships with vendors, who help during times when hospitals are short staffed or have special projects.
ISO can also be beneficial when it comes to the logistics of having to bring someone on site quickly for a short period of time. The same approach goes for using an ISO for sending equipment out for repair and PMs.
On the other end of the spectrum is the biomedical engineering department at Texas Children’s Hospital in Houston. Director John Weimert reports that his department uses ISOs “very rarely.”
“Most equipment is serviced in-house by the Biomedical Engineering technicians. However, we use manufacturer support on a time and materials basis, or service contract as needed,” he reports.
Another Parts Source
Are these same managers using ISOs for parts?
“We generally use ISOs more for parts than equipment service. This is due to the complexity of keeping medical equipment current in terms of firmware and software levels for which most ISOs are unable to provide,” Barrionuevo says.
“There is an advantage of using ISOs that sell parts in addition to service. Often, they are able to show up with ‘hero kits’ based on the symptoms and potential diagnosis of our engineers,” Lewis says. “This can reduce downtime and reduce cost because there should be no restocking fees in cases where the ISO brings parts in on a service call. Working with local ISOs, that have parts on hand, is an important relationship for any successful ISO or in-house program,” Lewis adds.
Trends in ISO Utilization
Has there been a shift in the industry in regards to how biomed departments utilize ISOs? It depends on who you ask. The level of engagement with ISOs, and the views of this segment in the future, are as varied as the biomed departments that use them.
“I’ve spoken to several contacts, both in HTM departments and vendors that serve these departments, and the general consensus is that there is a move away from using ISOs for service, and utilizing them more for parts,” Virnoche says. “Additionally, from my interactions with these parties, the consensus is that it’s much harder done than said, and there is a multiple year implementation in most cases.”
Beyond parts or service, the training provided through ISOs may offer benefits as well.
“ISOs have been more willing to offer training at a reasonable cost, although it is not the same as OEM training, the value is that they are not filtered in discussing the real product issues and offer solutions that are in the best interest of value to a HTM program,” Royal says.
Barrionuevo’s department has been leaning more towards the OEMs on balance.
“We have seen a shift from partnering more with the original equipment manufacturer and utilizing ISOs less,” he says.
“As the number of medical devices, that are networked to our hospital network has increased, the need to keep current with firmware and software levels have shifted our focus to relying more on OEM support as they are the only ones who can provide us with this level of support,” he adds.
“In addition to firmware/software levels, with the focus on cybersecurity and keeping the medical equipment infrastructure safe and secure, the original equipment manufacturer is the only venue we have who can assist us in making changes to medical equipment software, applying necessary operating software/firmware patches or installing antivirus applications,” Barrionuevo says.
If software updates are the province of the OEM, are there other areas where the ISO can make inroads?
“The shift that I see is greater capacity on the part of the ISO for providing what is needed in the field by biomedical engineering departments,” Weimert says. “They are filling a void created by the lack of manufacturer willingness, or ability to provide more attractive parts pricing, parts availability, technical training options and other types of support,” he says.
“Some of the ISO training that we have utilized is far less costly than that offered by the manufacturers, and is of high quality and is often more convenient to schedule,” Weimert adds.
Lewis sees another trend that he thinks will be beneficial to ISOs.
“ISOs are continuing to try to be more creative to set themselves apart. One recent development that I see becoming more popular is video conference troubleshooting,” he says. “I see video complimenting VPN diagnostics. This isn’t entirely new, but I do see this increasing in popularity in the coming years.”
The intention of the FDA docket elicits some cynical skepticism about motivation. The review really scrutinizes anyone who is not the OEM. Many leaders in HTM see a place for the ISO in their toolbox.
“This will drive costs up without improving safety. OEMs are looking to reduce competition for their service industry and continue to pressure third parties out of the market or acquire them to corner the market,” Royal says. “AAMI support has been from OEM’s and local HTM societies get support from third-party service providers. That being said, in-house biomed programs and third-party service providers are under siege from OEM lobbying and the perceived AAMI lack of support.”
Lewis points out that according to the FDA docket, anyone who is not the OEM is a third-party provider; even an in-house program. He says that it has had little impact on the way he does business currently, outside of extra scrutiny on any imaging and laser service providers to ensure that all maintenance meets OEM specifications.
“As the president of the Healthcare Technology Management Association of Georgia, the organization did sponsor a board member to attend the FDA Workshop and we are keeping a close eye on any new developments,” Lewis adds.
While Virnoche’s department has been working to move most repairs, PMs and services in-house, he can see the concerns that might have sparked the docket.
“I believe that in nearly all cases, HTM/biomed departments do a great job in vetting out non-quality repairs/service, and in-house technicians should remain responsible for ensuring the equipment is functional and safe before it’s returned to use,” he says.
“Additionally, I’ve started to see many ISO’s state their limitations, and if they’re unable to resolve an issue, will suggest to tag the OEM for issues they cannot resolve. Ultimately, I’ve seen excellent and poor results from both OEMs and ISOs,” Virnoche adds.
Weimert sees budgetary considerations as a key to the future use and availability of ISOs.
“I believe the impact is tremendous, especially for those HTM programs challenged for funding. I believe that all biomedical engineering department leaders need to be smart and resourceful when it comes to managing their medical equipment,” he says. “An ISO can be used as an important piece of the HTM’s overall strategy for managing costs, repair parts, technical training and service options, more now than ever before,” Weimert adds.
With a number of compelling reasons for the use of ISO resources, and the concerns of the OEM as the standard bearer, the decision process still rests with the hospital, unless the FDA intervenes further.
Health care facilities are paying more attention to their due diligence between OEM versus third-party support, according to some industry leaders. However, until the FDA releases additional or updated information regarding this issue, health care facilities are expected to continue the status quo.
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