In-House vs OUT-Sourced in Clinical Engineering

In-house vs. Out-In-house vs. Out-sourced Clinical sourced Clinical

EngineeringEngineeringDavid M. Dickey, CHC, CCEDavid M. Dickey, CHC, CCE

Corporate Director, McLaren Corporate Director, McLaren Health Care Clinical Health Care Clinical Engineering ServicesEngineering Services

Disclaimer/TransparencyDisclaimer/Transparency I do have a biased opinion!I do have a biased opinion! 30+ years managing in-house clinical 30+ years managing in-house clinical

engineering programsengineering programs Currently Corporate Director CE McLaren Health Care Currently Corporate Director CE McLaren Health Care

15+ years clinical engineering consulting 15+ years clinical engineering consulting (Medical Technology Management., Inc.) (Medical Technology Management., Inc.) www.mtminc.orgwww.mtminc.org Practice area focus is in creating and/or expansion of Practice area focus is in creating and/or expansion of

CE programsCE programs Conversion of out-sourced programs to in-houseConversion of out-sourced programs to in-house

Having been in this profession for my entire Having been in this profession for my entire career, I know a lot of CE professionals that career, I know a lot of CE professionals that have ‘gone both ways’, switching back and forth have ‘gone both ways’, switching back and forth as neededas needed

I do agreeI do agree Out-sourced programs may make sense for Out-sourced programs may make sense for

smaller hospitals, < 100-150 beds, especially if smaller hospitals, < 100-150 beds, especially if they are not part of a larger system with they are not part of a larger system with internal CE resourcesinternal CE resources

Not all in-house, or out-sourced, programs are Not all in-house, or out-sourced, programs are created equalcreated equal

Common factors that impact degree of successCommon factors that impact degree of success Quality and education of the staffQuality and education of the staff ResourcesResources Administrative supportAdministrative support ‘‘Fix it’ shop vs. a ‘professional service’…what are the Fix it’ shop vs. a ‘professional service’…what are the

needs?needs? Either type of program is doomed for failure if the Either type of program is doomed for failure if the

program delivered does not fit the needs and program delivered does not fit the needs and expectations of the organization!expectations of the organization!

Neither are freeNeither are free

Top Ten+ DifferencesTop Ten+ Differences

In-House Out-Sourced

Services provided at cost, no mark up

Services provided at cost + margin



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!



COSR on a well developed program run at 4- 5%

COSR can be at 7-15% +



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



CE staff committed to one organization

CE staff need to be committed to two organizations



Added value services, such as projects, done at cost

Added value services, such as projects, may be provided at additional cost



Software and data owned by hospital

Software and data may be owned by vendor



Hospital in charge of cash flow to the vendors

Vendor in charge of cash flow to the vendors



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.



No conflict of interest Potential conflict of interest if the provider also sells equipment



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.



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 Example of cash impact if you outsource you outsource

If inventory is $290,000,000If inventory is $290,000,000 COSR = 4.7% Budget is then COSR = 4.7% Budget is then

$13,630,000$13,630,000

Outsource to a provide that has 20% profit Outsource to a provide that has 20% profit margin, cost now becomes $16,356,000 (COSR margin, cost now becomes $16,356,000 (COSR now 5.6%)now 5.6%)

If hospital’s net annual operating margin is If hospital’s net annual operating margin is 2%, the additional $’s paid needs to be made 2%, the additional $’s paid needs to be made up by the hospital collection of 100% on up by the hospital collection of 100% on $13,630,000 of patient charges!$13,630,000 of patient charges!



Hospital maintains control over staffing levels and assignments

Provider maintains control over staffing levels and assignments


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


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 Issues of concern when converting to in-house from converting to in-house from

out-sourced programout-sourced program Software CMMS and data conversionsSoftware CMMS and data conversions Test equipment and toolsTest equipment and tools ManualsManuals Over due PMs and CM’s wip creditsOver due PMs and CM’s wip credits Staffing and ability to hire providers Staffing and ability to hire providers

staffstaff Contracts and OEM discountsContracts and OEM discounts Policies and proceduresPolicies and procedures Clerical and call center supportClerical and call center support Clinical engineering expertiseClinical engineering expertise Three to six months lead timeThree to six months lead time

In order to convert to an in-In order to convert to an in-house modelhouse model

Develop a business plan (three years), based Develop a business plan (three years), based on cost and qualityon cost and quality

Set realistic goals and expectationsSet realistic goals and expectations Consolidate all service budgets into oneConsolidate all service budgets into one Include contract/vendor management servicesInclude contract/vendor management services Start with general biomedical equipment Start with general biomedical equipment

supportsupport Plan for expansion into service of ultrasound; Plan for expansion into service of ultrasound;

sterilization; imaging; cath lab; clinical lab; sterilization; imaging; cath lab; clinical lab; radiation oncology; surgical instrument mgt. radiation oncology; surgical instrument mgt.

If you have an out-sourced If you have an out-sourced programprogram

Perform bi-annual assessment of equipment actually Perform bi-annual assessment of equipment actually serviced, PM or CM, and remove from inventory serviced, PM or CM, and remove from inventory items never seen, to lower your program contract items never seen, to lower your program contract costcost

Read your contract and verify deliverables are being Read your contract and verify deliverables are being delivereddelivered

Negotiate the margin, full disclosure of all costsNegotiate the margin, full disclosure of all costs If vendor gets credits for parts returned, it should be If vendor gets credits for parts returned, it should be

credited back to the hospitalcredited back to the hospital Mandate full staffing levels. If not met, get creditMandate full staffing levels. If not met, get credit Mandate credits for PM’s not done on timeMandate credits for PM’s not done on time Obtain quarterly downloads (Excel format) of Obtain quarterly downloads (Excel format) of

inventory and work historiesinventory and work histories Consider getting help…call me when you are ready to Consider getting help…call me when you are ready to

save money!save money! ([email protected])([email protected])

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In-House vs OUT-Sourced in Clinical Engineering