Hospital COOs or CFOs frequently ask if there are practical benchmark metrics to assess whether their equipment service costs are appropriate. Frustration about increasing costs or acquisition costs of new technology, often not planned for by administrators, is becoming more common. Even biomedical leaders in hospitals struggle to explain the underlying problems in determining metrics. Though functional cost standards for the clinical engineering sector do not exist, there is a process to help identify opportunities.
The metrics used in biomedical and imaging services tend to trigger more questions, thus requiring guidance from knowledgeable service professionals to resolve. It can be misleading to apply any policies without understanding the issues with the data used to develop them. Service companies would prefer a simple way to employ a universal standard that could reduce their cost of sales significantly. Most reliable service companies will only bid business after a service engineer performs a preliminary onsite review, since there is no single, trusted metric to produce a bid. There is a combination of measures that can be reviewed, depending on what the hospital’s operations look like.
Why is it so difficult to institute reliable biomedical service cost metrics?
First, it is challenging to compare biomedical departments. The scope of equipment service covered by individual biomedical departments varies widely from one hospital to another. Some programs include imaging equipment and some cover beds, whereas others don’t encompass ventilations or anesthesia. The variations are endless. Since there is no common scope and each department is different, they each involve different labor requirements, inventories, and ultimately cost.
Also, the cost for service is usually not centralized, therefore not transparent. Imaging service contracts (time and material expense) are the responsibility of the imaging department. So, if surveying hospital CFOs, they might identify only a segment of the total annual service costs.
A compelling study was published in the January/March 2008 issue of the Journal of Clinical Engineering, titled “Clinical Engineering Benchmarking: An Analysis of American Acute Care Hospitals”.1 This review used data from 253 hospitals, looking for indicators that were statistically valid and useful for measuring, monitoring, and improving performance. Though there were some interesting findings, the authors report, “each indicator should not be used individually for precise benchmarking.”
Hospital clinical engineering budgets often comprise approximately 0.5% of the total hospital operating budget. (This indicator is valuable and often used by accounting consulting firms; however, the manner in which it is implemented can be problematic.) Another highly contested metric is the ratio of clinical engineering expense to total equipment acquisition cost, which may be approximately 4%. Unfortunately, most hospitals may not have their equipment acquisition costs easily available.
Hospital decision makers may accept sales pitches promising to provide service for 20% less if able to establish the hospital’s true cost (which is not the same as the hospital’s established true cost). So, the hospital takes the 0.5% of its operating budget and reduces it by 20%, thereby formulating the current clinical engineering department budget—without a plan or sense of how to get there. Eventually this non-strategic budgeting tactic will negatively impact performance.
This approach is an enormous risk since the hospital didn’t accurately establish its existing cost, examine accessible resources and service options, and work with industry professionals to develop a management plan. In order to achieve true program improvement and cost reductions, regardless of the high-level metrics, it is important to review total cost of service including labor, service contracts, time and material, as well as cost to operate the in-house option.
By partnering with a clinical engineering professional with experience in the service industry, the hospital can correctly and efficiently identify baseline costs and uncover true opportunities to improve outcomes, including financial performance. The challenge is analyzing the complete equipment and imaging service picture, as well as keeping the staffing and specific service alternatives in context with the hospital’s geographical region. Most importantly, with the right partnership, these studies will be used to develop a plan, make changes, and generate attainable, sustainable- improvements.
The Soriant team features expertise in clinical engineering, offering a collaborative approach and providing exceptional service. To learn more about Soriant’s capabilities, please contact us.
1. Wang B, Eliason RW, Richards SM, Hertzler LW, Koenigshof S. Clinical Engineering Benchmarking: An Analysis of American Acute Care Hospitals. Journal of Clinical Engineering. January/March 2008;33(1):24-27.