Dollars and ‘Sense’: Get a Handle on Managing Service Costs

Abstract

You need to fully understand service costs for medical equipment to effectively manage your department. Front-line staff can also benefit from understanding what makes up the total service costs, which can be divided into four basic categories: internal labor, time and material, parts, and contracts. Before delving into each category, let’s start with the cost of service ratio (COSR). COSR is basically the total cost of servicing your medical equipment—salaries and benefits, contracts, parts, time and material, plus overhead— divided by the value of the equipment. Purchase price is typically used for equipment value, and you should only include the value of equipment for which you have budget responsibility. An in -house b io medical department w i l l t y p i c a l l y s e e a COSR in the range of 3-7%, depending on the level and scope of coverage for imaging and lab equipment. Vendors typically charge 10-20% of list price for service contracts, third-party vendor typically charge 7-10% of list price, and a typical software contract on information technology (IT ) equipment can run 20-25% of list price. Understanding the COSR has several benefits: You can track year to year how well you’re managing the budget, you can use it to show your chief financial officer how well you’re controlling costs, you can use the COSR to budget for new equipment, and you can set benchmarks, comparing your department to similar ones.