In-house vs. Out-sourced Clinical Engineering David M. Dickey, CHC, CCE Corporate Director, McLaren Health Care Clinical Engineering Services

Disclaimer/Transparency I do have a biased opinion! I do have a biased opinion! 30+ years managing in-house clinical engineering programs 30+ years managing in-house clinical engineering programs Currently Corporate Director CE McLaren Health Care Currently Corporate Director CE McLaren Health Care 15+ years clinical engineering consulting (Medical Technology Management., Inc.) years clinical engineering consulting (Medical Technology Management., Inc.) Practice area focus is in creating and/or expansion of CE programs Practice area focus is in creating and/or expansion of CE programs Conversion of out-sourced programs to in-house Conversion of out-sourced programs to in-house Having been in this profession for my entire career, I know a lot of CE professionals that have gone both ways, switching back and forth as needed Having been in this profession for my entire career, I know a lot of CE professionals that have gone both ways, switching back and forth as needed

I do agree Out-sourced programs may make sense for smaller hospitals, < beds, especially if they are not part of a larger system with internal CE resources Out-sourced programs may make sense for smaller hospitals, < beds, especially if they are not part of a larger system with internal CE resources Not all in-house, or out-sourced, programs are created equal Not all in-house, or out-sourced, programs are created equal Common factors that impact degree of success Common factors that impact degree of success Quality and education of the staff Quality and education of the staff Resources Resources Administrative support Administrative support Fix it shop vs. a professional service…what are the needs? Fix it shop vs. a professional service…what are the needs? Either type of program is doomed for failure if the program delivered does not fit the needs and expectations of the organization! Either type of program is doomed for failure if the program delivered does not fit the needs and expectations of the organization! Neither are free Neither are free

Top Ten+ Differences In-HouseOut-Sourced Services provided at cost, no mark up Services provided at cost + margin

Top Ten+ Differences In-House Out-Sourced Parts credits contribute to hospital's bottom line Parts credits contribute to vendor's bottom line* *if the hospital purchased the asset, then, technically, the parts credit belongs to them!

Top Ten+ Differences In-HouseOut-Sourced COSR on a well developed program run at 4- 5% COSR can be at 7-15% +

Top Ten+ Differences In-House Out-Sourced Cost savings as a result of parts shopping and negotiated discounts lower CE program budget Cost savings as a result of parts shopping and negotiated discounts improve vendor profit margin

Top Ten+ Differences In-House Out-Sourced CE staff committed to one organization CE staff need to be committed to two organizations

Top Ten+ Differences In-House Out-Sourced Added value services, such as projects, done at cost Added value services, such as projects, may be provided at additional cost

Top Ten+ Differences In-House Out-Sourced Software and data owned by hospital Software and data may be owned by vendor

Top Ten+ Differences In-House Out-Sourced Hospital in charge of cash flow to the vendors Vendor in charge of cash flow to the vendors

Top Ten+ Differences In-House Out-Sourced Concerning the variable portion of program budget, the hospital only pays for equipment that actually gets services (parts and vendor services) Hospital pays full amount of variable expense throughout the year, regardless of when/if device fails. Vendor makes extra margin on equipment with low failure rates or not in use.

Top Ten+ Differences In-House Out-Sourced No conflict of interest Potential conflict of interest if the provider also sells equipment

Top Ten+ Differences In-House Out-Sourced Hospital in control over parts and labor sources, and can easily switch if quality becomes an issue. Provider in control over parts and labor sources. Hospital have to fight for change.

Top Ten+ Differences In-House Out-Sourced Every $100k in savings offsets need to collect 100% on $3.3 m in patient charges, if hospitals net operating margin is 3# Every $100k in savings contributes to profit margin of the provider

Example of cash impact if you outsource If inventory is $290,000,000 If inventory is $290,000,000 COSR = 4.7% Budget is then $13,630,000 COSR = 4.7% Budget is then $13,630,000 Outsource to a provide that has 20% profit margin, cost now becomes $16,356,000 (COSR now 5.6%) Outsource to a provide that has 20% profit margin, cost now becomes $16,356,000 (COSR now 5.6%) If hospitals net annual operating margin is 2%, the additional $s paid needs to be made up by the hospital collection of 100% on $13,630,000 of patient charges! If hospitals net annual operating margin is 2%, the additional $s paid needs to be made up by the hospital collection of 100% on $13,630,000 of patient charges!

Top Ten+ Differences In-House Out-Sourced Hospital maintains control over staffing levels and assignments Provider maintains control over staffing levels and assignments

Top Ten+ Differences In-house Out-Sourced Expansion of duties provides endless opportunities to add value and save $ (i.e., IT clinical system systems management) Expansion of duties provides endless opportunities for additional revenue

Top Ten+ Differences In-House Out-sourced Hospital fully responsible and liable for negative outcomes and related damages, if any Hospital fully responsible and liable for negative outcomes and related damages, if any, but at least now has someone else to share the blame

Issues of concern when converting to in-house from out-sourced program Software CMMS and data conversions Software CMMS and data conversions Test equipment and tools Test equipment and tools Manuals Manuals Over due PMs and CMs wip credits Over due PMs and CMs wip credits Staffing and ability to hire providers staff Staffing and ability to hire providers staff Contracts and OEM discounts Contracts and OEM discounts Policies and procedures Policies and procedures Clerical and call center support Clerical and call center support Clinical engineering expertise Clinical engineering expertise Three to six months lead time Three to six months lead time

In order to convert to an in-house model Develop a business plan (three years), based on cost and quality Develop a business plan (three years), based on cost and quality Set realistic goals and expectations Set realistic goals and expectations Consolidate all service budgets into one Consolidate all service budgets into one Include contract/vendor management services Include contract/vendor management services Start with general biomedical equipment support Start with general biomedical equipment support Plan for expansion into service of ultrasound; sterilization; imaging; cath lab; clinical lab; radiation oncology; surgical instrument mgt. Plan for expansion into service of ultrasound; sterilization; imaging; cath lab; clinical lab; radiation oncology; surgical instrument mgt.

If you have an out-sourced program Perform bi-annual assessment of equipment actually serviced, PM or CM, and remove from inventory items never seen, to lower your program contract cost Perform bi-annual assessment of equipment actually serviced, PM or CM, and remove from inventory items never seen, to lower your program contract cost Read your contract and verify deliverables are being delivered Read your contract and verify deliverables are being delivered Negotiate the margin, full disclosure of all costs Negotiate the margin, full disclosure of all costs If vendor gets credits for parts returned, it should be credited back to the hospital If vendor gets credits for parts returned, it should be credited back to the hospital Mandate full staffing levels. If not met, get credit Mandate full staffing levels. If not met, get credit Mandate credits for PMs not done on time Mandate credits for PMs not done on time Obtain quarterly downloads (Excel format) of inventory and work histories Obtain quarterly downloads (Excel format) of inventory and work histories Consider getting help…call me when you are ready to save money! Consider getting help…call me when you are ready to save money!