Contraption protection: How to get your money's worth and safeguard that new equipment

Whether it be medical machines or computer software, getting the right warranty can be key to your peace of mind.

By Tyler Chin — Posted Aug. 8, 2005

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To the chagrin of Inam Rahman, MD, a solo internist and sports medicine physician in Hawaii, the expensive refurbished machine he uses to measure patients' bone density broke down just after its one-year warranty expired.

The manufacturer offered to repair the machine, which had cost $60,000, for $10,000 and -- to the doctor's surprise -- sell an annual warranty for another $10,000. Dr. Rahman, president of the Hawaii Medical Assn., passed on both offers. "If I had known the price of the warranty [and repair] at the time [of purchase], I wouldn't have bought the machine, because I'd have known then that I'd not have been able to generate enough income to afford it," Dr. Rahman said.

Doctors are so focused on cost when they buy electronic medical records software, hardware and medical equipment for their office that they often don't pay as much attention to warranty-related issues as they should, according to industry experts. That's a big mistake, because "if you only look at the cost" without factoring in the warranty, you could end up in a tough situation, said Margret Amatayakul, president of Margret\A Consulting LLC, a Schaumburg, Ill.-based health care technology consulting firm.

Under their warranties, vendors basically state that their products will work as specified in the user manuals and offer remedies, including repair and replacement, if they break down during the warranty period. "If you misuse or use software in ways it wasn't intended [under your contract with the vendor], then it's all over; you've lost all protection at that point," said Rosemarie Nelson, a health care technology consultant in Syracuse, N.Y.

The length of warranty periods for hardware, software and equipment varies, ranging from 60 days to more than a year, experts say. In the case of hardware and medical equipment, doctors can purchase extended warranties. Generally, those warranties aren't available for EMRs, though the annual software support and maintenance agreements effectively serve as extended warranties, Nelson said.

Product warranties are laid out in vendor contracts. Warranty terms, especially for software and medical equipment, can be negotiated at the time of purchase, she said.

Because vendors typically offer limited warranties, which they further erode with disclaimers, negotiating better terms is very important, said Adele Waller, an attorney at Barnes & Thornburg LLP, Chicago. "If you ever read warranties on consumer products, they usually don't last that long, and they usually don't give you that much," Waller said. "It's the same idea in the medical world."

Warranty negotiations

Doctors in small practices could find vendors unwilling to negotiate because they lack the financial clout that large groups have, Waller said. But small practices might be able to win concessions if they negotiate with at least two vendors, playing them against each other, Waller suggested.

That's the tactic that Michael Mytych, principal of Health Information Consulting, Menomonee Falls, Wis., has used successfully. For example, he recently got a vendor to extend the warranty period for an EMR from six months to a year by telling "them that their competitor offered it and that if they did not offer it, then we wouldn't buy their EMR," Mytych said. "When we negotiate on behalf of our clients, we typically tell them that we have a vendor of choice, but we have a No. 2 waiting in the wings. If you don't have a No. 2 vendor, then it puts you at a little disadvantage."

The limitations of a short warranty period can be exacerbated by confusion over when the clock starts ticking. "With medical records software, we want to see it beginning at the first productive use. In other words, after the product is live and [physicians] are using it in a normal fashion; whereas, a lot of the vendors would like to see it begin the day their software is installed on the hardware," Mytych said.

The vendors' definition of installation can pose a problem for physicians, because "you could have that hardware sitting there with software during training set up for two or three months," Mytych said. "That takes up a significant amount of value away from the warranty itself when that happens."

Another potential trouble spot for doctors considering buying an EMR is that some vendors are warranting or selling their software "as is," Amatayakul said. That could be problematic, because after vendors deliver upgrades to physicians, "there's not necessarily a guarantee that they will work with the product as you may have modified it [using the vendor's tool kit]," she said.

Unless that issue is addressed in negotiations, doctors probably will have to pay the vendor or another party to make sure the upgrades are compatible with their system, she said. "That is going to be true for interfaces as well," she said, explaining that if physicians interface their EMR to laboratory and billing systems, they also will have to pay whoever wrote each interface to make sure everything works together.

Trouble or hassle also can come from third-party software such as drug-interaction databases that your primary EMR vendor licensed from other companies. Warranties for third-party software could be offered by your primary EMR vendor, or you might need to negotiate individually with their developers, Amatayakul said. "That's the reason why the first step you should do in negotiating a contract is, first of all, figure out what in the world you're buying," she said.

But if vendors are unwilling to budge, one way doctors can reduce their risk is to "buy a tried-and-true product that has a good track record," Waller said. "If you're buying a known commodity, you're not as worried about warranties because you know ... people have used the product successfully, and it's probably not going to be an issue in terms of basic functionality.

