Master Those Tough Vendor Negotiations

Lock in solid service contracts to keep your expensive and essential equipment protected.

Scan your facility quickly and it’s easy to see all the equipment that would bring your daily operations to a halt if they broke down. The thought of how much money would be lost if all this gear couldn’t be quickly repaired isn’t pleasant.

High-ticket item protection

That’s why it’s important to determine which of these items should have service contracts to get them back in the game if they stop functioning. Tables, scopes, power tools, microscopes, sterilizers and other gear must be protected.

OR leaders obviously spend hours considering price points, various features that equipment possess and whether the items are powerful enough to serve a facility. They even devote significant thought to how the equipment looks and what color they should pick. Some managers, however, spend less brainpower on how the new devices will be maintained and serviced beyond the original warranty.

That could be an expensive oversight. Owners and operators of surgery centers need to frontload their considerations of how their big-ticket equipment will be serviced and maintained. Once educated on the cost of the entire lifecycle of device, buyers can stop thinking solely about the sales price and instead focus on how essential these items are to the daily operations of facilities.

“A lot of people look at the specs of the machine before they buy it and don’t really think about what happens when the warranty runs out,” says Nikki Williams, RN, CNOR, executive director of Lakeland (Fla.) Surgical & Diagnostic Center. “And vendor reps don’t always suggest that you should get one. Even if you do think of it, service contracts aren’t cheap, so it’s understandable that there’s hesitancy to enter into one while something new is under warranty.”

Tried-and-true tactics

Here are tips on getting great terms and conditions in your contracts from leaders who have successfully negotiated many of them.

• Lock it in at the time of purchase. At one time, the strategy at Boston Out-Patient Surgical Suites in Waltham, Mass., was to buy a new piece of equipment without a service plan attached. “We used to think the cost of a contract wasn’t worth it and that it was best to pay the repair bill if something broke,” explains Administrator Greg DeConciliis, PA-C, CASC. “I’ve since learned to ask for repair estimates that include labor, travel and other costs as you’re discussing the purchase of the equipment.” He also calculates how much it would cost to replace a piece of equipment.

“Once you analyze and quantify all of that, you can determine which route to go,” he says. “In general, it’s desirable to have a service contract for items such as sterilizers, lights and beds. In addition to making financial sense, I think the repair service you get from companies is better when you have a contract with them.”

“We’ve done it both ways — entering into a service contract from the outset and waiting until the warranty ends and then negotiating one,” adds Ms. Williams. “For us, the pricing has been better when we negotiate a service contract at the time of purchasing.”

Brian Bizub, CEO of Raleigh (N.C.) Orthopaedic Clinic, runs two surgery centers and says it’s vital to maintain a service contract for the entire lifespan. “This assists in potentially extending the lifetime of the equipment, especially if usage is high,” he says.

• Go for the win-wins. Lakeland bought five anesthesia monitors a few years ago that were fairly expensive. Ms. Williams realized she had to look past simply how the machine functioned and how much it cost and begin thinking, What can the vendor do for us to make our center better?

“We asked how we could get a cheaper price and what we could do to help each other,” she says. “They lowered the price of the machines significantly in exchange for us entering into a service agreement at the time of the sale. We got a good service contract, the rep got his commission and his manager sold five new devices.”

Mr. DeConciliis says the current vendor landscape is one in which companies prefer facilities to enter into long-term service contracts and are willing to give you a break on the price of the equipment to make it happen. “You’re also likely to get better prices on service contracts when you go all-in with a vendor and buy multiple items from them,” he adds.

Be aware of the vendor’s quarterly or fiscal deadline they must meet, adds Mr. Bizub. Those windows of time are opportunities to get discounts or bundled agreements on lower-cost disposable items such as drapes and setup kits that are needed to operate and use the equipment, which can be included in the sale.

• Pros and cons of third-party service/repair companies. Lakeland was once locked into a bad three-year contract with a third-party repair vendor they finally got out of, but at one point the arrangement caused delays that impacted the facility’s operations. That’s why Ms. Williams now signs service agreements with the manufacturers of high-dollar equipment, even if they’re more expensive than third-party alternatives.

The facility still works with third-party companies in some instances, however. For instance, it is highly satisfied with a company that inspects and repairs its instrumentation onsite.

“We couldn’t ask for better service. They come here on a regular basis, and we have no issues with them,” she says. “But for things like arthroscopy video systems, scopes and anesthesia machines, you really need to go through your vendor. I suggest at least starting with a service contract for one year with the vendor that you purchased the equipment from, then re-evaluating after that.”

Lakeland has facilities personnel and an outside biomedical company who can repair some equipment, usually the less-expensive parts of the inventory that aren’t used every day. Mr. DeConciliis takes advantage of the services of a biomed engineering company and suggests facilities check their local area to see if any are nearby.

ESSENTIAL GEAR High-ticket items such as C-arms should be protected with full coverage unless you want to risk paying to replace glassware if you only have a preventive-maintenance contract.

“They could perform preventive maintenance and repair on some of your equipment,” he says. “The one in our area can fix almost anything and is often far less expensive than the manufacturers. They even have the ability to provide loaners.”

When seeking references, Mr. DeConciliis cautions against asking the company, since they generally only forward good ones. “If you don’t have direct experience with a company like this, seek out the opinions from your peers who might,” he says.

• Exposing hidden costs. When negotiating with a manufacturer and trying to determine whether to enter into a full-service agreement or just a parts-and-labor package, make sure to understand all the costs involved in each arrangement.

Generally, vendors are willing to negotiate a lower-cost service agreement when a facility will lock into it for multiple years, says Mr. Bizub. He says it’s always important to know whether loaners are available upfront. Knowing who pays the shipping costs is also a key consideration if the equipment will be repaired offsite, adds Ms. Williams.

A good rule of thumb is to employ full-service agreements for expensive items used daily and consider parts-and-labor deals for less expensive items that aren’t used regularly. “Depending on the service contract and need for the equipment, a full-service contract is best because not all technicians are local, and service time can range from a few hours to days,” says Mr. Bizub. “One should consider the impact of the equipment not in service and impact to patient care and safety.”

Ms. Williams says it’s fair to ask vendors to be upfront and honest. “You need to lay everything out on the table,” she says. “Remember they’re trained to negotiate these kinds of things, and you’re not. They want to make money, so you need to be smart. Be completely open and expect the same from them.” It never hurts to be bold, she says. “You kind of have to push the envelope a little bit. Sometimes it works; sometimes it doesn’t. If you don’t ask, you’ll never know.”

It’s important to consider the costs of service agreements early in the negotiations. Waiting to add it on after a price for the equipment itself has been agreed on makes it harder to negotiate overall price breaks for the entire package.

“The only last-minute tactic I would use is to try to get them to throw in an extended warranty,” says Mr. DeConciliis. “In general, I don’t consider the total cost on a high-priced essential item to be complete until I know how much the service contracts cost.” OSM