By K. Richard Douglas
In an age of tight budgets, funding cuts and costly regulations, health care organizations have to pinch pennies and make well-considered decisions about anything that impacts the bottom line.
That means that the C-suite is going to notice budgets and expenditures more than ever before.
The biomed department plays an important role in this endeavor, with input and expert insights into medical equipment management, the balancing of internal and external servicing and negotiations and agreements with vendors and OEMs.
One of the areas of equipment management oversight is contract management; both the level of contract services required versus in-house management and the negotiation of costs or contracts that must be implemented and maintained.
Like many undertakings, there is the surface appearance of approaching this endeavor and the more nuanced version of managing contracts that requires insights that are often overlooked.
Some of the considerations include coordination with clinical departments and physicians, methods for tracking contract life cycle and associated vendor forms, interactions with vendors and setting expectations and parameters, as well as considering areas of leverage.
Cost-Saving Considerations
Upsetting the apple cart can be a good thing. Changing the status quo can yield improvements, and in some cases, cut costs.
“An efficient contract management plan is the foundation to furthering efficiencies in other pillars of HTM; from operating and capital budgeting, cost-saving initiatives, capital refresh, staff training to cybersecurity assessment,” says Darwin Fontanares, MBA, CHTM, CBET, BSBMET, senior manager of IT/Biomedical Engineering at Stanford Health Care Tri-Valley in Pleasanton, California.
With the biomedical engineering department taking the lead on equipment management decisions, Fontanares says that his department was able to cut costs.
“Prior to 2018, medical equipment contract funding was spread across clinical areas on a distributed budget, where each department owned their contracts individually. Biomed suggested to our chief of finance that in order for our organization to make informed decisions on contractual medical device agreements, we recommended that the budget be consolidated into a single source biomed cost center,” he says.
Fontanares says that as subject matter experts, the biomedical engineering department would be the sole decision maker on optimizing medical equipment management plans by reducing costs, while increasing productivity.
“Within a year, we were able to save the organization hundreds of thousands of dollars by categorizing maintenance agreements as full-service versus PM-only contracts and by delegating service plans as OEM, third-party or in-house,” he explains.
Reviewing Vendor Performance
A framework for managing service contracts considers vendor assessment and evaluation, negotiations and workflows.
This topic was the focus of the fall 2022 MD Expo session, “Contract Management Techniques” presented by Brian Miller and Dean Skillicorn, CBET, CHTM.
The presentation covered the topics of negotiating agreements, building contract structures, analyzing the available data and understanding contracts and related information.
The presenters say that it is crucial to have data from the performance of your equipment to review what is in the contract compared to performance. Everything that is included in the contract should be clearly understood. They suggest that HTM take steps to ask vendors to bring more flexibility in contracting.
In addition to an intimate knowledge of the language of your service contracts, the presenters suggest knowing how your vendor is staffed, what geographical considerations impact availability and readiness and discussions at point of sale (POS).
They also say that the vendor is evaluating your organization as a whole. Some vendors provide products and services used in many departments.
Vendor review meetings should be a given with service contracts.
Skillicorn suggests that vendor review meetings occur at least annually depending on the volume of business that is being done with the vendor.
“High volume gets done quarterly, medium volume gets done semi-annually, and minimal volume annually. This really needs to be coordinated with the supply chain management division of the facility, not by HTM, IT or facility services. Supply chain management typically should be the center of vendor relations. Using this practice keeps the vendor at a distance to management situations with contracts and severe service issues,” he says.
Miller says that fleet management, balancing in-house and outsourced services and gathering and leveraging the correct data in equipment management is one of the pillars of a well-run health care organization.
With regard to vendor meetings, he says that they should be held regularly with a defined cadence appropriate to the equipment’s redundancy (or quantity) within the facility, frequency of usage, it’s criticality to patient care, revenue generating potential, it’s acquisition cost and/or service agreement cost, its historical reliability and the power of the clinical users.
“Also, the in-house personnel need to collect and bring their own data, end-user feedback, etcetera to these meetings to align with the vendor’s data,” Miller adds.
What happens if it appears that the vendor is underperforming in its obligations?
“Does the vendor’s performance meet their agreement’s terms and conditions? If yes, renegotiate to include your terms. If no, escalate the issue to the vendor’s executives and micromanage the vendor until performance improves, while also looking for an alternative vendor, transition to in-house service delivery and note for future equipment replacement discussions,” Miller says.
He says to also document and report everything and share a summary with the clinical care team; ensuring everyone on your team is aware of the issue(s) and resolution.
HTM should have information in-hand during these vendor performance meetings to be prepared and make the meetings as constructive as possible.
“Use work order records generated by the health care organization’s computerized maintenance management system (CMMS) and those from the vendor. Hopefully both sets include pertinent date and time logs, parts details, test equipment details and personnel involved. I recommend the vendor provide their data in advance of the meeting so it can be reviewed, and questions prepared to make the meeting more productive,” Miller says.
