COVER STORY: OUTSOURCING BOOM : SURVEY SHOWS MORE HOSPITALS TURNING TO OUTSIDE FIRMS FOR A BROAD RANGE OF SERVICES
Skip to main content
Sister Publication Links
  • Modern Healthcare Metrics
MDHC_Logotype_white
Subscribe
  • Subscribe
  • Register
  • Login
  • News
    • This Week's News
    • Providers
    • Insurance
    • Government
    • Finance
    • Technology
    • Safety & Quality
    • People
    • Regional News
    • Digital Edition
    • House Democrats amend drug-pricing bill to boost private plans' cost savings
      Health systems weigh return on investment as they ramp up tech
      KPC Group misses key deadline on Verity hospitals purchase
      Supreme Court may side with insurers on risk-corridor payments
    • KPC Group misses key deadline on Verity hospitals purchase
      Not-for-profit hospitals stabilized by Medicare pay raise, DSH cut delays
      November was healthcare's second strongest hiring month of 2019
      Primary-care provider ChenMed to enter five new markets
    • Plan members unlikely to benefit from Supreme Court risk corridor battle
      Joan Budden
      Q&A: Priority Health CEO eager to share best practices with Total Health Care
      Silver-loading, CSR elimination lowered premiums for some rural enrollees
      Centene to sell Illinois plan to CVS Health
    • Capitol Building with pills
      Week Ahead: House to vote on drug bill; SCOTUS hears risk-corridor case
      MedPAC thinks hospice payments are too high
      MedPAC says ambulatory surgical centers don't need a pay raise
      States focus on healthcare costs to address coverage problems
    • Analysts to CommonSpirit Health: Show us the savings
      Smallest hospitals saw biggest earnings gains last month
      Sutter Health postpones financial filing
      doctor helping patient stock image Sandoz
      Sponsored Content Provided By Sandoz
      As hospital executives look to reduce costs, biosimilars offer a compelling option
    • astronaut
      Astronauts developed bloodstream issues in space
      Sponsored Content Provided By ABM Healthcare
      Protecting and Maintaining Medical Devices
      human hand robotic hand stock image
      Sponsored Content Provided By Deloitte
      The Health System of the Future: How Digital Health Technology is Transforming Care
      EHR
      EHR vendors most in-use throughout Medicare incentive program
    • IHI releases principles for improving patient safety measures
      MRIs of dense breasts find more cancer but also false alarms
      Flu season takes off quickly in Deep South states
      Uber driver says South Carolina hospital dumped patient on him
    • Trinity Health appoints new COO: Ben Carter
      Jim Allison playing the harmonica
      Documentary tells tale of Nobel winning researcher
      Seema Verma
      Seema Verma's bold initiatives land her in No. 1 Most Influential spot
      New CEO takes the helm at Lurie Children's Hospital of Chicago
    • Midwest
    • Northeast
    • South
    • West
  • Special Features
    • Best Practices
    • InDepth Special Reports
    • Innovations
    • Chest x-ray from a patient with a vaping-related lung injury
      Vaping-related cases lead to care guidelines from Intermountain
      Arkansas Children’s was a founding partner in Solutions for Patient Safety.
      Children's hospitals collaborate rather than compete on patient safety
      Peer recovery specialists at St. Barnabas Medical Center work with nurse Brenna Zarra.
      Peer recovery helping patients with addiction seek treatment
      UNC Health Care trains staff to treat dementia patients
    • Linda Kenney
      Patient advocate recalls two medical errors that nearly killed her
      Betsy Lehman
      Recent safety scandals suggest healthcare leaders haven't learned lessons
      Doctors and nurse with patient
      20 years after 'To Err is Human,' hospital care quality measures are still of little use
      Dr. Christine Cassel
      To err is human. That’s still true 20 years later, but some solutions to the problem aren’t helping
    • Advanced ICU Care
      Telemedicine helps rural hospitals meet intensivist shortage
      Randy Oostra, CEO of ProMedica
      HCR ManorCare deal laid foundation for ProMedica’s growth
      Paging Dr. Robot: Artificial intelligence moves into care
      A child being screened for vision problems using a smartphone.
      App screens kids for eye problems before they can talk
  • Transformation
    • Patients
    • Operations
    • Care Delivery
    • Payment
