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What's the low-down on taking the low bid for a diagnostic instrument? Protect yourself and your lab so you don't end up penny-wise, pound foolish in your diagnostic decisions. 

Lured by the Low Bid? Labs, Look before you Leap

Tips on how to avoid cheap tricks in the Tender process

Sten Westgard, MS
February 2017

In this age of heightened reimbursement uncertainty, hospitals and laboratories are more desperate than ever to find ways to cut costs. So every time the lab looks at a new instrument system, the temptation is always to take the lowest bid.

The danger, of course, is that the lowest bid will also have the lowest quality. And that by taking a very short-sighted perspective (i.e. the sticker price), the lab and hospital will end up paying even more in the long run (i.e. through extra runs, more maintenance, higher costs of reagent, calibrators, downtime, and operation). In the worst case scenario, the patient will end up paying because the instrument will deliver poor results, which may miss diagnoses (taking longer to identify health problems) or misdiagnose patients (give them a health problem they don’t have).

This is not so say that every low bid is synonymous with low quality. Given the right reassurances and the right proof, it is of course possible for the lowest bid to deliver high (or at least adequate) quality. But laboratories should never assume that quality is a given, that there is no difference in quality between vendors, and they can simply choose the cheapest price.

However, if you are going to choose the low bid, and you haven’t confirmed the quality, you’d better pack a parachute.

Here are five recommendations:

1. Don't get caught by cost-per-test. If quality fails to live up to your needs and the manufacturer claims, include a provision that shifts from a “cost per test” to a "cost per reportable" basis. If the first test is wrong because the method was manufactured poorly, the laboratory shouldn’t have to pay for that mistake. If it takes two results averaged together to get one decent reportable result, the manufacturer should bear that financial burden.
2. Configure your calibrator, reserve your reagent, and qualify your QC costs. If quality fails to live up to your needs and the manufacturer claims, include a provision that requires the manufacturer to pay for any additional calibrator, QC, and reagent costs when there are excessive out of control problems. Establish in advance what you consider to be an acceptable rejection rate (what % of runs can be out of control). Indeed, you should ask the manufacturer as well as any customers of that manufacturer what that typical rate is. If that out of control rate is exceeded, it’s should be the manufacturer’s responsibility to cover the costs of its poor quality.
3. Don't lose out on labor. Similarly to the previous provision, you should require the manufacturer to pay for the labor costs of techs who have to spend more time trouble-shooting a method that’s demonstrating an excessive out-of-control rate. [Okay, this one is a real stretch. It’s unlikely any manufacturer will agree to this. But when they don’t, essentially they are saying, yes, we’ll give you a cheap instrument up front, and the costs of your staff don’t matter to us – you’ll pay more for the extra labor yourself than you will save on the up front price.]
4. Hold firm on the testing volume. You may specify that the vendors need to bid based on a specific volume of testing. Make sure they stay on that number. In one painful case, I heard of of a laboratory director who didn’t notice that the cheapest bid was also because the manufacturer actually lowered the testing volume they submitted. Thus, when this instrument vendor won the contract, the laboratory was shocked when the actual volume costs were much higher than the bid. But of course they were, because the actual testing volume was higher. It’s a simple trick: if the lab doesn’t notice the lower volume, a manufacturer can easily slip in a lower bid. Sadly, that laboratory manager was fired for their mistake. [Even in this case, it wasn’t the instrument vendor who was punished, it was the laboratory manager who failed to oversee the bidding process.]
5. Invoke the Lab Lemon Law. Ultimately, you need to build an escape hatch. Specify what you believe is an acceptable performance of the instrument (which could include things like the acceptable through-put rate, defect rate, Sigma-metrics, etc.) then you have established the benchmarks to determine whether or not the instrument is meeting the needs of the laboratory. If the instrument is failing, the vendor should have the opportunity to repair or replace the instrument, but ultimately the laboratory should set conditions that allow it to terminate the contract without filling out the rest of the terms. If replacement instruments, or multiple instruments, fail to meet the specifications, there is a clear signal that the vendor is not providing an appropriate instrument to the customer.

There’s a lot of common sense built into these tips, of course. But you’d be surprised how little common sense gets actually captured in the contracts. It could be that there was an understanding that the contract would say X, but the lawyers of the Diagnostic Manufacturer actually draft the language to say Z instead. And when those clauses have to do with money, what matters is the legalese not the handshake. You could be a very unhappy laboratory customer, but if the contract still requires you to pay another year for your inferior instruments, you’d be surprised how inflexible the manufacturer will be. I’ve seen labs where an entire automation track and set of instruments stand idle in an empty room, simply because the laboratory has to amortize the cost for a few more years before they can get rid of it.

These instrument choices are huge financial decisions, and the manufacturers play to win. If your laboratory doesn’t protect itself, you’ll find yourself spending more, getting less, and contributing little to the improvement of the health of your patients.

The best way to avoid bad instruments, out-of-control costs, unresponsive service, and bad test results is to set quality and performance specifications at the very start and enforce them rigorously in the bidding and contracting process. Of course, it's not a surprise that we strongly encourage labs to set Sigma-metrics specifications in the bidding process. If you make quality the foundation of your vendor requirements, and specify how that quality is to be measured, you can avoid a lot of unnecessary work, chronic frustration, and inferior results that come with a cheap, fast, but quality-free instrument.