Busy doctors, nurses or patients' families may not consider the hospital a logical place to take their dry cleaning. After all, how often do those hospital gowns appear crisply ironed and perfectly tailored?
But some of the nation's top outsourcing companies are banking on dry cleaning and other concierge services such as car washing and oil changes to keep hospital employees-and by extension the companies' clients-happy in an increasingly competitive environment.
"We're a hospital, for heaven's sake, we're not a car wash," says Joy Greear, director of support services for four-hospital Presbyterian Healthcare, whose flagship is 490-bed Presbyterian Hospital in Charlotte, N.C. "But you have to be creative and think out of the box, and if that helps retention, we're all about retention."
Greear says Presbyterian has not yet decided whether to offer concierge services through an outsourced contract, after Crothall Services Group, which already handles Presbyterian's patient transportation, offered to provide the new service.
"We're seeing that some hospitals are seeking concierge services as a retention tool," says Steve Carpenter, division vice president at Crothall Facilities Management. "It's in its infancy, but yes, we do offer that ... It's something being requested by potential new clients, and it's a service we can provide."
Offering concierge services is just one way outsourcing companies are trying to differentiate themselves. In addition to adding innovative services, some of the larger outsourcing companies are consolidating to add service lines that their competitors offer, and some have said they are willing to take on more risk in their contracts and partner with their hospital clients in new ways to keep their business.
According to Modern Healthcare's 27th annual Outsourcing Survey, the number of outsourcing contracts for respondents continued to grow last year. The 20 largest outsourcing companies reported a combined 11,324 healthcare clients, up 10.6% from 10,242 the previous year. Of the 15 companies that provided financial information for both 2004 and 2003, total revenue increased 2.7% to nearly $4 billion. The survey provides a nonscientific look at healthcare outsourcing trends as reported by the companies that provide on-site management to entire departments at hospitals, long-term-care facilities and alternate sites such as clinics and physician group practices. Thirty-nine companies responded this year, down from 47 last year.
At 393-bed Battle Creek (Mich.) Health System, about 90% of the support services are outsourced, says Jeremy Evans, vice president of operations.
Keeping core competencies
"I think that what you'll find is most hospitals will self-operate or maintain in-house some of the core clinical competencies," Evans says. "That's what we're about, providing clinical care. When you get into some of the support functions, it may make sense to outsource some of those."
The Battle Creek hospital has outsourced management of environmental services, plant operations and maintenance, as well as food service and nutrition services for about 13 years, Evans says. The contracts with Sodexho Health Care Services cover about 10 managers, who supervise nearly 300 support staff employed by the hospital.
Evans says his hospital does not outsource to save money. In fact, outsourcing "comes at a bit of a premium," he says. But the return comes in the form of improved quality, patient satisfaction and efficiency.
Battle Creek already offers some concierge type services to its employees, but it doesn't outsource the services. "We have looked at that on occasion," Evans says. "The only barrier to that would be the cost."
In other cases, though, hospitals do aim to save money by outsourcing a service they
previously handled themselves. Greear says that outsourcing patient transportation to Crothall last year has allowed Presbyterian to free up nurses-who are in short supply and are paid more than transport staff-to perform clinical functions.
As an example, in one year, patient transporters in Presbyterian's emergency department have done 13,000 tasks that were previously done by nurses, Greear says. The reduced salary costs for transporting patients and increased revenue from nurses seeing more patients led to a $95,000 profit for the department, she estimates. Nurses were able to see about 600 more patients than they would have had they been doing transports, she says.
Unlike Battle Creek, Presbyterian outsources not only the management of departments but the staff who work within those departments, which Greear says is somewhat controversial among providers. "It was a great experience for us, but a lot of people I know are very skeptical about that," she says. "But if you keep them with the hospital, you have to live by the (human resources) rules of two different companies." In Presbyterian's case, its outsourcing contracts with Crothall and Morrison Management Specialists cover about 350 employees who were formerly on Presbyterian's payroll.
Laundry jumped ahead of housekeeping as the top hospital department-management contract in this year's survey, with a total of 4,443 contracts in 2004, up 11.4% from the previous year. Laundry, housekeeping and food service were the top three categories of hospital department management contracts, accounting for a combined 9,778 contracts, up 9.7% from 8,917 the previous year (See chart, p. S2). Housekeeping contracts increased 8.7% to 3,270, while food service contracts increased 7.4% to 2,065. Laundry, housekeeping and food services have been in the top three or top four categories since 2002.
Among the top 20 outsourced departments, by far the greatest growth was in information systems outsourcing. Respondents reported that 252 hospital clients outsourced information systems departments in 2004, up 89.5% from 133 the previous year. This comes as no surprise to providers that are grappling with increasingly computerized clinical technology, as well as a new national focus on electronic medical records and computerized physician-order entry.
Stanley Glassman, senior vice president and chief business development officer for Adaptis, a business process outsourcer to insurers, says healthcare providers invest about 10% of what other businesses invest in information technology. By outsourcing an information technology department, a hospital can tap into the expertise of some of the largest IT companies in the world, he suggests.
