FTE is an acronym for Full Time Equivalent. It is a measure of how many people work in a particular company, hospital, or department. People speak of staffing by saying, “We have 5 FTEs,” meaning there is the equivalent of 5 full time employees. This can be any mix that of full or part-time employees which equals 5. FTEs are often measured in fractional people. For example, you may have 2.5 people dedicated to scheduled maintenance.

A universal measure for business, FTEs are widely used in healthcare to compare operational efficiency in an entire hospitals or in like departments in different hospitals. One of the major costs in hospitals is labor – the cost of people. One way to manage costs, or compare efficiency of operations is to compare the number of people it takes to do a particular job. In hospitals, the overall financial health is measured in a variety of ways. One of the hospital-wide cost indicators is FTE per adjusted occupied bed or FTE per adjusted discharge. Either of these compare how a hospital is staffed relative to the volume of business that it does. It is a number that can be further broken down by department. In the department case, FTE count is compared to departmental-specific measures. For example, in surgery, one might measure FTEs per the total number of surgeries performed. In food services, one might measure FTE per number of meals prepared. In nursing, it might be number of registered nurses per patient day. In Biomed, the measure is far from standard, but is usually FTE per number of beds, or number of items of equipment, or dollar value of equipment.

Biomed, Clinical Engineering or whatever you call it, is a small part of the entire hospital. Typically, Biomed account for about 1% of the hospital’s total operational expenses. Being so small, indicators are not specifically developed for us, but instead, indicators which are readily available are borrowed from other places in the hospital. When we were a part of maintenance, we were measured by FTE per square footage of the facility. Now we are commonly measured against discharges. Let me explain the fallacy of measuring FTEs as an indication of biomedical efficiency.

In equipment maintenance, there are two main ways to repair and maintain equipment. The choice is to either hire people to do the needed work as hospital employees, or purchase a contract with a company to perform the work. Assuming even a moderately efficient in-house program, the costs of hiring an outside company is always more costly. Equipment manufacturers are the most expensive, with ISOs (independent service organizations) being somewhat less costly. The use of either of these service options almost always raises costs. But they reduce any FTE-based metrics by removing people from the hospital payroll. If your main metric is FTE, an incentive is created to send your service needs to an outside company, increasing costs, but reducing the FTEs dedicated to equipment maintenance.

More than one hospital administrator has ordered the signing of a new service contract rather than hire another employee. Almost always the cost of the employee and all of the related in-house costs (training, parts, test equipment, etc.) were less than the contract. (The ROI for in-house service of medical equipment is typically far less than 1 year, even when upfront costs are included.) In the interest of managing FTEs, hospitals often pay a premium to outsource work that could be more cost effectively performed by hospital employees. It is bad business for any company to focus so myopically on FTE counts that they lose sight of budgetary costs. As a CFO of a major medical center and university hospital said recently, “FTEs represent a statistic that is closely watched by Senior Management and the Board of Directors – especially in turbulent economic times. However, while FTEs are a visible and pertinent statistic, is anything more closely watched than profitability?”

It is a delicate balance – add an FTE (and the associated costs) or outsource. On one hand, if you outsource the maintenance of major medical devices, you pay a premium, but, theoretically, you offload all of your risk of downtime, extra costs, and the need to manage the service providers. After all, who is better than the original manufacturer to maintain the equipment that they designed, built and sold? Many anecdotal stories exist about how the manufacturer may not be the best to maintain their own equipment. To reduce their costs, many companies train their field service to run on-board diagnostics and then call the REAL expert in a central office. Parts can be shipped in a day or two, and the FSE (field service engineer) can then return to install the parts. Entire, expensive modules - FRUs (field replaceable units) are shipped and swapped, instead of replacing minor components. There are a couple of reasons for this. First, it takes a much less trained FSE to replace an entire module than to fix it. Second, it is efficient to repair these FRUs in a factory-type setting. And third, this makes justification of the ‘value’ of the contract easier to demonstrate when renewal time comes around. When the value of the contract is presented, it is the cost of these FRUs that are included, even if they only needed a $5.00 part to repair it.

If in-house service is used (with hospital employees providing the labor), the actual costs are paid, with no corporate markup or overhead to the hospital. Labor is almost always under $50.00 per hour. Parts can be secured from many different sources so that if one doesn’t have what you need, another is but a phone call away. Manufacturers NEVER purchase parts from anybody else, and there is sometime a several week delay while a part arrives from overseas. And let’s don’t overlook the main benefit of in-hose service – availability. The in-house service personnel are in the building. They can respond (usually) while the procedure is underway, often rectifying problems without the need to reschedule a single patient procedure. They can be observers during procedures if an intermittent problem is suspected. In-house employees are hospital employees, and as such, are much more flexible, accommodating and available than outside service can ever be.

