Contracting in Medical Equipment Maintenance Services: An Empirical Investigation

Tian Heong Chan (), Francis de Véricourt () and Omar Besbes ()
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Tian Heong Chan: Goizueta Business School, Emory University, Atlanta, Georgia 30322
Francis de Véricourt: ESMT European School of Management and Technology, 10178 Berlin, Germany
Omar Besbes: Graduate School of Business, Columbia University, New York, New York 10027

Management Science, 2019, vol. 65, issue 3, 1136-1150

Abstract: Maintenance service plans (MSPs) are contracts for the provision of maintenance by a service provider to an equipment operator. These plans can have different payment structures and risk allocations, which induce various types of incentives for agents in the service chain. How do such structures affect service performance and service chain value? We provide an empirical answer to this question by using unique panel data covering the sales and service records of more than 700 diagnostic body scanners. We exploit the presence of a standard warranty period and employ a matching approach to isolate the incentive effects of MSPs from the confounding effects of endogenous contract selection. We find that moving the equipment operator from a basic, pay-per-service plan to a fixed-fee, full-protection plan not only reduces reliability but also increases equipment service costs. Furthermore, that increase is driven by both the operator and the service provider. Our results indicate that incentive effects arising from MSPs leads to losses in service chain value, and we provide the first evidence that a basic pay-per-service plan—under which risk of equipment failure is borne by the operator—can improve performance and reduce costs.

Keywords: maintenance repair; contracting; fine balance matching; service value chain; healthcare (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:inm:ormnsc:v:65:y:2019:i:3:p:1136-1150

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