Amid the vertical integration of parts, sales, and service providers, and greater consolidation in the hospital space, both ends of the customer relationship have tightened in the past decade-plus. Over time, original equipment manufacturers (OEMs) have moved to recapture market share ceded to third-party providers as hospitals, operating at razor-thin margins amid shrinking reimbursement rates and uncertainty in the insurance space, clench every penny.
Amid this tension are the people who procure, operate, maintain and repair the medical equipment that patients encounter in the course of treatment. They’re the ones tasked with keeping devices online, keeping patients safe, achieving clinical goals and mitigating snags that interrupt the flow of business. To do all that requires a delicate negotiation of multiple, competing interests at high organizational levels while juggling simultaneously the impact of external forces from equipment vendors and the market pressures that motivate it all.
For years, those circumstances have more than occasionally placed vendors at odds with their customers, as each tries to carve out more favorable terms of a purchasing or service agreement. But must these deals be a zero-sum game? In a world of diminishing financial resources and undiminished needs, both parties should be looking to move beyond the dichotomy of friend-or-foe relationships, said Chris Nowak, senior director of healthcare technology management for Universal Health Services Inc.
To Nowak, what ought to be a mutually beneficial arrangement between customers and the manufacturers who retail and service their products has been complicated by financial and management pressures that distort the working relationship between the parties. “Worship[ing] at the altar of ‘bean counting’ versus relationship development” is largely to blame, in his eyes.
“It is important for any business relationship to have a win-win component for the organizations involved,” Nowak said. “Unfortunately, I hear from some of my peers that think the business relationship with OEMs, parts suppliers, service providers and even the clinical staff is a contest to see how much they can get away with from the other party. This attitude is certainly disappointing.”
At the core of the relationship ought to be the “non-negotiable, mutual interest” of both parties in doing what’s best for patients who will receive care at the facilities involved. To Nowak, “patient safety and patient experience is tantamount to a successful relationship with me and my program.”
“As long as each of us in the relationship have those patient goals in mind, then typically we are both successful,” Nowak said. “The company makes profit, and my company saves money (we make money, too), and the patient wins!”
Even not-for-profit health care providers share similar goals: make enough to sustain their operations; invest in talent development, facilities and equipment; and provide a high level of service for patients. To achieve those ends, everyone involved in the process must contribute to the development of those relationships, cultivating opportunities for mutual successes, rather than gains for one side that come at the expense of those on the other.
“The ultimate ‘winner’ of a win-win relationship between the OEM and hospital/patient care provider is the patient,” Nowak said. “Getting to the win-win relationship puts to bed those notions of the ‘Age of Me’ and yields to the ‘Era of We.’ ”
To Rick Walston, the regional director of clinical engineering for Adventist Health, OEMs “can be your best friend or your worst enemy” depending upon their approach to that relationship.
“Some of them are very good at working with you, and some of them are very good at getting in your way,” Walston said. “I’m not sure why they decide to be one way or the other, and it seems to change. The companies that wouldn’t work with you in the past will work with you now, and vice-versa.”
Certain manufacturers Walston encounters “consistently will not work with us,” he said, whereas others “have figured out that partnering with an in-house department can be beneficial to both parties.”
“If they provide us with training and access to technical resources, we have the desire to take on these kinds of repairs for ourselves,” Walston said. “We can do it quickly and cheaply, and then don’t have to have as many people on staff.”
To Walston, vendor flexibility in accessing technical training, diagnostic software and technical publications is what matters most to his department. Those resources “let us be self-sufficient,” a top priority for his department, “and provide us the support when we can’t do it ourselves.”
“Those vendors are our best friends,” Walston said.
Vendors who are less friendly, in his eyes, include those who “won’t give you the same training as their techs, won’t give you technical publications, and go so far as to charge you for technical support on the phone,” Walston said. “We as biomeds won’t recommend their equipment for purchase.”
Access to technical training, diagnostic software, and supporting documents enables the success of in-house teams, Walston said. He describes those agreements as “empowering” to the health system, but also to the OEMs themselves, as they allow manufacturers to reduce their service workforce or limit the scope and nature of their customer engagement.
“They just help us with the tools we need to do the job,” he said.
Without the closer interaction of a supportive vendor partner, hospital customers like Walston’s and Nowak’s employers are bound by the strictures of agreements that are more difficult to work within. It can mean the difference between being able to address problems in-house or needing to reach out to OEMs at “exorbitantly high labor rate[s],” sometimes even for remote technical and diagnostic support. If a vendor charges restocking fees, those costs can be compounded when misdiagnosed problems lead to the wrong parts being ordered. “Hero kits,” which contain a variety of replacement parts, of which only one or a few may be needed to solve a specific problem, are a potential opportunity on this front – but again, Walston said, vendor agreements are highly variable.
“Restocking fees can be significant,” he said. “If you’re purchasing a $250,000 CT tube, it might be 20 percent. The companies that will work with you will help you diagnose [the problem]; those that don’t, you’re on your own.”
For circumstances in which the terms of the deals aren’t so favorable to the in-house team, Walston said purchasers will rely heavily on third-party parts, sales and service providers, which puts more pressure on the OEM.
“I know in one case that [the OEM] found out we should have been buying more parts from them, but we’d been buying from a third party,” he said. “They came and gave us a deeper discount on parts to try to win back that business from the third party. It depends on the amount of discount and what other options we have.”