The only real risks to the hospital are losing an expensively trained individual, having a catastrophic failure whose cost exceeds the cost of the annual contract, or experiencing unacceptable downtime. Let’s examine these.

• Losing a highly trained employee is always a fear. A hospital contemplating in-house service of equipment which has a large front-end cost should look at their unique track record with there clinical engineering employees. It is quite likely that past history will prevail. Longtime, stable employees tend to remain that way. And if your Clinical Engineering department is stable, it is a sign of adequate pay, good management, and satisfactory working conditions. You probably won’t be burned by investing in training for an employee.

• Downtime is a scary thought, especially for unique, revenue generating equipment. This can be minimized by making sure that the Clinical Engineering department has contingency plans for all of your important devices. This includes plans if your trained person is on vacation, quits, or is just unable to resolve a problem. The more different resources (including the manufacturer) that your Clinical Engineering department can identify and establish relationships with, the better your chance of keeping downtime to a minimum.

• Catastrophic failures happen occasionally, but in far more instances than not, medical devices cost less than ½ of the cost of a service agreement to maintain in-house. You win much more than you lose. Catastrophic and hugely expensive losses are much more rare than the person trying to sell you the contract would have you believe.

In order to remove the false incentive (reducing FTEs) to outsource medical equipment service, I propose a different indicator for medical device maintenance. Service Value Ratio-SVR (also called Cost Value Ratio-CVR) is a metric which measures the annual cost of maintaining a medical device against its original cost. The simple ratio results in a number which is a percentage ranging from 2.0% to 30%. Because of its nature, it can be used to measure different items, of different scales, of different modalities, and in different hospitals. Studies of this ratio demonstrate that the norms are amazingly consistent among service provider types:

• Manufacturer service (whether by service contract or time and materials) routinely ranges between 10 and 25% of the purchase price of a medical device, regardless of whether the item is a CT scanner, MRI, heart monitor, ventilator, or nursecall system. The higher percentages tend to be correlated with equipment that has proprietary software or is very new technology.

• Independent service organizations (ISOs) tend to reduce costs to the neighborhood of 8% to 12% of the equipment cost. Generally, the broader the scope of service that an ISO has, the lower the cost, relative to equipment value.

• In-house service is the most cost effective of all. In-house medical equipment service can be a low as 4% of the equipment purchase price.

To give a estimate of the potential savings, let’s evaluate the inventory of 1 medium sized hospital, using some national averages. Our Lady of Efficiency Hospital is 200 beds in size, and has a total medical device inventory of 2,475 items. The value (purchase price) of this equipment is approximately $25,000,000. Of this $25 million, 50% of the value is imaging devices, 6% is laboratory equipment, and the remaining 44% is distributed throughout the hospital in all remaining medical equipment.

If outsourcing the $12.5 M imaging equipment with the manufacturer, the cost would be over $1M, and maybe over $2M. Investing in a full-empowered and supported in-house service team, the costs would definitely be below $1M, and could conceivably be as low as $500,000. (Yes, in-house medical equipment service is almost always less than ½ the cost of manufacturer service.)

Cost is the first criteria that must work, but there are other benefits to the in-house maintenance of medical equipment:

1. Your service engineer is almost always just a few minutes away, usually in the same building.

2. Scheduled maintenance can be performed after normal business hours without a huge cost increase, freeing up important equipment for more patients (and revenue generation).

3. Since your service engineers are concerned only with your equipment, they can devote more time to customizing the maintenance needs to your exact applications and usage. Manufacturer recommendations are estimates at best, designed to meet the needs of most installations, in average conditions, with a specific patient volume in mind. To maximize reliability, accuracy and uptime of your equipment, these default maintenance procedures may need to be adjusted for complexity, depth of service, and time intervals. High patient volumes or dusty environments require more frequent and thorough routine maintenance to maintain your expectation of performance. In-house service providers are the best at customizing scheduled maintenance thoroughness, frequency and time of day to local needs.

In summary, managing medical equipment maintenance needs by FTE only will lead you to higher costs and a false sense of security and uptime. A one-dimensional evaluation only maximizes that single dimension. Consider evaluating all factors, with a special emphasis on overall cost for the institution as a whole. Examining the total cost of service as a percentage of the equipment value is a much more effective and accurate metric than using FTE counts.