    • ProMedica doubles down on social needs data analysis
      Amazon taps first pharmacy for Alexa Rx management
      Trump administration unveils new price transparency rules
      A child being screened for vision problems using a smartphone.
      App screens kids for eye problems before they can talk
    • Health systems weigh return on investment as they ramp up tech
      VA dives into artificial intelligence R&D
      Home health to pare down therapy services, up telehealth offerings
      Amazon launches medical transcription service
    • Chest x-ray from a patient with a vaping-related lung injury
      Vaping-related cases lead to care guidelines from Intermountain
      Advanced ICU Care
      Telemedicine helps rural hospitals meet intensivist shortage
      Peer recovery specialists at St. Barnabas Medical Center work with nurse Brenna Zarra.
      Peer recovery helping patients with addiction seek treatment
      UNC Health Care trains staff to treat dementia patients
    • Value-based pay still struggles to improve costs, quality
      Hospitals sue HHS over negotiated price disclosure rule
      Bundled payments get a boost in two states with employee programs
      CMS wants primary-care docs to take on financial risk
  • Data/Lists
    • Rankings/Lists
    • Data Points
    • Modern Healthcare Metrics
  • Op-Ed
    • Bold Moves
    • Breaking Bias
    • Commentaries
    • Letters
    • Vital Signs Blog
    • From the Editor
    • Randy Oostra, CEO of ProMedica
      HCR ManorCare deal laid foundation for ProMedica’s growth
      Steve Strongwater
      How Atrius Health stayed independent by not shying away from risk
      Why moving the VA to a new EHR was a pivotal decision
      Why AdventHealth's rebrand was more than a name change
    • Terry Shaw
      A diverse and inclusive culture should empower others
      Paving the path to diversity and inclusion
      The next step in healthcare evolution
      Breaking Bias: A road map to boost women and minorities into healthcare leadership
    • Dr. Richard Snyder
      Outdated privacy laws hinder coordinated care, especially in the fight against addiction
      David Dill and Keith Myers
      Healthcare partnerships are a proven path to better care, healthier communities
      Health systems need to devote more resources to caring for the caregivers
      Chip Kahn and Alan Morgan
      Rural healthcare needs innovation, policy changes to survive
    • Letters: Let’s keep humanity in discussions about patient safety
      Hospital with money
      Letters: Let providers set their prices,
 and then publish them all
      Letters: Ambulatory surgery centers aren't getting a break on regulation
      Letters: Rising Medicaid spending isn't a windfall for providers
    • Sponsored Content Provided By Optum
      How blockchain could ease frustration with the payment process
      Sponsored Content Provided By Optum
      Three steps to better data-sharing for payer and provider CIOs
      Sponsored Content Provided By Optum
      Reduce total cost of care: 6 reasons why providers and payers should tackle the challenge together
      Sponsored Content Provided By Optum
      Why CIOs went from back-office operators to mission-critical innovators
  • Awards
    • Nominate
    • Award Programs
    • Previous Award Programs
    • Other Award Programs
    • Nominations Open - Top 25 Minority Leaders
      Nominations Open - Health Care Hall of Fame
    • 100 Most Influential People
    • 50 Most Influential Clinical Executives
    • Best Places to Work in Healthcare
    • Health Care Hall of Fame
    • Healthcare Marketing Impact Awards
    • Top 25 Emerging Leaders
    • Top 25 Innovators
    • Top 25 Minority Leaders
    • Top 25 Women Leaders
    • Excellence in Nursing Awards
    • Design Awards
    • Top 25 COOs in Healthcare
    • 100 Top Hospitals
    • ACHE Awards
  • Events
    • Conferences
    • Galas
    • Webinars
    • Leadership Symposium
    • Healthcare Transformation Summit
    • Critical Connections: Social Determinants of Health Symposium
    • Women Leaders in Healthcare Conference
    • Workplace of the Future Conference
    • Strategic Marketing Conference
    • Health Care Hall of Fame Gala
    • Top 25 Women Leaders Gala
    • Best Places to Work Awards Gala
    • Top 25 Minority Leaders Gala (2020)
  • MORE +
    • Advertise
    • Media Kit
    • Newsletters
    • Jobs
    • People on the Move
    • Reprints & Licensing
MENU
Breadcrumb
  1. Home
  2. News
September 01, 1997 01:00 AM

