By K. Richard Douglas
With passage of the Affordable Care Act (ACA) in 2010, the nation’s hospitals had a new challenge that came through the Centers for Medicare and Medicaid Services (CMS). That challenge required them to tighten budgets and seek best practices for keeping expenses in check – while taking on more patients.
The expansion of Medicaid, in many states, brought more patients through the doors while other provisions of the ACA have sought to reduce hospital revenues by shifting services to primary providers and other arrangements. Many hospitals have reduced the percent of uncompensated care patients substantially. As with any evolution within an institution, the seismic changes to health care have introduced much belt-tightening.
A study of the earnings reports of 200 hospitals in 2013 found that the average operating margin had shrunk.
Read more about the Safe-T Sim™ Electrical Safety Analyzer from Pronk Technologies.
Mergers and acquisitions, including the purchase of insurance companies, have strained many hospital and health system budgets further as they seek economies of scale and ways to integrate the different components that are interdependent.
The belt tightening has impacted HTM departments in various ways and include the need to maintain older equipment, cutting compensation for training, industry conventions and the number of budgeted FTEs.
Checking the Boxes
To address these budgetary restraints, HTM leadership has had to consider a number of approaches to keep the C-suite happy while maintaining a high level of service to customers. This process requires an annual review along with a number of considerations that are variable.
Speaking of the “break-fix” model approach, Tom Fischer, president of Select Biomedical in Edina, Minnesota, says; “Based on what we are seeing lately, there seems to be a shift away from that model towards a better model that helps biomeds apply tighter budgets and scarcer resources towards a revenue-based approach.”
Fischer says that in the simplest form, the revenue-focused biomed approach has biomeds applying their resources and budgets to the items that have the greatest impacts on facility revenues. Items such as infusion pumps, patient monitors, etcetera, that have a low return for facilities are being shipped immediately to OEMs or repair depots.
“By not ‘triaging’ the items, the biomed team will work on, these biomeds no longer have to order parts, inventory items, or utilize hundreds of different vendors. Instead, these biomeds are able to negotiate better rates and develop stronger relationships with OEM and repair depots that complete the work in a timely/quality manner. We have seen this revenue-focused approach accomplish two critical areas for biomeds: one, improve revenue creation for facilities and two, decrease overall repair costs,” Fischer says.
“We are also beginning to see where some biomeds are actually seeing their budgets increase as they are able to tie their efforts to ROI,” he adds.
“We have a budget preparation process that takes into consideration the costs for the previous year and then has predictors for new equipment purchases and potential retirements of devices,” says Rodney Nolen, clinical engineering manager for University of Minnesota Health in Minneapolis.
“We also take inflation costs from parts suppliers, OEMs and third-party vendors. Another important part of the budget process is contracts versus in-house support analysis. This is something that is ongoing throughout the year but during the budgeting season it’s a great time to really discuss service strategies that can reduce hospital costs and increase the bottom line,” Nolen says.
Nolen says he likes to focus on the higher volume devices and make sure that his employer is getting the support and cost effectiveness. He says that with so many OEMs in use in the hospital, this can be a challenge.
Dave Dickey, CHC, CCE, FACHE, CHTM, corporate director of clinical engineering services at McLaren Health Care in Michigan, echoes Nolen’s approach and breaks out the fixed and variable expense items.
“I prepare annual budgets taking into account multiple factors, starting with a determination of current year cost of service ratio year end estimates, typically based upon seven month actual expenses, annualized. Once this is determined, I then calculate a three year running COSR average, which becomes my base starting goal for the next year,” Dickey says.
“I then determine what the fixed expenses are going to be; which relate to labor, contracts, depreciation and various corporate overhead expenses. The balance then becomes the variable expense which gets split between parts, vendor repairs, service training and various other line item expenses (food, publications, subscriptions, minor tools, etcetera),” he adds.
Dickey says that he also factors in any new or anticipated expense liabilities that will start during the next fiscal year based upon big ticket item warranty expirations, which he says is why it is so important to have accurate inventory cost values, since everything related to budgeting is driven by the estimated equipment value and cost of service ratio historical data.
“Once budgets are set, and approved, I monitor the COSR for each hospital, monthly, and have the ability to identify trends going in the ‘wrong direction,’ ” Dickey says.
