Closer eye on equipment services may net savings

Healthcare Purchasing News, Sept, 2000 by Todd Shields

As hospitals struggle to do more with less funding and reduced staff, material managers hardly need to grapple with extra invoices for equipment repairs.

So imagine the relief a Missouri purchasing director felt when an equipment managing company saved the hospital $4,100. The reason? The company discovered the facility had been billed twice to replace a circuit board on a portable C-arm. In Illinois, it was discovered that a medical center was sent three payment notices for one repair -- a $7,850 overcharge.

These savings, and others totaling hundreds of thousands of dollars for healthcare providers, were found by one consulting company alone.

Using a multiplier effect, there are potentially millions of dollars to be saved through better management of equipment services in the hospital industry, some experts say.

"Hospitals just don't seem to have staffs who can appropriately review bills for double and sometimes triplicate billing," said Dan O'Neill, vice president of support services at U.S. Counseling Services, a 30-year-old business in Brookfield, WI, that employs more than 150.

"And either material managers are too busy to track multiple billing or service records for equipment outside his department are not kept up. Over billing for the reoccurring repair is the most common error we catch."

He said his company audits repair invoices and service records of equipment manufacturers to provide a checks-and-balances system that usually proves effective.

Tim Folk, director of material management for Dakota Heartland Health Systems, Fargo, ND, said executives of his parent company, Paracelsus Healthcare, Houston, preferred a single vendor to organize an equipment-maintenance program.

"They [the consultant groups] have in-depth knowledge of hospital equipment that we don't possess," Folk said. "We've started a preventative maintenance program that will cost us less."

'Interesting' concept

The director of contracting and purchased services at St. Joseph Health System, Petaluma, CA, explained that material managers initially participate in contract negotiations, but individual medical departments oversee their actual execution.

"There's never been a good mechanism for implementing whole contracts because managers often don't read every term or know exactly when warranties expire," said St. Joseph's Laurie Clayton.

"Auditing contracts is a new and interesting concept, especially since negotiating contracts in general has been decentralized."

An equipment management consultant can typically eliminate a vendor's service contract by guaranteeing a hospital a 150/0 to 20% savings. U.S. Counseling Services, for example, eschews signing contracts that bind a hospital to a year's service regardless of breakdowns in favor of using a "time and materials" management technique in which services are performed on a pay-per-visit basis.

Unnecessary charges found

An equipment management company tracks warranties to ensure original equipment manufacturers are fulfilling agreements. Common mistakes found are charges for repairs that were under warranty and replacement of parts for unnecessary maintenance.

Sometimes, old parts such as electronic circuit boards are taken out and resold, yet their selling price is not figured into lowering the cost of its new replacement.

Other times, a contract will expire, but a vendor will continue billing in the belief that the equipment remains under an ongoing maintenance agreement. And with hundreds of devices and machines to account for, it's not unusual for portable pieces to leave a facility -- yet hospitals still pay for service contracts for them.

Sometimes vigilance by the provider might head off problems.

A principal of Healthcare Connect, a division of Consultant Connections in New York City, said contract auditing may help material managers scrutinize equipment service. But, she added, she had not encountered any warranty problems while she was material manager of a seven-hospital system in New York.

"We had our internal bioengineering group review completed work," explained Joanne Foulke, "and found [original equipment manufacturer] parts used and good workmanship."