COVER STORY: OUTSOURCING BOOM : SURVEY SHOWS MORE HOSPITALS TURNING TO OUTSIDE FIRMS FOR A BROAD RANGE OF SERVICES

Scott Hensley
  • Tweet
  • Share
  • Share
  • Email
  • More
    Print

    Hospitals seem to be bringing on hired hands as fast as they can, according to MODERN HEALTHCARE's 19th annual survey of contract management companies.

    Business is booming across the board, the survey shows. Healthcare executives are turning to outsiders in steadily increasing numbers for a broad range of services once provided by hospital staff.

    Overall, the total number of management contracts reported by 75 responding companies rose 45% to 12,227 in 1996 from the previous year. That includes contracts with hospitals, nursing homes and alternate sites, such as physician clinics.

    Individual companies, even the largest, commonly reported double- and triple-digit increases in numbers of contracts.

    For many healthcare facilities, cutting costs is the main goal of outsourcing. But a growing number of providers also want outside managers to boost service quality in the bargain. They expect more from top-flight hired guns than from their in-house jacks-of-all-trades.

    Sweetening the pot is the fact that outsourcing firms, increasingly national in scope, generally can bring greater resources to the tasks at hand than even large healthcare systems.

    Seeing trends. About 30% of 251 contract managers, or 75 companies, responded to MODERN HEALTHCARE's survey. That compares with 93 respondents last year and 106 in 1995. Many segments of the contract management industry, most notably equipment maintenance, are consolidating rapidly under a few acquisition-minded companies.

    Varying response rates and sample sizes make precise year-to-year comparisons difficult, but nevertheless the data can help illuminate trends.

    Each company was asked to provide data for both 1996 and 1995. Their responses are the basis for calculating the percentage change in contracting volume by company, category and overall.

    Often the response of one giant company will affect the total significantly. For example, the various ServiceMaster companies provided more detailed data for 1996 than had been available in 1995. Thus, growth rates in individual contract management categories, like housekeeping or food service, may be distorted.

    The 12,227 contracts the 75 survey respondents had in effect at the end of 1996 marked a 46% increase from 8,390 in the previous year.

    Hospitals remained contractors' single largest source of business. Outsourcing firms reported 5,189 contracts with hospitals in 1996 compared with 3,189 nursing home and 888 alternate-site pacts.

    Nearly every category of the top 20 outsourcing areas in hospitals registered at least double-digit gains. The exceptions are the relatively specialized areas of accounts receivable, security and child-care centers.

    Outsourcing domination. Traditional outsourcing areas continue to dominate the charts. Many established fields had substantial increases in their contracts. For example, housekeeping and food service, the No. 1 and No. 2 outsourcing areas, reported contract increases of 109% and 21%, respectively, in 1996. Equipment maintenance zoomed to the No. 3 spot, rising 231%.

    Of course, the numbers reflect a combination of consolidation in the contract management business as well as contract growth.

    ServiceMaster Healthcare Management Services, Downers Grove, Ill., led the way with huge gains at least partly attributable to its new reporting method.

    COHR's contract numbers skyrocketed via the Chatsworth, Calif.-based equipment maintenance firm's combination of acquisitions and internal growth.

    COHR reported 409 contracts in 1996, a more than fivefold increase over the 86 contracts it held the previous year.

    It bought nine service companies in 1996, accounting for about a third of its increased contract volume, says David Langness, a company spokesman. Booming sales of a comprehensive service package, marketed as COHR MasterPlan, fueled the rest.

    A case in point is five-hospital Southern California Healthcare, based in Pasadena. COHR began its work with the system in June 1995 by taking over the five-person biomedical department at the system's 554-bed Huntington Memorial Hospital in Pasadena.

    Huntington cut $65,000 from a $900,000 maintenance budget in its first year with COHR, and staffers who use the equipment reported greater satisfaction with the service, says Rob Kessler, the hospital's director of facility service.

    Now COHR is saving Huntington an additional $200,000 by maintaining equipment previously serviced under contracts with the original equipment manufacturers, Kessler says.

    Encouraged, the system turned over its other four hospitals to COHR this year.

    Speaking the minds of many administrators, Kessler says if an outside company "can do it better, at a savings, then I'd be foolish not to look at it."

    Seeking great meatloaf. Whatever the motivation, outsourcing is rapidly spreading in the healthcare industry.

    That might mean hospital executives who dipped a toe in the contract management pool by outsourcing one or two services have found out the water's just fine.

    Contract managers say many of their customers are turning to them for multiple problems from the beginning, instead of outsourcing one headache area and then another.

