Philips, Duke ink five-year technology protection program

May 1, 2002

Deal eases budgeting for service and upgrades Philips Medical Systems is trying out a technology protection plan at Duke University Medical Center. The plan calls for Philips to upgrade the center's Sonos ultrasound system and

Deal eases budgeting for service and upgrades

Philips Medical Systems is trying out a technology protection plan at Duke University Medical Center. The plan calls for Philips to upgrade the center's Sonos ultrasound system and EnConcert workstations over the next five years as part of a multimillion-dollar contract, with payments made in fixed monthly installments. The arrangement allows Duke to receive every upgrade of Sonos and EnConcert, as well as support and services, without having to obtain capital budget approval for each individual upgrade.

Developed over the past year, partly as a response to requests from customers, the technology protection plan is one that Philips hopes to expand to other clients, said Rob Michaels, North American financial services manager at Philips. Until now, the challenge had been to provide a protection program that was cost-effective to both the client and to Philips while keeping in mind that technology continues to evolve.

"As quickly as technology changes and becomes obsolete, the difficulty has been to look into the future and know what new products and upgrades would be coming out," Michaels said. "Of course, that's why a hospital would want to sign up for something like this."

As a longtime customer, Duke was a logical first choice to test the plan, according to Michaels. The medical center has evaluated both the Sonos and EnConcert products through the years and has several Sonos systems in place. From its perspective, Duke expects to realize a number of benefits over the length of the contract.

"We get the best equipment at the lowest possible cost by contracting for large quantities of equipment," said Dr. Joe Kisslo, a professor of medicine at Duke. "We save endless physician and administrative time and expense by contracting over a long period. And we get all this for a fixed monthly cost‹always upgraded as the products evolve."

The monthly charge, which neither Duke nor Philips would disclose, minimizes the medical center's time-consuming budgeting process, eliminating item-by-item purchases and enabling staff to do other things, Kisslo said. Duke expects to save between 40% and

60% of costs that would otherwise be incurred by conventional purchase/lease arrangements.

The agreement calls for Philips to provide software, probes, transducers, and other items‹any upgrades to the two product types‹in addition to maintenance and service, Michaels said.

"At this point, it's not simply a matter of taking an order and pulling something off the shelf," he said. "We have to understand what the customers' needs are, how current they want to stay, how they plan to use the systems, whether they want to include support, and what their financial constraints are. There's a lot of back and forth in putting a program like this together."

During that "back and forth," Duke identified its needs and what items it would likely need. That reduces the likelihood that the medical center will be offered products that it won't need, Michaels said.

"It would be more expensive to refuse such upgrades, item by item, than to just accept them and not use them," Kisslo said. "Not everything will please us, but the overwhelming majority will. If the agreement doesn't work, then we won't do it again."

Michaels added that Philips is considering whether to make such contracts available for other product lines.