Contract management companies continue to report banner results as more hospitals look to outsourcing options to reduce operating costs.
A thriving industry has developed to do for hospitals what they formerly did for themselves, presumably at a lower price and with greater expertise.
Nearly every company that answered MODERN HEALTHCARE's 18th annual Contract Management Survey reported more contracts than it had the year before. In some cases companies have grown by merging with or acquiring related firms. Still, nobody could argue that outsourcing in healthcare is past its peak.
"I think there is dramatic growth for companies that are willing to change, adapt and be flexible in this ever-changing industry," said Tony Alibrio, president of Marriott's healthcare services division in Avon, Conn. "These are great times for suppliers as well as for leaders in the healthcare industry. It's a matter of maximizing opportunities and breaking paradigms to create opportunities for everybody."
Ninety-three firms responded to MODERN HEALTHCARE's survey of outsourcing companies. That compares with 106 respondents last year and 118 the year before.
Because the samples are different each year, and the sample size changes, it's hard to make direct comparisons of data published in previous years. But the survey does ask each respondent to list its contracts for two consecutive years; that information is the basis for the year-to-year statistics presented here.
The 93 companies had a total of 12,208 contracts in force as of Dec. 31, 1995. That includes hospitals, nursing homes and alternate sites, such as HMOs. Those same companies had 10,105 contracts in force as of Dec. 31, 1994, thus producing a growth rate of almost 21%.
Horizon Mental Health Management is one of the companies riding the wave. "We've seen a strong increase in contracts over the last year. We anticipate that to continue in the future," said Gary Kagan, executive vice president of the Denton, Texas-based psychiatric contractor. Horizon manages 115 mental health programs within acute-care hospitals.
Although the mainstays of hospital outsourcing-food service, housekeeping, laundry and plant operations-all showed modest growth, the real standouts were clinical departments. Emergency, skilled nursing and substance abuse each made solid advances.
Maintenance of clinical and diagnostic equipment also blossomed, to 445 contracts from 289 the year before. Also on the nonclinical side, gift shops and managed-care contracting showed growth.
Emergency department outsourcing grew by one-third, with 317 new contracts last year, the greatest numerical growth in any category.
At ServiceMaster Healthcare Management Services in Downers Grove, Ill., which has more contracts than any other company, the emphasis is on differentiating the product.
"Can every company be equal? It won't happen," said Bill Dowdy, the division's president. "You have the leaders and the followers.*.*.*.*In healthcare, if you're not the leader, you're going to have severe penalties. It's moving so fast."
As cost becomes the dominant factor in healthcare delivery, services increasingly take on the characteristics of a commodity. "You've got to have differentiation to move you out of the commodity area," Dowdy said.
In ServiceMaster's case, that specialty is the ability to bundle lots of arrows from its bulging quiver of services and aim them at the particular needs of its healthcare customers. For instance, the company has hired a handful of "team development coordinators" to set up the integrated teams that handle several functions within a hospital, such as laundry, food service, groundskeeping, housekeeping and transportation.
They also are bundling services into a single monster contract for the hospital or system that wants to deal with one full-service provider instead of several.
Three years ago Harris Methodist Health System in Fort Worth, Texas, and Dallas entered a partnership agreement with ServiceMaster to develop an integrated service model. About 1,000 Harris Methodist employees work with eight ServiceMaster managers to handle those functions at the system's seven hospitals.
Although employees are assigned to a specific facility, they are cross-trained to do a number of tasks. "A single service like cleaning is a commodity," said Harris Senior Vice President Stuart Rollings, but what the system gets from a comprehensive vendor like ServiceMaster is a model for training and motivating employees. Also, the accounting and payroll is centralized at the system level.
The program has worked. The system's budget for these support services has declined by $6 million over three years. Quality, measured by the Joint Commission on Accreditation of Healthcare Organizations, has improved. Where the system had several Type 1 insufficiencies three years ago, in its most recent accreditation exam it had none.
Like ServiceMaster, Marriott has developed a product to stress its management skills and organizational modeling. Called Marriott Pathways for Support Services, it's a partnership with PFCA, an Atlanta-based restructuring consultant. Pathways is geared to hospitals that want to redesign support services using their current management teams and operating systems.
Well known as an operator of restaurants and hotels, Marriott has the second-highest total of contracts, but its strategy differs somewhat from ServiceMaster's. It sticks to what it knows-hotel, food and plant operations-and leaves the medical and clinical departments to others.
Within that zone, Marriott enjoys a certain expertise in "hospitality culture," which it teaches to a facility's own employees after it hires them.
Alibrio sees that as one of the growing trends-taking a hospital's employees along with the contract. At Sharp HealthCare in San Diego, Marriott moved several hundred Sharp employees onto its payroll as part of a $38 million contract signed late last year.
Marriott has two advantages over a local hospital, Alibrio said. First, wages for service workers in hospitals often have risen higher than the local marketplace would otherwise pay. Second, Marriott traffics in its hospitality specialization. "You can do a lot more when an employee knows they are a Marriott employee and they have the opportunity to move to another Marriott facility, hotel or other division," Alibrio said.
Another Marriott innovation is its "cluster management agreement," now in effect for food services at nine Columbia/HCA Healthcare Corp. hospitals in South Florida. Under this arrangement, Marriott brings to the table its food production systems, menus, controls, retail programs and training, but Columbia's employees and managers still cook and deliver the food.
In effect, Marriott acts as an on-site management consultant.
However, unlike a garden variety consultant, Marriott says it guarantees financial results. "It's not profit sharing," said Ric Emelio, senior district manager in Fort Lauderdale, Fla. "It's a negotiated price with each hospital, based on their services and levels of service. That's what we get paid. From that, we have to pay all the operating expenses of the department," although not employee salaries or raw food.
That isn't to be confused with risk sharing, Emelio said. "We have 100% of the risk. It's a potential liability for the company," he said.
The Columbia deal marks the first time Marriott has pulled together a bunch of hospitals under common ownership into one organized management contract. "This is our working model," Emelio said. "There are others in various stages of negotiation."
Normally, a contractor would be able to guarantee a price only by placing its own employees on site. Marriott is saying that's not the case anymore.
"It requires a large amount of trust within the organizations," Emelio said. "It certainly makes the process of change within a facility much less traumatic. They're not getting fired, they're continuing to deal with people with whom they already have relationships."