HTM Departments Should Operate like a Business

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1 HTM Departments Should Operate like a Business Ted Cohen As manager of a university hospital based clinical engineering department for more than 35 years, I have always operated my department as an internal business. This article explains the advantages and challenges of doing so, as well as provides observations from my work analyzing healthcare technology management (HTM) benchmarking cost- and workload-related data from several other healthcare organizations. From a financial viewpoint, any independent business, whether large or small, knows how much money is in its business checking account. It is required to prepare profit and loss statements and file annual income tax and other relevant tax forms. If a service is provided, the business knows its hourly billing rate and typically has some measure of employee productivity. In addition to its labor costs, it knows its costs for materials, fixed costs, and variable costs. Depending on the industry, published standards or data may be available for comparing the business with similar businesses in the same geographic and/or sales area. In terms of income, the business knows its customer base and usually has plans for growth. Most businesses also will have a business plan to help keep management on track for the longer-term goals and objectives of the business. Here are two simplified, non-htm examples of the financial considerations of running a business: 1. If I am running an auto repair shop, I have a monthly and annual budget and a published hourly labor rate. Known costs include the markup (percent above cost) charged for parts; fixed costs (e.g., building rent, utilities, advertising); and wages to be paid, including benefits, to mechanics/ technicians, management, and other staff. I also know how much business I can expect from my current customer base for the year (e.g., run rate) and have estimated future growth. 2. Suppose I am managing an engineering and architectural services firm. I have a monthly and annual budget. I know my fixed labor costs for salaried professional and support staff and variable labor costs for contracted, project-specific staff. I have fixed costs for building rent, utilities, computer applications, support, and other expenses. For income, I have signed contracts and projects under development. I know the costs for each of the professional services provided by the firm, have a competitive markup, and based on experience, have estimated the income and costs for proposed future projects. I can flex some of my staffing based on my current contracts. Of course, if a business is starting anew or planning for major growth, the initial startup costs and recouping of those costs also must be taken into consideration. In addition, many other elements (e.g., local market About the Author Ted Cohen is manager of clinical engineering at the University of California, Davis Medical Center in Sacramento, CA. tedcohen@pacbell.net 301

2 competition, interest rates if money is to be borrowed) that are beyond the scope of this article must be taken into consideration. The point is that financial management is paramount for every business, and you cannot manage your finances if you do not know your costs. The following discussion is based on healthcare organization based HTM programs operating in a not-for-profit environment. Most will have a captive customer base of various healthcare organization departments, and most of their competition will be from original equipment manufacturers and, in some cases, independent service organization service providers. Program Costs In terms of monitoring and normalizing program costs, the current best practice is to follow HTM benchmarking cost parameter and metric definitions (Tables 1 3; provided by AAMI). 1 Based on these definitions, three important metrics (effective hourly rate, in-house maintenance costs, and cost-ofservice ratio [COSR]) are discussed in more detail below. Of note, although AAMI s Benchmarking Solutions program was discontinued in April 2017, AAMI-sponsored benchmarking projects continue. The goal of these projects is to work toward improved benchmarking metric definitions, improved computerized maintenance management system (CMMS) engagement in HTM payroll expenses Benefits expenses Total staff expenses Technical supplies expenses Test equipment expenses Training expenses Other HTM department expenses Total nonstaff expenses Maintenance costs Maintenance hours Effective hourly rate Total annual payroll cost (including management and supervision, overtime, on-call, and paid time off) for all FTEs in the HTM program. Total annual cost of benefits for all FTEs in the HTM program. If benefits are not included in the HTM program budget, human resources should be contacted to obtain an estimate (e.g., 25 40% of payroll). Calculated field: HTM payroll expenses plus benefits expenses Total annual cost for parts and technical supplies stocked by the HTM program. These are parts and technical supplies (e.g., lowcost parts kept in stock, miscellaneous electronic components, miscellaneous hardware, wire, batteries, other commonly used materials) used by in-house staff in their maintenance and repair work. Total annual cost for purchasing, calibrating, and repairing test equipment. Total annual cost of technical training and professional education. Includes service schools, conferences, travel-related expenses, continuing education, online teleconference fees, and related training and education expenses. Total annual cost of all other HTM program expenses. Includes phone-, computer-, and telecommunication-related expenses, reference materials, and similar expenses. Does not include rental, electricity, heating, and cooling expenses. Calculated field: all nonstaff expenses that have been previously entered. Calculated field: total staff expenses plus total nonstaff expenses. Total annual hours expended by HTM program staff on equipment maintenance (inspection, scheduled maintenance, and repair). Actual data recorded in the CMMS should be used. Calculated field: in-house maintenance costs divided by in-house maintenance hours. Table 1. In-house (internal) costs metric definitions for healthcare technology management (HTM) departments. Abbreviations used: CMMS, computerized maintenance management system; FTE, full-time equivalent. 302