Experts recommend that doctors hire attorneys and consultants who specialize in EMR software contracting to review proposed contracts before doctors even select a preferred vendor. "Basically the contracts, as they are produced by the vendor, are pretty one-sided," Mytych said. "Quite frankly, they are there to protect the vendor; they aren't there to protect the customer. So if you're doing this on your own, chances of you picking off the right things by yourself are pretty small unless you're used to doing this for a living."

If the product in question involves medical equipment, the first thing to do is determine whether the equipment is regulated by the U.S. Food and Drug Administration. If it is, you can't sue manufacturers to honor warranties under state laws, because those laws are preempted by federal law, said John R. Christiansen, a health care technology attorney in Seattle.

Generally, warranties for new equipment are stronger than those for refurbished equipment. That's partly because the latter costs less, has been previously used or is being phased out, experts say. "There's a limited life span to all equipment, and in many cases, it is kind of a buyer-beware with refurbished equipment," Nelson said.

Assess your risk

One way to reduce the risk associated with buying either new or refurbished equipment is to buy an extended warranty. But whether that makes sense will hinge partly on a return-on-investment analysis. For example, if you're considering buying equipment that costs $75,000, you'll have to consider several factors, including how many times you will use it monthly, how long it will take you to recoup your investment and whether the payback period will be longer than the normal life expectancy of what you're buying.

"Let's say you're going to do 10 exams with the machine, and it's going to take three years for it to pay for itself at that rate, and the warranty is just for two years," Nelson said. "Do you want to buy an extended warranty plan for one more year? Well, let's look at it. You're spending $75,000 on a machine. If you look at that as the third year, there's a risk you're not going to get $25,000 of your investment back. The extended warranty will cost you $10,000. Maybe you will buy it.

"But the reason there's a maybe in there is that if this was a black-and-white decision, it'd be easy. But we have to go back and look at who's the buyer and how risk-averse is that physician. It comes down to who's more of a gambler versus who's the more conservative individual who just doesn't want to take a chance and wants to have everything covered by the warranty."

Scott A. Turner, MD, a solo family physician in Osceola, Mo., doesn't invest in extended warranties, betting that hardware and equipment in his office won't break down or need to be replaced before it becomes obsolete. He doesn't worry or think about product warranties. "It does not cross my radar screen," Dr. Turner said. "Maybe it's because I'm either not having any trouble or because I just don't pay attention to it."

Unlike Dr. Turner, Dr. Rahman is a lot less risk-averse than he once was. He now buys extended warranties for computers. He also recently called another vendor in an effort to buy a warranty for a piece of equipment he bought two years ago for $35,000 under a five-year lease.

"They said, 'Well, you don't need the warranty. If the machine breaks down, you can buy the warranty at that time and we will fix it,'" Dr. Rahman said. "Some companies could be honest, but I'm reluctant to believe them in light of what has happened to me. I've become very sensitive [to warranty issues]. I just want to make sure that whatever they are saying should be in writing."

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Limited protection

The phrasing will vary from vendor to vendor, but you can expect to find a boiler-plate disclaimer similar to the one below, excerpted from a contract used by an EMR vendor. Similar language could appear for other products:

Company does not warrant that the software will meet your requirements, that the operation of the software will be uninterrupted or error-free, or that all software errors can be corrected. Except for the limited express warranty during the warranty period, the software is provided AS IS. ... Whether oral or written, implied or statutory, without limiting the foregoing, any implied warranty of merchantability, implied warranty against infringement and implied warranty of fitness for a particular purpose are expressly excluded and disclaimed.

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Warranty glossary

Express warranty: The vendor guarantees that its product will do what it has been represented to do, as long as you use in accordance to the user manuals and comply with certain conditions, such as using appropriate hardware.

Fitness (for a particular purpose): A warranty that is implied by law unless it is disclaimed, that a product is "fit" (appropriate) for use for a particular purpose. This implied warranty usually is disclaimed by most software and computer vendors, due to the risk of confusion about the definition of "fitness," but this kind of disclaimer does not affect the express warranties made in the agreement between the vendor and client, said John R. Christiansen, a health care technology attorney in Seattle.

Merchantability: Another warranty implied by law that the product is appropriate for its "ordinary" use, Christiansen said. Like the implied warranty of fitness, the implied warranty of merchantability usually is also disclaimed because of the risk of confusion, and this disclaimer does not affect express warranties.

Third-party software: Software that is owned by another party or vendor.

User materials: The documentation, including user manual, that among other things, instructs you how to use the vendor's product.

Warranty of noninfringement: The vendor's assurance that it is not using or distributing someone else's intellectual property without their authorization.

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