Outsourcing signals paradigm shift in service agreements

September 8, 2003

Maintenance of medical imaging equipment remains a pebble in the shoe of hospitals concerned about modality downtime. Traditionally, original equipment manufacturers service their own equipment. But entering a service agreement for each modality can be

Maintenance of medical imaging equipment remains a pebble in the shoe of hospitals concerned about modality downtime.

Traditionally, original equipment manufacturers service their own equipment. But entering a service agreement for each modality can be costly, especially when pressure to reduce spending is high and when multiple equipment vendors are involved.

The appeal of outsourcing service and maintenance to third parties is growing, according to a new Frost & Sullivan study.

The change in service delivery incorporates new value-added services - including training, consultants, and 24/7 services - providing a boost to areas currently outside most service spectra.

"Although these flexible services are still in their infancy, the arrival of value-added services signal a paradigm shift in service agreements," said report author Sohail Sheikh, Ph.D.

Both the U.S. and Europe are experiencing similar trends, although Europe is more price sensitive. Third-party service providers are therefore likely to be on slightly more smoother grounds in Europe in terms of market penetration, said Sumit Sharma, a Frost & Sullivan European expert.

"Private sector operators in the U.S. would tend to use a third-party provider," he said.

These independent third-party service providers are normally authorized service vendors on behalf of OEMs, although some are distributors, according to Sharma. In certain regions, however, where price sensitivity is an issue, third-party service providers are completely independent of the OEMs and compete with them directly.

"OEMs are not too concerned about this at this stage as it's more common in smaller and price-sensitive markets, where such competition doesn't really affect their overall business much," he said.

Third-party vendors could be expected to play an active role in hospital purchase decisions as the differentiation by OEMs will be on service standards and price of servicing, according to Sharma. Lower charges by third-party providers increase affordability.

"It's more profitable for the OEMs to outsource their service to a separate organization," he said. "OEMs will be happy with the involvement of third-party service providers as long as they are partnering such organizations. If they do not partner such organizations, they are likely to face competition from them, as customers are likely to switch to lower cost options."