3 benchmarking data collection and reporting, and, potentially in the long term, a new benchmarking program. Effective Hourly Rate All HTM departments, regardless of whether they charge for services, should know their effective hourly rate, which is defined as in-house maintenance costs divided by the in-house maintenance hours documented in the CMMS (Table 1). Effective hourly rate can be a simple and effective decision-making tool in the day-to-day process of determining the repair and maintenance activities that are sourced internally versus contracted through vendors. In-House Maintenance Costs Internal cost definitions are provided in Table 1, and external and total cost definitions are shown in Table 2. One quantitative way to look at how much work is being performed internally, or in house, is by dividing in-house maintenance costs by total costs, which gives an indication of penetration (i.e., the percent of overall medical equipment support costs that are attributable to the HTM department). Of note, with the increasing use of just-intime parts purchasing, this definition needs improvement to decrease the impact of parts costs. A better definition would be to remove parts from the penetration definition; however, most HTM departments cannot separate parts and labor costs from prepaid contracts. Perhaps an improved penetration metric, though it is not explicitly included in AAMI s HTM benchmarking definitions, could be prepaid contract costs divided by total costs. COSR There are two major categories of HTMrelated costs: 1) the initial cost of acquiring the technology and 2) the cost of maintaining it for safety and effectiveness. The ratio of these costs, known as the COSR, is a basic metric for HTM-related financial management (Table 3). COSR is derived by dividing total annual maintenance costs by total acquisition costs. The numerator of the COSR equation is the total annual cost of maintenance for the equipment included in the denominator. The rule of thumb for defining the scope of the numerator and denominator is that whatever is included in the numerator also should be included in the denominator, and vice versa. The acquisition cost is an analog for workload, and therefore, the COSR metric takes into account the fact that maintenance costs are higher for expensive medical devices. For example, it costs more to maintain a magnetic resonance imaging system than an infusion pump. Effective hourly rate can be a simple and effective decisionmaking tool in the day-to-day process of determining the repair and maintenance activities that are sourced internally versus contracted through vendors. Maintenance contract expenses Vendor maintenance expenses Nonstock parts expenses External maintenance costs Total maintenance costs Total annual cost for maintenance contracts for all equipment managed or maintained by the HTM program. Total annual cost for vendor maintenance (fee-for-service, noncontract labor, and materials) for equipment managed or maintained by the HTM program. Total annual cost for parts not stocked by the HTM program and those purchased to replace those in stock. These are parts used by external service providers, either parts provided by external providers (and billed to the HTM program) or parts drawn from HTM program stock (which the HTM program must replenish). Calculated field: total annual cost for maintenance provided by external sources. Includes nonstock parts expenses, plus maintenance contracts expenses, plus vendor maintenance expenses. Calculated field: internal maintenance costs plus external maintenance costs Table 2. External costs and total cost definitions for healthcare technology management (HTM) departments. 303

4 Challenges It is surprising how few HTM departments were willing and able to interact with AAMI s now-discontinued HTM benchmarking software and other benchmarking services and report the data fields described above. In addition, many benchmarking subscribers reported some data but had difficulty collecting all data elements. Challenges in collecting specific elements included the following. Equipment Acquisition Cost Some HTM departments do not routinely get copies of purchase orders and do not have access to acquisition cost information. In addition to the cost measures described here, people repairing equipment should have an idea of the initial cost of the specific equipment they are repairing. If acquisition costs cannot be made available, realistic estimates from prior purchases or national databases such as MD Buyline or ECRI Institute are acceptable compromises. Also, all HTM departments are challenged by acquisitions where the capital cost is free, such as clinical lab reagent rentals and consumable agreements (e.g., pulse oximeter sensor agreements). Again, realistic estimates from previous purchases or national databases are acceptable. The same concept can be used for long-term loaner equipment or anything else where the support costs are the HTM department s responsibility and no specific, official acquisition cost is available. Just remember that if you are going to include it in the COSR numerator, it should be included in the denominator and vice-versa. Short-term loaned equipment probably should not be included in either. Employee Benefits Some HTM department managers have reported that they do not receive expense data for employee benefits such as health insurance, employer pension contributions, workers compensation, and other employer-paid benefits. Benefits are a considerable expense, often costing employers from 25% to more than 40% of wages. When HTM departments do not receive specific benefits expense data, their human resources department often can provide an estimated percentage of employee wages that go to benefits. Service Contract Dollars Service contracts make up a substantial portion of overall maintenance expenses, particularly for the high-tech, most expensive equipment (e.g., imaging, operating room, and laboratory equipment). These costs must be included, or the HTM financial picture will be incomplete. HTM Departments that Are Part of Other Departments A best practice is for HTM departments to have their own dedicated budget. 2 For small HTM departments that are part of facilities or another department, employee and other expenses can be allocated as a percentage (e.g., 50% manager costs to HTM) so that only HTM expenses are reported. Large HTM Departments in Multihospital Systems The metrics described in this article have been applied to all sizes of HTM programs. Multihospital systems need to include their corporate-level HTM program overhead and Acquisition cost: total Total acquisition cost of all devices managed or maintained by HTM. Managed by the HTM program means that HTM is responsible for maintenance (inspection, scheduled maintenance, and repair) and the cost of maintenance using an external service provider (by contracted or noncontracted labor and materials). Maintained by the HTM program means that HTM is responsible for maintenance (inspection, scheduled maintenance, and repair) using HTM staff. Table 3. Acquisition costs definitions for healthcare technology management (HTM) departments. 304

