How to Get a Great Service Contract


You don't have to pay an arm and a leg to maximize uptime and protect your investment in capital equipment.

Look around your facility, and it's easy to spot the equipment that must be functioning in order for you to do cases. OR lights. Tables. Sterilizers. Microscopes. C-Arms. Endoscopes. Laparoscopes. You'd shudder to think how much revenue you'd lose and how much grief you'd catch if any of this equipment broke down and couldn't be repaired.

When it comes to buying capital equipment, you spend hours wrestling with options big and small: price, features, size, even color. But what about protecting your investments after the sale by negotiating a service contract? If you're like many facility managers, you give little thought to how you'll maintain and service your equipment once the original warranties expire. This can be a big mistake. Just ask Melissa Reece, RN, MSN, MBA, the director of the Cedar Laser & Surgery Center in Tacoma, Wash.

"When my ASC was built three years ago, we placed no thought at all on maintenance and service of capital equipment. The ASC planners never mentioned maintenance when recommending equipment and once development was under way, I was overwhelmed by other priorities," she says.

Today more than ever, owners and operators of surgery centers are thinking about maintenance and service of capital equipment on the front end. "The buyers are becoming more sophisticated. They understand how critical their equipment is to their operations. And equipment manufacturers are taking time to educate them about overall lifecycle costs rather than just the acquisition of the equipment," says Greg Blackmore, vice president and general manager of services for Steris Corp.

We asked administrators and manufacturers for their best tips for getting a great capital equipment service contract. Here are some ideas to consider.

Make the service contract part of the capital acquisition
The best time to negotiate a service contract? At the same time you purchase the system. "This will lock in a better rate and guarantee uninterrupted service for the system," says Marion Meusel, service product manager for Siemens Medical Solutions in Cary, N.C.

Plus, this is the time you have the most leverage for both equipment and related service coverage. "Salespeople can often greatly reduce contract cost or even provide complimentary maintenance or service in order to secure a sale," says Ms. Reece.

Finally, include service costs as part of the overall equipment price comparison and cost analysis when making purchasing decisions during the competitive bid process, says Don Fox, the director of purchasing and materials management at Nueterra Healthcare.

Protect your essential equipment
Essential equipment must be functioning for you to perform surgery. Examples include electrocautery machines, ventilators, life safety, infection control and imaging equipment. They need service contracts. Non-essential equipment is necessary, but business could continue without it, such as computer terminals or backup machines. "I don't have a service contract for our two-year-old back-up phaco since it is rarely used and significantly cheaper to service as needed," says Ms. Reece.

How much revenue will you lose if a piece of equipment is down for long? "With capital items, backup equipment is not always readily available," says Sarah Martin, RN, BS, an administrative consultant with Solus Management Services in Memphis, Tenn. "A good service contract will make you a priority when repairs are needed."

With less technical pieces of equipment, it will probably be safe to have a preventative maintenance contract only. Another option is to cover the equipment for one year, then leave it uncovered for one year - usually a good solution for newer equipment without a history of frequent repairs.

Astronomical Repair Bills? Think Service Contract

When Darcy Thor was done working the numbers, she was amazed to discover that her facility had spent $65,000 to repair its 11 endoscopes in one 18-month stretch.

"The repair costs were astronomical," says Ms. Thor, the senior accountant at the Harmony Ambulatory Surgery Center. "We could have bought new scopes rather than continuing to repair them."

That's just what the four-year-old facility in Fort Collins, Colo., did: Buy new scopes. Only this time, those new scopes came with service contracts to keep the equipment out of the repairman's hands and in the surgeon's. Harmony is charged $8.34 for preventive maintenance and repair each time it uses a scope for the next three years under the terms of a per-procedure arrangement negotiated with its vendor.

Harmony's story may ring true with you. Surgeons were using the scopes more than anyone had anticipated and the scopes were breaking down more than anyone had imagined.

"They were in for repair more than we were able to use them," says Lynn Schermerhorn, LPN, CGN, the head technician at Harmony. "Everybody depends on me to keep the equipment up and running. The docs don't care if I'm having equipment problems. They want to do their cases. And I have to provide the equipment to them. Everybody's depending on me so it's very nice to have somebody to depend on. That's what having a service contract is like."

Once Harmony decided on a service contract, it traded in its old scopes for $2,000 apiece and negotiated a three-year cost-per-case agreement with Olympus. The deal is based on 9,000 endoscopic procedures and covers 11 scopes, two Medivators and repair and maintenance on all 13 pieces of equipment - acquired, it's worth noting, without a huge capital outlay.

Taken together, Harmony is paying $30.94 per GI procedure. Of that, $8.34 goes toward the service contract, which includes on-site loaners, paid express shipping and, perhaps most important, peace of mind.