Tracking and Monitoring Guidance
It’s one thing to embrace contract management ideas and another to effectively implement a means to track every component that impacts decisions. The Stanford Health biomed team developed an efficient approach to tracking all important aspects using a software as a service (SaaS) approach that allows for collaboration and capturing several relevant data points.
“Creating a master-list spreadsheet through Smartsheet helped create quick accessibility to full oversight of all biomed contracts. Data point columns include the manufacturer, model, serial numbers, start and end dates, length of term, aggregate cost, annual cost, monthly cost, full-service versus PM only, network integration, MediTract # (live link to contract database), ITS # (PO requisition tracking), invoice frequency and overall contract approval stage status,” Fontanares says.
He says that furthermore, for each line item, they embed a “comments quick-link” to document important granular details, such as vendor contacts, internal contract administrator personnel, purchasing specialists assigned to the contract, special amendment requests and unique terms and conditions.
“At any given moment, we can provide a substantial status update to clinical staff administration, and vendors alike,” Fontanares says.
He says that the data can be streamlined through filters and pivot tables that would assist in making informed decisions on budget forecasting, determining what can be converted to third-party or in-house service from OEM and opportunities for biomed staff training to contribute to overall cost-savings.
“Also, by having full oversight of the portfolio of contracts per vendor, it provides leverage on negotiating additional discounts. The Smartsheet can also assist with managing devices that integrate with both the hospital network and vendor networks to ensure appropriate security assessments are compliant. It also serves as a digital dashboard to keep track of receiving vendor invoices in a timely manner to ensure Biomed is on track with accurate operating costs each month. Keeping track of the length of terms also assists with forecasting and creating spend-plan roadmaps for capital refresh as technologies evolve,” Fontanares says.
He says that aside from all the aforementioned benefits of strategic contract planning, this body of work helps translate to the executive administration that HTM is more than just a cost-spending department; the biomed department can show its added value to the organization and enterprise as a whole that it is also a cost-saving center.
Strategic Leveraging
The vendor, by no means, holds all the cards in negotiations. There are incentives that HTM can propose to incentivize the vendor to adopt to more of HTM’s terms.
“Leverage examples include (A) an upcoming equipment purchase at the health care organization that the vendor would like to participate in, (B) the current vendor’s service agreement expires in less than one year, (C) the vendor has multiple equipment items and/or multiple different service agreements throughout the health care organization that you can combine into one,” Miller suggests.
He says that even before leveraging any of these, ask for your terms to be included as the vendor might be agreeable.
“Most large organizations will respond that their terms and conditions are boilerplate, standard, etcetera, however, everything is negotiable. Meet with the clinical care team (end-users), purchasing/supply chain, etc. and determine what terms are needed, then prioritize them and assign a value to each; making it a business discussion with your vendor,” Miller says.
It is at the point of sale that the buyer holds the most leverage. The OEM is most willing to listen to requests at this moment in order to close a sale. What should HTM, or those who HTM is advising, be focused on at this important meeting?
“It’s about price and response; especially, if the equipment or its technology is new to the marketplace. The equipment sale closing is always paramount to the point of sale (POS) service agreement; so, you must communicate and strategize with the clinical champion, who wants the equipment, to make sure you are both on the same page,” Miller suggests.
He says that the goals are to get the equipment, at the lowest price, with the best service coverage and come in under the capital and operational budget (i.e., make the CFO happy).
“If the equipment is ubiquitous in the marketplace, obtain competitive service agreement quotes from [an] ISO or multi-vendor service organizations,” Miller adds.
Leverage can also be exercised at the point when a vendor’s system or equipment is not performing up to expectations, unresolved service issues or when it compromises patient care. This is when a “make-right” structure is considered.
Skillicorn says that the make-right should be routed through supply chain management (SCM) as it controls the vendor relationship.
“SCM should bring everyone to the table and openly discuss the issues internally in the organization with all stakeholders. Once that happens, then the vendor is brought in to discuss. The key to this is management of users/clinicians/physicians from running directly to the vendor and making demands that may or may not be supported by the organization at a higher level. Centralizing this through SCM contains the emotional side on interactions with the vendor. When this process is followed, it removes emotions, politics and potential threats to business operations,” he says.
Because these negotiations involve equipment used by clinicians, the input of those clinicians is important to the process. The problem may arise that the clinicians are not “business people.”
Many physicians have experience in the ownership of practices and have learned many business principles, but others are simply focused on medicine.
How does HTM communicate with clinicians regarding contract negotiations and expectations?
“It depends on the clinician. Some wish to learn and be educated on the business of equipment and managed or direct service, while others just want it fixed and are not interested in the details,” Miller says.
He added that he believes the best way to communicate with the clinical team is to understand their workflow, issues, etcetera before there is a problem.
“Find their pain points, log jams, historical issues with specific equipment, process of reporting service issues, etcetera, and you will likely learn you speak different languages, but the goals are the same: resolving the problem quickly with clear communication. Then, lay out a plan to ensure they get what they want: functioning, reliable equipment and systems,” Miller suggests.
With these considerations, contract management and negotiations can prove to be an area of cost savings, increased vendor performance and concise tracking, increasing the HTM department’s value even more.
