THIS ARTICLE APPEARED IN THE MAY 2016 ISSUE OF ‘CANADIAN HEALTHCARE TECHNOLOGY’
The demands on healthcare systems around the world are on the increase, putting new pressures on governments and on hospitals in particular, resulting in healthcare budgets creeping upwards relentlessly. In Canada, today healthcare consumes roughly 42 to 45 percent of provincial program spending with estimates reaching 55 to 65 percent over the next two decades (J. Simpson in Chronic Condition, 2013).
Despite the escalation in healthcare spending, hospitals face capital constraints that limit their ability to procure, maintain, refresh and upgrade medical equipment. At the same time the pressures to improve patient care continue to be paramount. Traditional purchase, rental and leasing arrangements for medical technology – such as MRIs, CT scanners and ultrasound equipment – are increasingly uneconomical and generally unsatisfactory, as equipment rapidly becomes obsolescent. Budgets constraints and technology obsolescence are serious problems for most health systems globally.
Managed Equipment Services
MES addresses many of the challenges faced by hospitals in relation to medical equipment. MES involves the outsourcing of all aspects of a portfolio of medical equipment to a third party that specializes in providing managed services. The MES provider procures, installs, trains users, manages and maintains the portfolio of medical equipment for a long-term, typically ranging from 15 to 25 years.
The MES provider owns the equipment for the entire term and makes it available to the hospital as an integral part of a managed service, which includes all of the necessary elements to support effective use of the equipment. The portfolio of equipment is replaced by the MES provider on a predictable, pre-arranged basis, in accordance with terms set out in a comprehensive legal agreement. MES ensures that patients and clinicians always have access to the highest standard of equipment, thereby reducing clinical risks and increasing productivity. With MES in place, the availability of in-scope medical equipment is never a problem.
MES converts a traditional asset purchase deal into a services offering, marked by predictable annual service payments and no capital outlay. Because of its significant market presence and narrow focus on medical equipment, the MES provider provides a much higher standard of service at a cost-effective price, often at much below the hospital’s existing cost structure.
Today the outsourcing of non-core activities is a standard practice with most larger organizations. It allows for both a transfer of risks to a specialist organization that is better positioned to manage those risks, and for the hospital to focus on its core role of providing a high standard of clinical services to patients. The platform that MES creates is also often a catalyst for other hospital-wide reforms.
Some of the benefits of MES include:
Recent MES Success Story
Several MES arrangements have now been put in place in Canada. The most recent and perhaps the most advanced is Mackenzie Health’s MES deal with Philips Healthcare, announced in November 2015. The deal, worth over $300 million over 15 years, will provide Mackenzie Health access to state-of-the art medical equipment under a flexible single payment structure that allows for both lower costs and better cost management over the term of the deal. Philips will be accountable for the procurement, installation, systems integration, maintenance and timely replacement of equipment in accordance with a predefined investment plan and the terms of a robust legal agreement, which is structured to ensure accountability, drive continuous improvement and provide Mackenzie Health with ongoing access to Philips’ healthcare innovations.
Some of these innovations focus on systems interoperability, diagnostic imaging equipment utilization, radiology practice management, and patient-centric design, among others. “We want to expand the quality of care we offer in our region, and MES’ flexible payment model makes that possible by making the cost of the procurement and the maintenance of the equipment more predictable and allowing us to better manage annual costs”, says Terry Villella, Mackenzie Health’s Deputy Chief Financial Officer, who was directly responsible for the MES procurement process.
A distinctive feature of MES is its ‘multi-vendor’ nature. While contractually ensuring that it will provide a pre-set percentage of the equipment with the MES portfolio, Philips will also procure and take full responsibility to manage and service equipment from other manufacturers during the term, thereby ensuring clinical choice at Mackenzie Health.
The Importance of Advisors
Putting an MES arrangement in place tends to be a complex undertaking, as it involves a wide range of expertise and skills typically unavailable within the hospital or the vendor organizations. The degree of complexity makes extensive reliance on the advice on the vendors problematic, given the many differing (conflicting) interests.
As Ms. Villella observes “Working with advisors who are highly specialized and knowledgeable about MES and the hospital sector greatly assisted the development of the RFP, the evaluation process and the final selection of the successful proponent”. And she adds, “by structuring an efficient and effective approach to the negotiations’ process, the skills our advisors brought to the table ensured that our healthcare team has ongoing access to the best medical equipment available, on the best terms available in the marketplace.”
Above all, the MES must be customized to the hospital’s specific objectives and needs if it is to be effective and achieve the value the hospital is hoping for. Mackenzie Health was able to achieve a wide range of highly advantageous benefits that are not typically available to hospitals. These include significant financial benefits, comprehensive risk transfers in several important areas, project delivery on time and in line with the original business case, and a highly complex procurement process conducted without a challenge or complaint from any of the proponents.
Given the rapid pace of change in medical technology, hospitals can no longer by themselves hope to keep up with what is required to improve clinical outcomes for patients while at the same time meet the financial and other pressures that confront them daily. MES can be an important part of the solution for many organizations, as it is with Mackenzie Health.