No, it's not the opening line of a corny joke.
At first glance, donuts and healthcare equipment service contracts seem to have very few, if any, similarities. Surprisingly, they have more in common than you might think. Much like donuts, service contracts come in all shapes and sizes: long, short, portrait, landscape, 12 point type, 3 point type, terms and conditions at the beginning, terms and conditions at the end, etc. Since the consequences of not reading this contract could be detrimental to your business, much like eating too many donuts could be detrimental to your waistline, it's important to read and understand the contract before signing on the dotted line.
A healthcare equipment service contract is a contract where the Original Equipment Manufacturer (OEM) or Independent Service Provider (ISO) agrees to perform corrective and/or preventative maintenance to medical equipment for a specified amount of time at an agreed upon price. Coverages may include onsite repairs, depot repairs, planned maintenance, replacement parts, loaner units, and consumables. Administrators needs to understand that there are different service options available, ranging from time and materials coverage to full service, preventative maintenance only, or depot service only service contracts. So what do donuts and service contracts have in common?
Holes
A donut wouldn't be a donut without its signature hole! While holes are a donut tradition, holes in healthcare equipment service contracts are a lot harder to spot. One service contract might have only the tiny hole of a filled donut while another might have a big hole right through the center.
Holes found in service contracts:
A hole in coverage – This type of hole appears when coverages or services that you thought you were getting aren't actually in the contract and must be paid for out-of-pocket. Examples include, lack of coverage for overtime charges, travel charges, parts, loaners, or training.
Loophole – Also known as the fine print, loopholes give service providers the opportunity to evade a term in coverage. Since providers are more familiar with the intricacies of their product than even the most experienced purchasing professional, it is important to look for loopholes and to make sure that your service provider has a good reputation in their industry. Examples of loopholes include, contract cancellation clauses or termination fees and response time guarantees that are not ironclad.
Pigeonhole – Some OEMs try to pigeonhole clients, especially healthcare facilities, in order to convince them that they need to buy platinum service contracts on expensive medical equipment. Be wary of this; if an OEM or ISO presents you with only one service contract option, they may be trying to pigeonhole you.
On the whole...sorry, couldn't resist! Be sure to get all promises in writing. Just because a sales person verbally told you something would be covered doesn't mean you have a guarantee. A signed contract is a legally binding document. Once signed, your negotiating leverage is completely lost.
Fat
People know that donuts aren't a health food and both donuts and service contracts can carry a lot of fat. In donuts, this fat contributes to the taste; but, when it comes to healthcare equipment service contracts, the fat is price inflation. In most cases, OEMs make their profits on service contracts not on new medical equipment sold. Service contracts are often bundled into new equipment purchases. The bigger the difference between the price of a service contract and the true cost of maintaining equipment, the more fat.
Preservatives
Preservatives are added to donuts so they can stay on the shelf longer. Manufacturers include termination fees in their contracts to preserve you as a customer. Long term contracts and auto-renewal clauses keep you as their clients for years, preserving their bottom line.
How to Choose Healthier Service Contracts
As delicious as donuts are, there's no reason to tolerate holes, fat, and preservatives in your healthcare equipment service contracts. Below are five key areas of the OEM service contract that require special attention when considering the purchase of new medical equipment and corresponding maintenance contract.
1. The Manufacturer's Warranty
Know the length of the manufacturer's warranty. It is very important for the administrator to know exactly when a warranty expires and what conditions may void coverage. If the medical equipment has a lengthy warranty, a service contract may not be necessary until the warranty expires. On a similar note, if the warranty is short-lived, it may be possible to negotiate an extended one.
2. Effective and Expiration Dates
Different terminology with the same meaning may be used, such as contract coverage term, agreement term, service start date/end date, service plan from/to, and contract duration. It's important to fully understand when the service contract begins and ends before signing. It's in the best interest of the service provider to keep customers in long term contracts because it's their most profitable revenue stream.
3. Early Cancellation/Termination
Don't ever presume that a service contract can be cancelled or terminated before the expiration date. If allowed at all, penalizations range anywhere from 25% to 50% of the remaining contract fees. Quite often, long term contracts will not provide an "opt-out" clause for the purchaser, but will allow the manufacturer to terminate the contract early for various reasons. It's important to negotiate an opt-out clause with minimal penalties, especially with long-term contracts.
4. Auto-Renewal Clause
The automatic renewal clause in a service contract does just that – as the expiration date approaches, if written notification requesting termination hasn't been received within 30, 60, or 90 days, the contract will be automatically renewed. If the contract is auto-renewed, the early cancellation/termination fee goes into effect as well. To avoid this, request that the auto-renewal clause be removed altogether from the service contract before signing.
5. Response Time Guarantees
Depending on the medical equipment manufacturer, the definition of "response time guarantee" can vary greatly. In some instances, a response time guarantee can be fulfilled by returning a phone call, sending an email, or simply having someone show up on-site. It is important to get the OEM's definition on what they consider a "response" to be to eliminate unrealistic expectations that you have for future service and support.
6. Misc. Terms and Conditions
Again, depending on the manufacturer, make and model, there are other elements of the service contract to consider when purchasing new equipment:
What is the availability of replacement parts and are they new or refurbished?
How are the payment terms structured?
What is covered during a service call?
Options
One glazed chocolate donut can contain more than 250 calories, so it might be a smart habit to have healthy alternatives always on hand. Similar to donuts, there are alternatives to the standard service contract offered by the OEM. Healthcare equipment service contracts are available through ISOs and EMMP (Equipment Maintenance Management Program) companies. ISOs can service many types of medical equipment. A quick internet search may result in pages of options to choose from. An EMMP offers coverage on most types of electronic equipment, medical and non-medical in nature, at a substantial discount with the ability to utilize your preferred service organization. By researching all of your options before purchasing a healthcare equipment service contract, you will be able to eliminate the holes, fat, and preservatives from your equipment maintenance diet for good.
Emily Kulenkamp is a Business Development Coordinator at Remi, the proven alternative to manufacturer service contracts and extended warranties. Remi helps hospitals, labs, surgery centers, and other healthcare facilities by replacing existing manufacturer agreements with one all-inclusive program. We develop a customized program to meet your unique needs and put you back in control of your maintenance expenditures, while favorably impacting your bottom line. To learn more about Remi and the services they provide, visit http://www.theremigroup.com or call 1-888-451-8916, #1.