In addition to monitoring the cost of service, the ability to keep as much of that service in-house helps the budget when possible.
“At our hospitals, we start to prepare budgets in the early fall. We add up all current contracts and determine through our CMMS what devices are coming off warranty. If we feel we cannot adequately service these devices in-house, we put them on a SLA,” says Tony Alongi, MBA, supervisor of clinical engineering at Rochester Regional Health System in Rochester, New York.
He says that sometimes they just get the lowest level of coverage, such as parts-only with phone support. At other times, they use a higher level, such as full-service due to a lack of training and limited resources (FTEs), or in some cases, the device is highly proprietary and the only option available is no coverage (too risky) or OEM.
“We always try to go ‘at risk’ (no SLA) and service the devices ourselves in house where it is prudent. Age, reliability, the number of in-house staff, and the level of training and experience of the staff are all factors in determining what we will contract out or take in-house. This in turn helps us form our budget for the upcoming year,” Alongi says.
“Typically, we try to meet our Cost of Service Ratio to help develop next year’s budget. You would take your current inventory, minus any retired equipment, and add any equipment coming off of warranty. You take your COSR (or COSR target) and multiple by your equipment inventory price and you have your target budget. Another method is to start at zero and build the budget for the staffing, contracts, parts, time and material, supplies, training and miscellaneous expenses,” says David Braeutigam, MBA, CHTM, CBET, system director of healthcare technology management at Baylor Scott and White in Dallas, Texas.
How do you juggle in-house, third-party ISO service and third-party OEM service to keep equipment in top shape and repair equipment/devices as needed?
“Just like everyone else, we try to do as much work in-house as possible, and try not to use contracts. For lab equipment, we will use a contract if we have experience that a contract is more cost effective than using in-house or time and material,” Braeutigam says. “We will also use third-party or OEM service if we do not have staff trained on a specific modality or enough staff to work on the equipment.”
A Balancing Act
Watching the bottom line does not mean that there is a whiteboard on the biomed department wall that maps out a strategy singling out in-house resources as the only approach that is part of a budget template. When additional resources can be employed to either cut costs, bring in specialized expertise or fill a void, then the end justifies the means. HTM management has to consider where each part of the puzzle fits to cover costs.
“When we are short staffed due to training, conferences, illness, disability, retirement and search to fill vacancies, we consider using a high-quality ISO to assist in staying compliant with The Joint Commission requirements and regulations as well as completing PMs to provide safe, reliable, and effective devices for our clinicians and patients,” Alongi says.
In addition to supplementing resources in times of deficiencies, there are also times when outside expertise allows for a juggling if resources based on the equipment and prioritization.
“This continues to be a challenge. Staffing is at a premium and gone are the days of having some hours available to ‘catch up.’ What this means is that I’m constantly looking at what devices are taking up more time to repair. I try to balance what our in-house total cost to repair is against what the repair cost is from the OEM or third-party ISO,” Nolen says.
“For some devices, we do the quicker or more cost effective repairs, but for the more in-depth issues, we rely on third-party or OEM, which allows me to shift my resources to other work with potentially higher priorities,” he adds.
Dickey terms the balancing act of utilizing in-house, third-party ISO and OEM services wisely as the “real time reality of HTM management. He says this is the case because equipment warranties expire at multiple times during any given fiscal year.
“You have to have the data required in order to make decisions on post warranty service options based upon multiple factors, such as equipment failures during the warranty period, parts costs, resourcefulness of your current service staff, availability of service training (if needed), availability and skill set of local ISOs and budget impact of simply continuing to use the OEM on either a time and material basis, or via service contract, if you are not in position to take on the risk of treating this new cost liability as a variable versus a fixed budget expense,” he says.
The Technology Edge
Computers and software have become such an integral part of a biomed shop that to operate efficiently without them would be very difficult. Knowing every device in the inventory, and updated information on that equipment, makes many decisions painless and routine.
“Our CMMS system is the root of my service program. We would have very serious issues if our system was down for any extended period of time,” Nolen says. “I have a pretty high bar for the expectations I put on our CMMS provider and they’ve worked hard to deliver for us. We totally rely on the system to generate PMs, hold our histories, and many other vital functions.”