Conversely, Walston said, manufacturers that discover they’re competing with other providers as part of a multi-vendor service agreement might double down on demands at the negotiating table. Some even view in-house tech teams as competition, which Walston said is even more challenging to handle, and can result in difficulties securing training and documentation. About the only remaining opportunity for departments looking to lock down the terms of a mutually beneficial agreement is at the time of equipment purchase.
“We have a voice at the table when it comes to recommending which equipment to buy, and we always recommend the companies who will work with us,” Walston said. “But we are just one part of the decision. We don’t hold all the power.”
If clinicians want a certain device for its technical functions, “they’ll buy that, and we’ll figure out how to support it,” he said. But those types of purchases don’t always return the best terms based on total cost of ownership (TCO), which includes variables like service costs, technical documents and replacement parts.
“At the end of the day, all factors have to be weighed in, and clinical needs outweigh TCO sometimes,” Walston said. “If that device stays in your hospital 20 years, you’ve got an even higher cost of ownership.”
One of the only other points of leverage that some multi-hospital systems may have is group purchasing negotiations. With the opportunity of selling (and servicing) more devices, OEMs may offer more favorable pricing and maintenance terms for those customers willing to embrace brand alignment, Walston said.
“Our corporation likes to sign exclusive deals with preferred vendors of certain devices,” he said. “So a company that works with us is more likely to be considered as sole-source, which would mean more revenue for them on equipment sales.”
“But not one vendor has the best option for every service line, so we have to work with all of them,” he said. “We want a partner, not a vendor; when you take on the role of an adversary, you don’t get your products recommended for purchase.”
Walston said he and his staff are candid with sales representatives as to why and whether they’ll recommend their equipment for purchase; beyond training and parts costs, his top priority is being able to service the equipment to a high standard using in-house tools and technicians. When those terms can be met, that’s what he considers “a win-win.”
OEMs haven’t turned a deaf ear to that kind of customer feedback, either. According to Andrea Hearn, service marketing manager for Canon Medical Systems USA, the company has enjoyed “a history of having a closeness with our customers” that, to her, allows the company to understand “their needs, their goals, their relationship to the community.”
“Our goal is reaching the goals of a physician and medical center together to keep that instrument up and running,” Hearn said. “Patient safety is of the utmost importance. How can we support it as a true partner?”
That shared partnership involves a keen anticipation of customer needs, and a sense of shared responsibilities in working toward the solution that is best for patient outcomes, Hearn said. Canon (formerly Toshiba) “spares no cost as far as being close” to its customers, she said; the company is willing to “provide whatever the customer needs to lower the service cost.”
“For the in-house teams, we have partnership agreements with a risk-sharing solution,” Hearn said. “If a customer wants to take on more risk and reduce cost, we can accommodate that with a different service agreement.”
Hearn also said that Canon Medical has espoused a service and support perspective with a “100-percent guarantee” for customer application training and support. The company seeks to distinguish itself from competitors by offering in-house technicians access to training identical to that which its own technicians receive.
“If you enrolled in a performance pro training agreement, you’re going to get trained, and you’re going to get a facilitator, and if you feel like you need more training, we will come out and supply that without any charge,” Hearn said.
“We do hear that sometimes there is some nickel-and-diming going on in the industry, particularly in regards to training,” she said. “We want to stand out because this is our philosophy. We want to be their partner and provide a solution without waving bills in front of them. I don’t think you’ll find any OEM as close with parts depots and people in the field.”
To Hearn, some of those “nickel-and-dime” philosophies that degrade customer relationships, such as restocking fees, “are a symptom of a relationship not working.” Repairing those relationships and restoring trust in such circumstances often involves keeping a weather eye on how they might evolve in the future.
“This relationship over time is beneficial to both [parties],” Hearn said. “In service, we always believe that if you understand your customers’ needs, you deliver the service they need. That means you also have to look into the future and see what innovations are there to supply to the customer to make that relationship easier.”
“What can we do to ease that relationship and work with our customers in a more effective way but still make them feel valued and comfortable in this relationship?” she said. “A partner is someone who can anticipate your needs not only on a daily basis, but also long-term. I believe that Canon has this personal touch and this personal commitment to our customers, and they live it here day by day.”
GE Healthcare, too, has made “significant investments to support in-house teams” in the past decade, said Aaron Goryl, its general manager of healthcare technology management and on-demand development.
These include hiring regional Healthcare Technology Management (HTM) Development Leaders, expanding its “parts and concierge” staff, and creating supports specifically aimed at “the evolving needs” of in-house service teams, Goryl said. The company is also working to expand in-house teams’ access to its diagnostic and remote-service applications and VR and simulator training.
“GE Healthcare wants to enable our in-house clients to be effective and efficient at working on GE Healthcare equipment,” Goryl said. “Every HTM program, like a fingerprint, is unique, which means there is no one-size-fits-all solution. Whether a customer wants to solve for risk exposure (parts, back-up labor) through service-level agreements, or an experience that is treated like on-demand service, we can offer that flexibility.”
Goryl said GE Healthcare “has been applying significant energy and investment” into its in-house technology management segment in order to provide the kind of win-win arrangement vendors and their clients need to work together productively.
“Our focus is on building an environment that includes honesty and transparency, where intent is to do the right thing, and we work together to solve real, root-cause problems,” he said. “Then we have a recipe for success and a model that can evolve to meet new challenges and needs.”