Contemporary Service Strategies

Diagnostic Insight, Summer 1996, Vol. 23, No. 3, p. 10-11

As we hurtle toward the end of this decade, rapid changes in healthcare delivery are creating new opportunities for service products. Healthcare provider mergers are spawning new organizations that are larger and more businesslike. With size and purpose comes buying power — and a re-evaluation of service needs. Barnes Hospital and Jewish Hospital of St. Louis, which merged to form Barnes and Jewish Hospital in 1992, merged with the nine-site Christian Health Services in 1994 to form the Barnes Jewish Christian Health System. While Barnes had a well established, internal clinical engineering department, Jewish Hospital contracted its work to outside vendors. A team appointed to integrate these approaches, in the end, established an in-house command center that coordinates all internal and external service providers. Now, with the total system expanded to 16 acute-care and seven long term-care facilities in Missouri and southern Illinois, the internal biomedical engineering department has gone from a budget of $650,000 to $7.5 million and from 14 to 60 employees. Big buyers, like Barnes, have big leverage. As the service manager of one leading supplier noted, "It is typical for a [consolidated] customer to ask for a contract that costs 95% of last year's and at the same time demand that average response time be reduced from eight to four hours. " But there is more to size than the ability to exert price pressure. The consolidated buyer is emerging as a very different type of customer, one with different needs and with a different perspective on the process.

The Laboratory Equipment Service Net is Broadening

While there is much talk of standardization of laboratory equipment, service may actually lead the way. Historically, service has been a very localized event. Product service was valued as a function of the local service organization or technician. If the laboratory had a competent service representative and the manufacturer had a good track record locally, service was good. Today's regional or national buyer has a very different view. In these larger consolidated systems, where decisions are more and more often being made centrally, simpler and more comprehensive service solutions are preferred, both across facilities and departments. "I'm looking to link six instruments together with a robotic system, and I certainly don't need six suppliers telling me that a failure is in the other manufacturer's equipment," says an administrator from a large East Coast medical system. Service standardization stands to create a whole new market dynamic: "critical mass". This will attract third party service organizations that heretofore could not justify participating in the highly fragmented IVD market. One chemistry manufacturer is even piloting a broad base, multi-brand service product through a joint venture with an independent service provider. The company's vision is to provide total chemistry laboratory service on all brands, not just its own. It is also not unusual to see other manufacturers banding together to offer consolidated service programs for specific applications.

Capital Equipment Service Needs to Fit Better

Big buyers want service that fits their workflow and organization, not the manufacturers'. For example, instruments are being designed for simpler operation and it is well known that laboratories have hired less qualified staff. This has created a need for service organizations to participate in initial correlation studies and on-the-job training— a move that big buyers welcome. Some manufacturers are responding by re-evaluating the skill set required for field service. Traditionally, there have been field service engineers — the electromechanical service technicians, and technical service representatives — the medical technology support team. In recent years, a hybrid called diagnostic system specialists has emerged: medical technologists with electromechanical service responsibilities. Today's buyer is also considering the backside cost of maintenance intervention; that is, the cost of laboratory disruption caused by service calls. Considering how often a service representative "invades" the laboratory, and the magnitude of service calls across the healthcare system, this service invasion is huge. Because of this, buyers are placing a higher premium on off-peak service calls. "Saturdays are now almost as busy as weekdays," relates one major hematology manufacturer.

Laboratory Instrument Uptime is More Important Than Service Speed

Buyers' real objective is to improve uptime, and they are generally moving toward a common measure of uptime performance. Some buyers are now demanding that service contracts be more specific, both in terms of system uptime guarantees and failure recovery times. This is a shift from intermediate measures used in the past, such as telephone and on-site response times. Large reference laboratories are leading this initiative, but hospital laboratories, as they come under increasing productivity pressures, are making recovery times a high priority, too.

The Laboratory Equipment Service Mix is Changing

Four years ago, 80% of new immunochemistry system customers bought the standard annual contract. But as laboratories try to reduce cost, they are abandoning the convention of annual service contracts and embracing a wide variety of service arrangements. "Now, only 20% buy an annual contract while 80% opt for a customized contract, insurance, or some other arrangement, such as time and materials," reports one manufacturer. CaseBauer & Associates has found that the purchase of insurance policies to cover automated chemistry analyzer service costs has grown from 3% of all system placements in 1991 to an estimated 10% in 1996. In another effort to avoid annual service contracts, buyers are effectively extending warranty periods by negotiating three- to five-year service commitments into instrument sales agreements. One hematology manufacturer is seeing 40% to 50% of its high-end new system placements made with a five year service agreement.

The Equity of Service in the Overall Diagnostic Product Value Proposition Stands to Rise

When one considers the changing needs of the marketplace and the increasing product parity among major manufacturers, the equity of service in the overall product value proposition stands to rise. These trends are creating an opportunity to develop service differentiation. The challenge is for service organizations to make products that become a bigger component in the management of their customer franchise.

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