Equipment Service: Total Cost of Ownership

Twitter icon
Facebook icon
LinkedIn icon
e-mail icon
Google icon

Imaging managers are being called upon to reduce costs significantly in their departments, so understanding the total cost of ownership is critical. All payors have targeted imaging as a high-cost, high-utilization service, over the past seven years, and now health-care reform will change the way that imaging does business forever—making it a cost center on the inpatient side.

In the future, we could see radiologists’ fees bundled with hospital inpatient payments. This leaves outpatient studies as the only source of revenue produced by imaging—yet in Arizona and California, today, a patient can access a website ( and bid for a study. The cost of an MRI exam ranges from $320 to $3,200.

Because the total cost of owning and maintaining radiology equipment can vary tremendously (and can have a serious impact on bottom-line results), imaging managers should select the most cost-effective options for their organization. This calls for the consideration of several variables when acquiring new equipment, in addition to the ongoing review of costs that imaging managers can control.

A number of factors affect the total cost of ownership. They include major equipment, minor equipment, construction, annual service, upgrades, peripherals, supplies, staffing, certificates of need, and leases. When the organization is considering a replacement (or additional) piece of equipment, these costs should be included in the analysis so that life-cycle costs can be compared. For example, the purchase price of a radiography room from one vendor might be a little higher than the price from another vendor, but over the lifetime of the equipment, service might cost $50,000 less for the (initially) more expensive equipment.

Space for the equipment can be owned or rented; in a hospital environment, the space is usually owned, but in an imaging center, the space is often leased. Whether the space is owned or leased, the costs of buildout will need to be calculated (and funded) as part of the project’s cost. If the space is leased, negotiations with the landlord will often allow you to include buildout costs in the lease terms.

Service Options

For major radiology equipment, many organizations will purchase the equipment, while many outpatient centers might lease the equipment (to improve cash flow for the center). Leases can be obtained from vendors and banks, regardless of funding. In addition to the purchase price, the operating budget must include expenses for equipment maintenance.

There usually are multiple payment options available to avoid an up-front outlay of cash. If the equipment is leased, however, the only choice for service is a full-service maintenance contract from the vendor (similar to the service arrangements required to lease a car). To keep the lease’s cost down, your organization might opt to pay for a maintenance plan separately for each year of the lease and to fund it from the operating budget.

For purchases, there are six primary service options for an organization to compare, in terms of efficiency and cost effectiveness. First, OEMs offer a maintenance plan for a set period of time. There are usually multiple options, and obtaining coverage for glassware, transducers, and cryogens involves an additional contract and expense.

Second, a third-party service organization can cover any and all equipment in the organization. Third, an insurance company will write a policy to cover the department or center and to combine two costs: the policy’s premium and a fixed equipment-repair fund. This company will provide data on the best prices for parts and service in your area. At the end of the year, if actual costs are less than the repair fund’s pool of money, the organization will retain the saving. If the year ends with actual costs exceeding the pool of money, there are no additional out-of-pocket costs, since the risk has been capped.

Fourth, hiring a dedicated in-house maintenance team is another option. An in-house solution might be best if you are managing a large department and/or multiple sites. Fifth, an organization can take the risk and pay for service and parts as needed. Usually, the organization will create a risk pool that is based on the past two years’ failure rates for equipment. With this method, costs are paid from the pool as they are incurred.

Sixth, the organization can use a mix of the other five service options. For example, you can buy a full-service contract on one