    Behind executives' decisions is a realization that home-grown isn't necessarily best. Many hospitals believe what they do best is provide healthcare and look for others to handle the infrastructure.

    "We have world-class surgeons, but we don't necessarily make a world-class meatloaf," says Michael Sherrin, assistant administrator at 325-bed Presbyterian Medical Center of Philadelphia.

    Taking a big step, Presbyterian turned over the management of about half its support functions, from plant operations to food service, to Philadelphia-based Aramark Corp. starting in 1994. Sherrin says the wide-ranging agreement has yielded annual savings of nearly $1 million-roughly 6% to 10% of operating expenses-while improving service quality.

    Aramark installed a model program for integrated services at Presbyterian combining a call center with sophisticated computer-controlled scheduling. Using a network of pagers, Aramark supervisors dispatch specialists for such work as physical plant repairs and cross-trained generalists for housekeeping, general maintenance and patient transportation.

    The approach has increased both patient and employee satisfaction. Turnover among support services employees is about 5% annually, far lower than the 15% to 25% typical at similar institutions, Sherrin says.

    Aligning interests. For providers new to the outsourcing game, Sherrin recommends starting with short-term contracts to make sure the outsourcing firm is a good fit. It's easier to expand services or extend contracts later if results are on target than it is to wiggle out of an existing contract.

    Aligning the financial interest of the contractor with that of the customer is another key. Aramark's new four-year contract with Presbyterian, which was signed in February, puts a fourth of the company's $560,000 annual management fee at risk if it doesn't meet certain performance targets. Bonuses are tied to further improvements, Sherrin says. The new contract refines a previous three-year relationship.

    Risk sharing like that is an accelerating trend.

    "Fee-for-service is coming to an end for outsourcing companies," says Bill Dowdy, president of ServiceMaster Healthcare Management Services. "Hospitals are basically saying, `I'm not going to let you take my overhead and make a profit stream for yourself.'*"

    Today's contracts commonly tie companies' compensation to guaranteed savings and customer satisfaction rates. Often, a company's success is measured by an outside research firm like South Bend, Ind.-based Press, Ganey Associates, which independently surveys hospitals' discharged patients and compares results with a database of similar hospitals.

    Easy sell. Regardless of the deals' details, outsourcing is becoming an easier sell because hospital executives are overcoming their longstanding qualms about processes "not invented here," companies say.

    "There's a growing realization that patient care and managing a patient across the care continuum is really a full-time job," says Connie Woodburn, executive vice president at Cardinal Health, Dublin, Ohio, and a former executive at San Diego-based Premier, a hospital alliance.

    When it comes to outsourcing support services, Woodburn says, "some of the stigma has gone away."

    Now the demand for more sophisticated services is growing, she says.

    Cardinal is transforming itself to meet emerging and anticipated demands. About 18 months ago, the company was essentially just a drug distributor, albeit a large one. But in an acquisition tear, Cardinal has added an array of services that go far beyond traditional distribution.

    In the past year, it paid $920 million for Pyxis Corp., a San Diego-based maker of ATM-like drug-dispensing machines, and $145 million for PCI Services, a Philadelphia-based packaging company. In March Cardinal plunged deep into contract management with the $515 million purchase of hospital pharmacy outsourcer Houston-based Owen Healthcare. The last move added 346 pharmacy accounts to the 61 Cardinal already managed through its Allied Pharmacy Management division.

    This May Cardinal inked a definitive agreement to acquire MediQual Systems, a clinical information company based in Westborough, Mass., for about $31 million. Woodburn says the acquisition will help the company capture and make sense of the drug data increasingly available through its expanding services.

    Just last month, Cardinal announced its biggest and perhaps boldest acquisition to date, a proposed $2.8 billion purchase of Bergen Brunswig Corp., Orange, Calif. If completed, the deal will double the volume of drugs Cardinal distributes and consequently the data that can be mined for customers.

    Companies say outsourcing will bring even greater advantages to hospitals as firms like Cardinal help customers make better use of data. "We'll be able to give them more and better information than they've ever had before to take care of a patient," Woodburn says.

    Another firm that is placing bets on the demand for integrated outsourcing is Marriott Management Services.

    "Ultimately I'm convinced we'll be the prime outsourcing partner for nonmedical services throughout the entire healthcare system," says Tony Alibrio, president of Marriott's health services division, based in Avon, Conn. "We've moved from department-by-department management alternatives to integrated delivery of services in integrated health systems."

