ArticlesThe Benefits of Competition in the Medical Equipment Service Marketplace (An SIA White Paper) Executive Summary
The United States, being the biggest spender in terms of per capita expenses and the share of the Gross Domestic Product (GDP) devoted to healthcare, is experiencing a continual increase in healthcare expenditures. To keep up with this growth, new technology is in constant demand. The purchase of new technology can actually reduce the cost of medical care but only if it improves efficiency or the utilization of healthcare resources. Another important consideration when purchasing equipment is the after-warranty service decision. While independent and in-house alternatives to manufacturer service can often save money and provide flexibility, the manufacturers have continued to make it difficult to obtain parts and technical information. When there is after-market competition, service pricing is more competitive. Competition between healthcare facilities has a negative effect on hospital costs, meaning that as competition increases, so does cost. When price competition exists, suppliers compete to serve customers whose main objective is to acquire the maximum value for their dollar. Manufacturers have tried to monopolize the after-warranty service market to control the price levels. However, the consumers want variety and choice in determining their service offerings. One of the striking features of the U.S. healthcare economy to date is how little value-for-money competition exists in the delivery of patient services. Delivering high-quality service is essential for success and survival in today's competitive marketplace. The savings that maintenance insurance alone has attributed to the healthcare community is upwards of a quarter of a billion dollars. When there is after-market competition, manufacturers lose the ability to render a product obsolete by arbitrarily terminating after-sale support. Access to non-manufacturer service provides the consumer with the ability to continue using a piece of equipment that they already own for as long as its performance continues to be acceptable to them. However, there is a downside to this concept. Equipment manufacturers' businesses grow with more frequent sales, and the open after-market service takes away from sales. After all, it's usually cheaper to repair than replace. When there is after-market competition, quality of service becomes a service differentiator. Quality service is in the perception of the consumer and whether or not the value equals the perceived service quality. Satisfied customers result in loyal customers, leading to increased profits through enhanced revenues. While it has been proven that complex high-tech devices that experience complicated problems usually experience shorter downtime with manufacturer service, more than 80 percent of service calls do not require special expertise. With factors of quality and price to be considered, end-users should be allowed choices for their service needs. Non-manufacturer services have other important characteristics. Non-manufacturer services providers are vendor neutral, more likely to be crossed trained on many different brands of equipment, and more likely to be able to support and fix a facility's entire equipment inventory. Also, in-house equipment maintenance departments should recognize that they have many interests in common with independent service organizations and should be equally opposed to any attempts by an equipment manufacturer to perpetuate their traditional hold on after-market service. The evaluation of after-market competition is often complex and involved, but the results can provide invaluable insights and value. It appears that the U.S. has become, or at least has made great strides in realizing, a post-industrial society, with services assuming the paramount role in the economy. The service sector in the U.S. accounts for about 75 percent of all employment and more than two-thirds of the GDP. The Resourced-Based View (RBV) states that firms can gain an advantage over competitors by using bundles of resources which are subject to mark inefficiencies. When market inefficiencies surround a competency, the result is uniqueness. The RBV is an insightful perspective in that it points to the object of a firm's focus. Determining uniqueness to differentiate competition is the fundamental idea behind service competition. |