“Your CMMS is one of your most important tools for the HTM. Your CMMS helps you determine your spend on your specific equipment modalities to help make the decision to train for in-house service, use third-party ISO or the OEM for service,” Braeutigam says.
“Data from your CMMS also helps you determine what your most problematic equipment is so you can review different ways to service it. We have the CMMS run automatic reports and email them to the staff that needs to see the reports. Several examples of this are PM completion, open work orders, unassigned work orders, metrics for goals and equipment inventory that has missing data,” he says.
Dickey agrees, the CMMS is indispensable.
“I could not effectively manage our program without it, especially as related to inventory and service data management components of our program,” Dickey says.
“Of equal importance, is the need for our CMMS system to support financial management issues. Since we centrally budget for all clinical departments equipment service, and we do not bill back our services to our clinical departments, the ability to generate and provide financial year-end cost allocation reports, which shows how much it cost to support each clinical department, is essential,” he adds.
He also says that the CMMS provides the ability to identify and track total service costs by equipment type; vendors versus in-house labor; equipment abuse trends, by department and equipment type.
Doing More with Less
Can you get blood from a stone? In health care, apparently, the best approach is to try. Resourceful thinking is the answer to challenging times. Experience is the best teacher and then searching for ideas, or coming up with a few of your own, will fill in the gaps. This is how HTM management stares down the fissure that divides the budget from available funding.
“You have to be creative on ways to cut cost without affecting service levels. You could approach this by looking at contracts first. Do you have contracts that you could convert to in-house or a third-party ISO? What about looking at the hours of service on the contracts? Maybe you don’t need 24×7 coverage but maybe just Monday through Friday from 8 a.m. to 5 p.m.,” Braeutigam says.
He suggests that maybe a department could convert some contracts to just time and material and save some money. He says that when budgets are tight, training and travel are typically cut.
“We had that happen recently, so we are doing more meetings via WebEx to save both time and travel (we have 22 hospitals). You can get creative on training and see if vendors can hold training classes locally, thus saving you meal, airline and hotel expenses. You can also have your staff, that are experts on certain equipment, train the rest of your staff. We have a continuing education meeting once a month to do just that,” Braeutigam adds.
In addition to finding cost-cutting measures in-house, there are times when outside resources earn their keep. Even the expediting of parts is an expense item that needs to be considered.
“For me, the secret is in the details. I am always looking for a new way to turn a penny into a nickel. I have recently taken a position that it’s more important to have a great relationship with a third-party ISO that can deliver on a broad spectrum of services than to piecemeal out to several companies,” Nolen says.
He says that this allows him to go to a trusted service partner and discuss financial issues and work with them to reduce overall cost on an annual basis.
“Another thing I really try to impact is shipping costs. These can get out of control very fast. It seems that every part needs to be ordered overnight if you don’t set some controls to prioritize this decision making,” Nolen adds.
In the HTM department, the COSR is a useful metric for discussing the budget with the C-suite.
“My CFOs understand the cost of service ratio concept, and I have always used this to help justify the annual budget. It is essential that when there is a net increase in the equipment cost base, everyone has to come to grips with the reality that the CE budget will flex by a COSR factor due to the change in the active equipment inventory value,” Dickey says.
“Justifying a budget increase to support an increasing equipment value, based upon a historical cost of service ratio becomes easier, especially when you have modality specific COSR data. What becomes key, is to be able to show that, while a HTM budget may be increasing from one year to another, the cost of service ratio is remaining stable. ‘Stop buying more equipment’ or ‘tell me what you don’t want us to fix’ becomes a standard answer to the HTM increasing expense question,” Dickey adds.
He says that this is the bottom line: If an in-house HTM program can provide required services at a COSR of five percent, and an ISO can provide it for seven percent, and an OEM for 10 percent, which budget increase is easier to justify to your CFO?
The health care environment, and the average HTM department, are both in flux. Leadership has found creative ways to address these new budgetary challenges using technology and time-tested strategic initiatives. Finding the balance between staffing levels, outside resources and periodic tweaks to budgetary line-items has allowed HTM to do its part in keeping patients safe and keeping the C-suite happy.
*By entering your email address, you agree to receive emails regarding TechNation Magazine, Webinars, and Exclusive Promos.
© 2020, TechNation Magazine. Site designed by MD Publishing, Inc.