The goal was to centralize equipment data, analyze the total cost of ownership for each piece of equipment, and use algorithms to prioritize which equipment should be replaced.
For years, leaders at RWJBarnabas Health, West Orange, N.J., relied on full-service contracts from equipment manufacturers to maintain their linear accelerators, robotic surgery systems, magnetic resonance imaging (MRI) scanners, and other critical equipment. However, such service came at a high price. In 2011, leaders decided to adopt a self-insured model combining labor from their in-house service technicians with original equipment manufacturer support purchased on an as-needed basis. Thanks to their efforts, leaders have reduced equipment service costs by 20-24 percent.
The strategy also laid the groundwork for a new process that has dramatically changed how leaders at RWJBarnabas Health replace critical equipment as part of their capital planning process.
Leveraging Data for Decision-Making
Adopting a self-insured model meant that the health system would take on more financial risk and would need better data to make informed decisions about equipment maintenance and replacement, says Bill Cuthill, senior vice president of facilities management and construction. In particular, leaders at RWJBarnabas Health struggled to flag effectively which equipment was exceeding acceptable maintenance costs and to prioritize items for replacement.
“The data we needed to drive a concrete decision—such as how much it really cost to maintain a piece of equipment over the years and the expected life of the equipment—were not always readily available,” Cuthill says. Often, the data were siloed across various departments and facilities. Leaders wanted to centralize all equipment data, analyze the total cost of ownership for each piece of equipment, and use algorithms to prioritize which equipment should be replaced.
To that end, leaders at RWJBarnabas Health worked with the vendor of their capital planning software to develop a tool that would help them forecast their equipment replacement needs and integrate the process into their broader capital planning process.
“The tool analyzes factors such as end of life, reliability, and maintenance costs to determine what needs to be replaced each year,” says Gene DeDea, vice president of clinical engineering. “It also gives us a picture so we can forecast out for the next five years.”
Clinical equipment replacement requests are rolled into the capital request process, and the capital review committee reviews and ranks the requests. The tool allows users to run various scenarios, and leaders prioritize and rank the equipment that scores highest in need of replacement.
For example, if a CT scan is nine years old and the expected life is 11 years, but it is showing excessive consumption of parts and labor, the algorithm may bump it up to a higher priority for replacement because its consumption of resources suggests potential failure, Cuthill says. “Having the ability to run these scenarios allows us to create a replacement picture that is very much based on science. It also allows leaders to determine what needs to fall off the list of requests if they decide to purchase new equipment to add a new service.”
Jim Allen, director of clinical equipment management, agrees that the scenario tool is helpful for planning, particularly as payment changes. “It makes it very easy for us to consider future reductions in payment and develop different scenarios to reallocate capital,” he says.
Cuthill says the clinical engineering team shares total cost of ownership data on equipment with department leaders at their affiliates, who previously had no choice but to rely on the manufacturers’ recommendations for equipment replacement. “A large system like ours can have varying priorities at the affiliate level, so being able to centralize and provide feedback to the affiliates helps us to get to a more objective ranking process,” he says.
Realizing Cost Savings
The new process also helps leaders develop bulk-buy strategies with selected vendors because they can forecast their equipment replacement needs over the next five years. “This allows us to drive the best bargain along those lines,” Cuthill says. “Through the team’s efforts, we have been able to save approximately 20 percent without sacrificing quality—and in some cases, increasing quality—by developing this hybrid approach to equipment management, service, and replacement.”
These savings hold even though the health system has had to invest in nontechnical staff who manage the process on the clinical equipment management team. Cuthill attributes the cost savings to standardizing service delivery and creating systems to enter, track, and manage data for service costs with granular detail. Triaging service calls in “real time” and using service data to maximize discounts during vendor negotiations also contributed to the cost savings.
In 2016, Allen says leaders at RWJBarnabas Health negotiated $450,000 in free training on equipment maintenance for their in-house engineers. “The data are key in having the discussions with vendors,” Allen says. “They actually depend on our spend and historical data that they would not have otherwise, and that is a powerful negotiating tool.” For example, having data on ROI—including past performance and service history—can help leaders when they negotiate the purchase of new equipment. Granular data can help leaders negotiate post-warranty support and training, ultimately affecting the total cost of ownership.
Leaders at RWJBarnabas Health offer the following advice to organizations that want to adopt a more proactive strategy for equipment service and replacement.
Create a complete and current inventory of all equipment. Cuthill says this step was one of the most challenging parts of the process, particularly as the system was preparing for the merger of Barnabas Health and Robert Wood Johnson Health System in early 2016.
Get buy-in from senior management. This can help mitigate the pain that may occur when gathering equipment data from multiple departments and facilities, Cuthill says.
Make sure your clinical engineering team has a strong track record of supporting department leaders before taking service in-house. Initially, some department leaders were reluctant to give up their full-service contracts with manufacturers, Cuthill says. That meant that changing processes: instead of calling reps directly, department leaders needed to work through the clinical engineering team. “We needed to demonstrate that our in-house service technicians could meet their needs 80 to 85 percent of the time at significant savings, at the same or better level of service,” he says.
Today, department leaders have a high level of comfort with the in-house service team. “We have a long history of addressing concerns, and that has helped them feel comfortable with changing processes,” Allen says. Having an in-house service team also takes some of the burden of managing manufacturers away from department leaders so they can focus on patient care, he says.
When moving to a self-insured model, pilot the process at one of the health system’s higher-profile affiliates or departments. “This allows you to develop some good references and buy-in to help promote the process,” DeDea says. The goal is to cultivate affiliate or department leaders who can share how an in-house service team improved service reliability and “up time” for their critical equipment.
Changing the Vendor Relationship
“We still partner with manufacturers to provide a blended service approach,” Cuthill says. “So while our team can handle 85 percent of service needs, there are times we need the manufacturer to provide additional support.”
Cuthill believes more manufacturers recognize that it is beneficial to partner with hospitals and health systems that have adopted self-insured models. “Hospitals are moving away from full-service contracts to time-and-materials contracts because they have found they can save money and still receive quality service from in-house technicians that is augmented from manufacturers if needed,” he says.
Interviewed for this article:
Bill Cuthill is senior vice president of facilities management and construction at RWJBarnabas Health, West Orange, N.J..
Gene DeDea is vice president of clinical engineering at RWJBarnabas Health.
Jim Allen is director of clinical equipment management at RWJBarnabas Health.
This article is based in part on a presentation at the October 2016 Strata Decision Summit in Chicago.