5 allocate it down to the individual facility level. Efforts to make improvements in metric definitions for large, multihospital HTM programs are currently in progress. Software No standards or best practices describe expense reporting for HTM-supported software. If the software is capitalized with a known acquisition cost and HTM supports the software and/ or manages the software support agreement, its costs should be included. Examples might include software licenses for database servers that are part of centralstation monitoring systems and As clinical technology becomes middleware software and hardware for electronic health record (EHR) integration more interconnected and HTM and other similar HTM-supported systems. departments hire more clinical Systems supported by other departments, engineers and other systemsfocused staff to work on systems such as information technology support for the EHR, should not be included in HTM benchmarking metrics reports. issues (e.g., device integration, cybersecurity), additional HTM Projects and Engineering Staff Cost metric definitions will need to No standards or best practices are available be developed. pertaining to expense reporting for HTM projects. Some projects are part of the overall equipment acquisition and support costs and are included in overall expenses; therefore, they can be part of HTM maintenance costs and benchmark reporting. Other separately funded projects may be included in HTM departmental expenses but may not be part of the current maintenance-focused benchmarking process. As clinical technology becomes more interconnected and HTM departments hire more clinical engineers and other systemsfocused staff to work on systems issues (e.g., device integration, cybersecurity), additional HTM metric definitions will need to be developed. Work is ongoing to determine whether technology management fields should be added to HTM benchmarking in order to start collecting some of these engineering- and project-related data elements. If not directly available in the reports provided to the HTM department management, the data discussed above should be Accessed May 17, available from the healthcare organization s finance department. Equipment service related data should be included in the HTM department s CMMS. Although CMMSs offer varying features and costs, most should be able to collect, aggregate, and report equipment-related data discussed above. 3 In press. A key difference between HTM s internal business expense reporting and private business finance is the annual reset. For most HTM departments, each fiscal year starts with a new budget, with no carry over from the previous year. Although important, this difference should not be used as an excuse for not running the HTM program like a business. Conclusion As much as possible, HTM departments should operate like a not-for-profit business. HTM departments are required by regulatory agencies and accreditation organizations (e.g., The Joint Commission) to submit routine reports, including an annual program evaluation. An annual report, including the regulatory required material, also should include a financial report, budget versus expenses, workload growth, and a summary of major projects. Knowing your costs is fundamental to operating the HTM department like a business. Where some cost elements are not currently available, HTM managers should seek a source for the required data and convince the appropriate managers to make that data readily available. After more widespread data are available, wider participation in benchmarking would be beneficial toward developing additional useful metrics, perhaps leading to improvement opportunities. Of course, factors other than financial decisions are critical to achieving a high-quality HTM program. Equipment reliability, patient safety, customer satisfaction, and other measures also need to be taken into consideration. References 1. Association for the Advancement of Medical Instrumentation. Benchmarking Solutions HTM: A Resource for Clinical Engineering Departments [discontinued]. Available at: FileDownloads/HTM/Idea_Exchange/AAMI_2016_HTM_ Benchmarking_Worksheet.pdf. Accessed May 26, Association for the Advancement of Medical Instrumentation. HTM Levels Guide. 2nd ed. Available at: productspublications/productdetail.aspx?itemnumber= Cohen T, Baretich MF. Computerized Maintenance Management Systems for Healthcare Technology Management. 3rd ed. Arlington, VA: Association for the Advancement of Medical Instrumentation. 305