EMI: The Last Cost-Cutting Frontier

The changing outpatient imaging business environment has made it imperative for all radiology managers to continually reduce operating expenses. Reimbursements are being squeezed by the recent Deficit Reduction Act (DRA) cuts and the multi-body part discount. The recently published Moran report, sponsored by the Access to Medical Imaging Coalition (AMIC), found 87% of procedures (126 of the 145) affected by the DRA cuts would be reimbursed less than the estimated cost of the exam. These factors all negatively affect cash flow at many centers, particularly in the larger urban centers with a disproportionate Medicare/Medicaid population. One of the single, largest, yet seldom-managed, operating expense is repair and maintenance service expenses, and for some, equipment maintenance insurance may make sense. Additionally, increasingly stringent equipment standards being implemented by many payor organizations, such as CareCore, Wappingers Falls, NY, are putting additional cost pressures on already strained budgets. On the bright side, new purchases offer imaging providers an opportunity to consider alternative service programs before entering into costly multi-year OEM service agreements. As diagnostic imaging systems have matured, equipment reliability has dramatically improved. Increasingly sophisticated software and modular hardware has changed how service is performed, often minimizing the need to dispatch a service engineer to the equipment location. However, the terms of service contracts and warranties have increased, on average to 6 years and 16 months respectively, locking buyers into high fixed-cost scenarios. Full-service maintenance agreements are commonly purchased with the assumption that there are no alternatives. While these full-service agreements have their place, they are not necessarily the best solution for all situations. A majority of the more than 5,000 outpatient imaging centers are individually owned and operated by small physician groups. These centers have succeeded by keeping operating costs low and serving the needs of local referring physicians. The inherently low-cost structure of outpatient imaging would be upset if centers employed personnel dedicated to the management of service contract purchases, as is standard practice in the hospital environment. Nor can they afford to employ engineering personnel to lower the cost of servicing equipment. Therefore, the perception remains that long-term contracts are the only available and most cost-effective option for fixing long-term service costs and ensuring that equipment is repaired in a timely fashion. Over time the only means to judge the value of service contracts is the responsiveness of the service provider in keeping the systems “up.” Actual financial value is masked in these contracts because of the lack of reporting capability and access to actual repair costs. Knowledge of current service costs and the ability to use service information to continually reduce service expenses is a prerequisite to active management of operational service costs. Programs such as equipment maintenance insurance (EMI) are designed to address this need and clarify actual service costs. EMI programs give outpatient imaging owners/managers the freedom to utilize the service organization of their choice, while capping service expenses at a level typically 15-20% below current costs. Users of EMI are not bound to a specific service provider via a long-term commitment and are free to change service vendor if service quality wanes or needs change. Decision-makers in the outpatient radiology setting must be empowered, like their hospital-based counterparts, to seek out the best business solutions and not feel threatened by service providers. Individuals exploring EMI must be fully invested in understanding their current service expenses. Managers considering alternative service programs must feel empowered to discuss these needs with their current service providers, keeping in mind service providers also reap benefits from EMI programs, most notably rapid payment for services rendered. Additionally, the EMI provider must become a long-term partner of the imaging services provider, meeting with center owners regularly to understand changing business needs and review the program’s effectiveness. Hospital networks have realized the benefits of leveraged buying power to ensure the best mix of service programs that ensure the financial health of the institution. While imaging centers do not inherently have the same leverage as multi-center chains and hospital networks, EMI provides leverage through its pooled risk-sharing capability. It is equivalent to joining a service buying group that includes all other covered equipment, regardless of ownership. While full service agreements have their place in health care, their value has not kept pace with the changing needs of the outpatient diagnostic imaging market. Outpatient imaging providers can no longer afford to have their revenue squeezed without reducing annual service operating expenses. Equipment maintenance management programs such as EMI should be considered as a means to achieve these goals.