As hospitals and health systems prepare for a new budgeting cycle, top managers would be wise to analyze the merits of outsourcing noncore services. This is especially true given all the headaches of managed care, reimbursement falloffs, utilization management, labor woes and government regulation.
Last week's special report on contract management (p. 42) showed that outsourcing companies continue to view hospitals as a growth opportunity. Traditional outsourcing services-food and housekeeping-remain the departments most likely to be outsourced. But providers increasingly hire contract managers to handle physical therapy, waste collection and parking services.
As you analyze whether outsourcing is right for you, ask the contract manager for a list of references and a list of clients. Check whether the company delivers on its promises and how employees and patients evaluate services.
Many leading contract managers have invested in technology to improve their service. Some are willing to cut deals with healthcare systems that can guarantee multisite contracts. A few have diversified or entered interesting partnerships that allow for multiservice arrangements.
If your organization gets serious about outsourcing a department, ask about risk sharing and strategic alliances. One of the most intriguing "partnerships" in recent history-Detroit Medical Center's $1 billion information services contract with Compuware Corp.-could serve as a watershed event.
The 10-year contract calls for Compuware's CareTech Solutions to receive about $40 million per year from DMC to buy, install and maintain hardware. Another $60 million per year is earmarked for software development and computer networking. But $150 million over the life of the deal is a risk or a reward, depending on performance service levels, customer surveys of DMC system users, minority participation and DMC's profitability.
There are two things to remember. DMC, which includes seven hospitals, lost $106 million last year on revenues of $1.7 billion. It has cut nearly 2,000 jobs this year and hired turnaround management firm the Hunter Group to manage the system. Compuware aims to become a major player in the healthcare consulting business.
Financial need, motivation and creativity make for a powerful combination.