Barriers to genuine service collaboration with OEMs are hurting hospitals

May 14, 2019
By Patrick Flaherty

In the aftermath of my recent participation in the annual Federation of American Hospitals conference, I find myself reflecting on basic beliefs and assumptions that influence and inhibit what is possible in Healthcare broadly, and specifically in the Healthcare Technology Management (HTM) space specifically. For those not in attendance, the keynote speaker was Joe Grogan, director of the Domestic Policy Council and a former lobbyist. The latter work experience was most apropos in this conference, which is a celebration of the disproportionate power of industry lobbying in framing the discussion of the economics of care delivery. Although Mr. Grogan mentioned the need for regulating drug prices, the resonating message he delivered was that providers are the problem; providers who nest hidden charges, providers who are not transparently competitive on prices and, my favorite, providers who are consolidating and creating an anti-competitive market through such consolidation. Not one mention, not one, of medical equipment and device manufacturers… Clearly a distorted perspective is being created, one that, if permitted to persist, creates impermeable barriers to collaborative efforts. Let me be perfectly clear, collaboration between suppliers, payers, and providers is the only path to a sustainable reordering of the business of healthcare.

Given a goal of collaboration, let’s explore some of the undiscussed barriers blocking a revisioning of the supplier-provider relationship. The lack of a common contractual definition of value creates a fundamental dilemma and creates a foundational issue for all parties. Providers typically measure value inside a given fiscal year; if a supplier intentionally creates longitudinal value that does not directly accrue to the provider intra-fiscal year, it is difficult for the supplier to do anything other than build the value into the cost at the point of sale, leading to acute care providers carrying costs that are not sufficiently offset by the supposed value improvement present. In fact, despite the billions spent in the diagnostic imaging space, both manufacturers and providers are hard-pressed to show any objective metrics of differentiated performance in the use of a particular modality; it is not easy to tell the difference between excellent and below average use of the equipment let alone advanced notions of “value”. Objective and contractually usable data to establish minimum deliverables is superficial at best, and clinical equipment value is too often relegated to simple measurements of availability.

Recent articles and documentaries have illustrated the paucity of objective comparative data in the clinical equipment and device markets, a deficit not present in the pharmaceutical industry which, for all of its well-published problems, lives and dies based on its objective comparative effectiveness. The successful efforts of the OEMs and their lobbying agents to continue to leverage 510K approvals, which emphasize predicate devices to lower the burden of proof for FDA approvals while contractually increasing the cost of the equipment so approved, emphasizes the focus on maintain or increasing the average selling price of the equipment. In many ways, this is the residual impact of fee-for-service, where the only thing of consequence is the ability to turn the equipment on for the test. The lingering impact of fee-for-service on the manufacturer’s addiction to top-line revenue growth is, along with the absence of effective comparative effectiveness, an addiction that creates very specific issues in the HTM market.

The HTM market is made up, disproportionally, of three primary options: OEM services, in-house services (which include variable use of OEMs), and third-party outsourced services. Of the three options, the only one to provide a significantly different commercial offering is the in-house option, as it does not internally margin its own labor. The OEM, however, broadly uses its services organization as a supplemental source of highly margined revenue. It is easy to understand the motivating factors when one realizes the average length of time between replacements of an MRI and CT Scanners is pushing past 14 years; OEMs are looking to drive continuous revenue from each slot to defray reductions in purchases caused by concerns of over-testing and more personal financial responsibility for patients. The recent efforts of the OEMs, through MITA, to conflate issues related to smaller and less sophisticated Independent Service Organizations (ISOs) into a broader discussion related to an increase in safety concerns related to service points out how misaligned providers and suppliers are on prioritization. As ECRI so ably demonstrated, the evidence not only did not support the OEM and MITA claims, the incidence of error (already statistically immaterial) was decreasing. This misalignment has continued in recent lawsuits where OEMs are making significant claims as to their lack of monopolistic control of the services space, claiming that third-party training on OEM-level equipment is functionally the equivalent of OEM training. It is disingenuous when MITA claims differentiated value from OEM service on one hand and OEMs claiming agnostic equivalence of training in order to avoid antitrust concerns. The key point to all of these issues is misaligned goals that target isolated benefits instead of collective value.

Patrick Flaherty
I believe the future of healthcare is dependent upon suppliers and providers collaborating on the technology and the means to safely, efficiently, and affordably deploy it to the correct patient population. While costs like cybersecurity and continuous upgrades should not be onerous burdens carried by providers, suppliers who create differentiated value creation over many years must find a way to benefit, short of overpricing and monopolizing service and support. We are all consumers of healthcare, if those of us who practice in the industry every day cannot challenge the barriers preventing us from lowering the overall cost, who then do we look toward?

About the author: Patrick Flaherty is the vice president of operations for BioTronics at the University of Pittsburgh Medical Center.

More HTMs

AAMI Product Showcase

Clinical engineering and the science of the capital budget process

Tips for creating better collaboration between HTM and IT

Q & A with Robert Jensen, president and CEO of AAMI

Testing equipment continues to advance

An HTM society is growing in New York

How can HTM and OEMs work together most effectively?

BSWH to install Glassbeam's CLEAN blueprint to leverage machine uptime

Robert Burroughs

Third-parties and OEMs seek common ground in service discussion