"It's not a question of 'Oh my gosh, the scope broke. How many thousands of dollars is this going to be?' It's not. It's $8.34 per procedure," says Ms. Thor.

- Dan O'Connor

Buy the right level of service
Many equipment manufacturers offer a tiered menu of service options, from full coverage (parts, labor, travel and scheduled preventive maintenance checks) down to a more basic parts-and-labor-only service coverage. A full-coverage imaging equipment service agreement can be as much as 30 percent of system list price with glassware (tube replacement) included if negotiated on a multi-year basis, says Mr. Fox. When purchasing a C-arm, do you want to have full coverage to include glassware, or are you willing to take a risk and have a preventive maintenance contract only? "This would mean you'd be responsible for all service calls outside of the preventive maintenance agreement as well as parts and labor hours, which frequently include travel time," says Ms. Martin.

There's a 40 percent difference in Steris's tiered set of offerings, from a full-service agreement that covers both periodic maintenance as well as repair maintenance (parts and labor) and unscheduled outages to an in-house maintenance program that covers only labor for planned inspections. A platinum level agreement (parts and labor, both preventative maintenance and repair) on an Amsco 3085 surgical table lists for $1,138 per year. A bronze program (labor only for planned inspection) lists for $949.

Negotiate price breaks
Negotiating a service agreement on a year-to-year basis rather than on a multi-year basis could end up costing as much as 15 percent more per year of coverage, says Mr. Fox. Ask the vendor to quote multi-year and yearly service agreement coverage amounts and then compare, he says. "Just as if you purchase three tables at one time, you'll get a better deal than if you buy one, you'll get a discount if you're willing to purchase a three-year contract," says Mr. Blackmore. Plus, says Ms. Martin, a multi-year agreement will provide you a stable budget number and no increase on the cost of the service contract for several years, says Ms. Martin.

As equipment ages, it's typical to see service-agreement pricing go up due to the added service required to keep older equipment running as if it were new. If you're purchasing multiple pieces of the same equipment such as monitors, anesthesia machines or OR beds, ask for a price break, or seek an extended warranty if the equipment is new, says Ms. Martin.

Get quotes from at least two or three vendors, says Ms. Reece. Keep in mind that you don't have to buy the service contract from the company that manufactures the equipment, nor from the vendor who sold you the equipment. There are companies out there that can service your capital equipment at reasonable prices. Finally, make sure when buying equipment with a service contract that all costs are fully separated and listed individually, says Charles Neff, director of operations and service at Fujinon.

Demand a responsive service vendor
Be sure the hours of service coverage are clearly defined. Is there an after hours up-charge? Will service be provided locally, regionally or nationally? The service vendor should keep on file a service history on all covered equipment that includes preventive maintenance records. What about uptime guarantees? These are typically specified on imaging equipment. "A great deal is not so great if the equipment is not maintained and functioning properly," says Ms. Reece.

In some cases, such as anesthesia machines, a certified technician is required. In most areas, independent certified technicians are available and are often significantly cheaper then the manufacturer's service technicians. Whether you choose the manufacturer's technician or an independent, you should verify their availability, response times and alternate providers if they're out of town or unavailable, says Ms. Reece. Even the best technician is not helpful if he's unavailable to respond when needed. "Look at the total cost and not just the price. If someone else is coming in with a lower labor rate, ask yourself if you'll be getting a tech with less training and less support behind him," says Mr. Blackmore.

Will service be performed on- or off-site?
On-site service is more desirable, but costlier. Most on-site service can be scheduled in advance and at your convenience. If equipment is sent out for service, are loaners available and who is responsible for shipping costs? Ms. Reece relays this story: When a service technician wasn't available when her YAG laser was down, the manufacturer requested she send it in for service. "A week later I discovered the shipping cost was more than the service bill," she says. The lesson: Be sure to negotiate shipping costs and loaner fees before signing off-site contracts.

Are replacement parts available?
This is especially important for refurbished equipment where manufacturers will discontinue providing parts and service over time, says Ms. Reece. Also consider how expensive routinely replaced parts such as light bulbs, gaskets and fuses are. For highly specialized equipment such as lasers, replacement parts are often only available when installed by contracted manufacturer technicians. In these cases, you might have little room for negotiation.

Protecting your investment
Mr. Fox negotiated service contracts with Steris for the 12 surgical centers Neuterra manages. The service agreements cover OR lights, tables and sterilization equipment. Mr. Fox explains that Nueterra was looking to offer greater value to its managed facilities in the form of reduced costs and above-par equipment service.

"Properly maintained equipment, with regularly scheduled preventive maintenance checks, can ensure greater uptime and greater procedure/case volumes," says Mr. Fox.

The best reason to invest in a service contract is "to help limit the long-term service liability of your facility," says Fujinon's Mr. Neff. "A properly sized and priced service contract," he says, "should be a win-win for both the end-user customer and the service provider."