By Joseph Haduch and Patrick Flaherty
The struggle for objectivity, transparency and basic engineering data between medical parts providers, historically dominated by the original equipment manufacturers (OEM), and clinical equipment service providers pre-dates all of us. The foundation of this dysfunctional relationship no doubt started around the time Roentgen replaced an X-ray tube for Madame Curie. Pity poor Marie, brilliant by all accounts, was no match for the nascent shell game soon to become the hallmark of clinical equipment manufacturers for the next century. Though she didn’t have a service contract, Mdm. Curie likely thought she negotiated a significant parts discounts just weeks earlier, only to be shocked when Roentgen, without cause or notification, increased his parts prices by 25%. Sound familiar? Perhaps Roentgen, in a burst of human kindness, offered her an additional discount but only if she would purchase two more rooms, commit to a minimum service spend and execute these commitments prior to the end of Roentgen’s Fiscal Quarter. Sound ridiculous? Fast forward 120 years and it’s the accepted norm, but no less ridiculous.
The relationship described above is self-evidently based on one-side dominating a buyer/seller relationship with no thought or attempt at collaborative and proportional contracting. Unfortunately, by the time that health care providers had consolidated enough to have economic leverage, their clinical equipment had fallen into its current trench. The primary tenets of this trench were fee-for-service (clearly this has been a driving force over time) and the commonplace use of the 510K process to continually introduce new equipment at premium prices with absolutely no systematic research evidence of material outcome (clinical and economic) benefit. In the early years of this era, parts were less of an issue as equipment turned over more consistently with the OEM’s seven-year replacement targets based on the simple equation of volume equals profitable revenue.
For a time, the mantra of diagnostic imaging marketeers was “throughput, throughput and throughput.” Even though parts performance and rational pricing was an issue for providers and a high-margin proposition for manufacturer’s then, it was not quite as apparent when volume, based on fee-for-service reimbursements, could cure everything and the only thing that mattered was the equipment turned-on when needed.
Fast-forward to 2020, the age of low- to no-margin providers, value-based penalties (only applied to providers), sky-rocketing personal financial responsibility for patients and a pandemic precipitated depression, and this fee-for-service based business model has become an oppressive yoke that threatens the very existence of many providers.
In the move to value-based health care and government and payer demanded material contraction of health care expenses (as charged by providers) providers had no choice but to maintain equipment for longer periods of time. In response, the manufacturers doubled-down on service, parts, and training monopolies, duopolies, and oligopolies to create a cartel-like environment which kept prices consistently high in order to drive high-margin revenue as an off-set to the decreased frequency of capital purchases. However, some of the blame for the ridiculous way we manage parts also lies with the service providers. Service providers have erroneously viewed parts from a service perspective, not from the perspective of the manufacturer. Given the high and increasingly higher economic pressure, for too many cost has always been king with little regard to availability, warranty, objective performance or equivalency, and predicted (and contracted) useful life. OEMs rigorously approach parts from a manufacturer’s perspective. What’s the difference? Manufacturers demand specific performance standards, with guarantees from their internal manufacturing teams as well as from the many sub-contracting manufacturing companies they use to produce parts and sub-assemblies. Manufacturers, in the interest of lowering costs, or increasing margins, try to use the same part across their entire inventory but for only as long as it is the best economic alternative, switching SKUs frequently enough within the large volume manufacturers to never produce a stable parts catalog. Manufacturers require their suppliers to transparently negotiate margin-based cost-plus pricing and are not willing to play the volume discount games they peddle as the exclusive purchase options to their customers. In an OEM’s world, engineering quality and performance is based on objective operational metrics defined by the manufacturer and includes contracted fulfillment rates and timelines; any defect caused by the OEM’s supplier will be paid for by that supplier, in contrast to the shifting of defect-related costs away from the OEM and to their customers (think recalls, cybersecurity, etc.). In order to fairly reorient the relationship between OEMs and providers, HTM professionals need to change their perspective when acquiring parts. In this regard they need to learn from their manufacturing colleagues and apply OEM best practices in parts acquisition and management.
All of the preceding is a foundation toward a future that should allow us to target the removal of as much of the labor-intensive preventative maintenance work and costs as possible as we migrate to the predictive failure approach used for so long by other complex equipment industries. In many non-medical industries parts performance is monitored individually and in combination and compared to a digital twin. A digital twin is a virtual duplicate of your device that performs to maximum engineering specifications. The performance of any given device is continuously measured against the virtual device to assure optimal performance, minimize downtime and identify opportunities for equipment improvement. Why is this technology missing from health care?
While we’re beginning to see some predictive tube monitoring solutions, the tens of thousands of other parts in your system are absent from any predictive process despite their performance being equally critical to the overall uptime of your device. Clearly the OEMs control the access to this kind of solution as well as the basic building blocks from which it grows … objective and transparent parts performance expectations. OEMs must stop focusing their collaborative efforts with the cartel goals of MITA and AdvaMed and start to practice the contracting transparency they demand from their suppliers.
Patrick Flaherty is the vice president of operations for UPMC BioTronics.
Joseph Haduch, MBA, MS, is the senior director of clinical engineering for UPMC BioTronics.
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