    One example is Allegheny University Hospitals, MCP, a Marriott customer since 1989.

    In northwest Philadelphia, the 374-bed teaching hospital, formerly called Medical College of Pennsylvania Hospital, has turned over a half-dozen support services to Marriott ranging from groundskeeping to housekeeping. Marriott now has responsibility for most of the hospital's support services. It even took over as general manager of a food service contract in effect between Allegheny-MCP and Aramark.

    The company says its hospitality expertise is paying off in a range of areas, such as a redesign to make the hospital's main entrance and grounds more inviting and efforts to teach support workers how to be friendlier.

    Boosting the quality of service by cross-training employees and reorganizing work through a coordinated dispatching system is a top priority. Because Allegheny-MCP cut costs significantly in a downsizing three years ago, it wanted to improve patient satisfaction.

    But as it turns out, outsourcing support services to Marriott has saved money as well, though Allegheny-MCP says those savings are difficult to estimate.

    "It's cheaper and they know what they're doing," says Terry Lyman, vice president of patient-care services at Allegheny-MCP.

    Still, the real payoff is patient reactions. "Our audience is applauding," Lyman says. "That's what was missing."

    Letter
    to the
    Editor

    Send us a letter

    Have an opinion about this story? Click here to submit a Letter to the Editor, and we may publish it in print.

    Recommended for You
    Sponsored Content
    Get Free Newsletters

    Sign up for free enewsletters and alerts to receive breaking news and in-depth coverage of healthcare events and trends, as they happen, right to your inbox.

    Subscribe Today

    The weekly magazine, websites, research and databases provide a powerful and all-encompassing industry presence. We help you make informed business decisions and lead your organizations to success.

    Subscribe
    Connect with Us
    • LinkedIn
    • Twitter
    • Facebook
    • RSS
    • Instagram

    Stay Connected

    Join the conversation with Modern Healthcare through our social media pages

    MDHC_Logotype_white
    Contact Us

    (877) 812-1581

    Email us

     

    Resources
    • Contact Us
    • Advertise with Us
    • Ad Choices Ad Choices
    • Sitemap
    Editorial Dept
    • Submission Guidelines
    • Code of Ethics
    • Awards
    • About Us
    Legal
    • Terms and Conditions
    • Privacy Policy
    Modern Healthcare
    Copyright © 1996-2019. Crain Communications, Inc. All Rights Reserved.
    • News
      • This Week's News
      • Providers
      • Insurance
      • Government
      • Finance
      • Technology
      • Safety & Quality
      • People
      • Regional News
        • Midwest
        • Northeast
        • South
        • West
      • Digital Edition
    • Special Features
      • Best Practices
      • InDepth Special Reports
      • Innovations
    • Transformation
      • Patients
      • Operations
      • Care Delivery
      • Payment
    • Data/Lists
      • Rankings/Lists
      • Data Points
      • Modern Healthcare Metrics
    • Op-Ed
      • Bold Moves
      • Breaking Bias
      • Commentaries
      • Letters
      • Vital Signs Blog
      • From the Editor
    • Awards
      • Nominate
      • Award Programs
        • 100 Most Influential People
        • 50 Most Influential Clinical Executives
        • Best Places to Work in Healthcare
        • Health Care Hall of Fame
        • Healthcare Marketing Impact Awards
        • Top 25 Emerging Leaders
        • Top 25 Innovators
        • Top 25 Minority Leaders
        • Top 25 Women Leaders
      • Previous Award Programs
        • Excellence in Nursing Awards
        • Design Awards
        • Top 25 COOs in Healthcare
      • Other Award Programs
        • 100 Top Hospitals
        • ACHE Awards
    • Events
      • Conferences
        • Leadership Symposium
        • Healthcare Transformation Summit
        • Critical Connections: Social Determinants of Health Symposium
        • Women Leaders in Healthcare Conference
        • Workplace of the Future Conference
        • Strategic Marketing Conference
      • Galas
        • Health Care Hall of Fame Gala
        • Top 25 Women Leaders Gala
        • Best Places to Work Awards Gala
        • Top 25 Minority Leaders Gala (2020)
      • Webinars
    • MORE +
      • Advertise
      • Media Kit
      • Newsletters
      • Jobs
      • People on the Move
      • Reprints & Licensing