"You turn over your whole IT department to them, and they become responsible for strategic direction, keeping modern," he says. "That's very appealing if you're a system executive at a hospital." In addition, diagnostic equipment has become more digitized.
"You need a real strong plan of integrating all this technology both from a patient- care perspective and a business perspective," he says.
In addition, providers can save money by outsourcing to a large IT firm, which can take advantage of economies of scale. Glassman estimates that single hospitals should be able to keep their costs down by at least one-third through outsourcing. "Let's say the hospital has to run a help desk," he says. "They're running it for one hospital. When (an outsourcing company) is doing it, they're doing it for 20 hospitals."
Glassman previously worked as a senior vice president at St. Vincent Catholic Medical Centers of New York, where he oversaw a health plan owned by the system.
Mike Swinford, general manager of Americas Services at GE Healthcare, calls digitizing the workflow "one of the biggest things happening in healthcare right now." There has been a huge increase in capital expenditures in healthcare IT, he says, and "obviously outsourcing plays right into that."
GE Healthcare, which primarily delivers outsourcing services in equipment services and asset management, was among the top 20 outsourcing firms in the survey, although its number of contracts declined 8.5% last year (See chart, p. S5). Swinford says the decline was attributable to providers merging or consolidating more of their assets under single contracts. He says GE's overall revenue from outsourced contracts has continued to climb in spite of the drop in the number of contracts, although the company declined to provide revenue or profit figures in its survey.
Consolidation has also been occurring among outsourcing firms themselves. In August, Crothall Services Group, Wayne, Pa., which ranked sixth among the top outsourcing firms in this year's survey, purchased Kinetic Biomedical Services, Erie, Pa. The acquisition added Kinetic's biomedical servicing to Crothall's other business segments, which include environmental and housekeeping services; plant operations and maintenance; laundry and patient transportation.
The deal was just the latest in a series of similar consolidations, says James Graham, the former president and chief executive officer of Kinetic Biomedical, who remains the head of the division within Crothall through the transition.
In September 2002, Sodexho Health Care Services, the top outsourcing firm in this year's survey as ranked by its number of healthcare clients, acquired Patriot Medical Technologies, which provides equipment maintenance. Around the same time, Aramark Corp., another outsourcing giant, bought Clinical Technology Services, the clinical equipment services business of the Premier hospital alliance.
The recent Crothall acquisition of Kinetic Biomedical is the latest wave and represents "a synergistic add-on" for Crothall, Graham says. From Kinetic's perspective, becoming part of the larger Crothall gave the company greater credibility with some of the large, investor-owned hospital systems the company was courting.
"The food service and housekeeping folks are building a number of arrows in their quivers to be able to contract most of the outsourced services through one entity," Graham says. "That allows them to compete with the Aramarks and the Sodexhos."
Another way outsourcing firms are trying to compete is through more flexible and riskier contracts with hospitals.
Jay Marvin, senior vice president of business development for Sodexho Health Care Services, says firms like his are being pressured to add penalties and rewards-many of which are tied to patient satisfaction and employee satisfaction-to their contracts.
"Words aren't good enough," he says.
Some hospitals are forging contracts that require outsourcing firms to become more of an active partner in the hospital than ever before. Presbyterian's Greear says recent contracts with Crothall have included clauses requiring the outsourcing firm to make capital investments in the hospital, such as facility renovations. The greater the investment, the longer the hospital is willing to extend the contract, she says.
"When I suggested it, there was a lot of scrambling on their side to meet with their financial advisers to make sure it was a win-win for everybody," Greear says.
It can be to an outsourcing firm's advantage to take part in such agreements, she adds. For example, Crothall was willing to help invest in renovating patient rooms. This, in turn, increases customer satisfaction scores and both the hospital and the outsourcer win in the end. "It's been a huge success for us," Greear says. "We're just rolling it out now."
In another example of such a contract, Morrison Management Specialists, a sister company to Crothall that handles Presbyterian's food service, helped renovate Presbyterian Hospital's cafeteria to make it more attractive and increase its offerings. "We are now their hospital that they bring other potential clients to visit," Greear says. "We're kind of the Morrison showcase."
Hospitals increasingly want outsourcing firms to help them hit quality and pay-for-performance targets, says Lynn Massingale, chairman and CEO of physician staffing firm Team Health, which ranked ninth among the top outsourcing firms in this year's survey.
"We are seeing more emphasis on a portion of our compensation, or reimbursement, tied to improvement of CMS quality metrics," he says.
Team Health announced in August that it was planning an initial public stock offering that it expects to complete this fall. It was one of only a few outsourcing firms that reported fewer contracts in 2004 than in 2003, according to the survey. Massingale says that the 4.3% drop in Team Health's healthcare clients was largely attributable to a change in federal contracting policy that reduced its number of contracts with military facilities.
For companies managing entire units at hospitals, some service categories declined in this year's survey. Cardiology contracts declined 9.8% to 415, while anesthesia declined 9.1% to 431. Psychiatric contracts declined 2.3% to 173.
In addition to information systems, other categories that saw significant growth were nursing staff, which increased 30.4% to 103 contracts, and patient transport, which increased 23.1% to 80 contracts.
Of the top 20 outsourcing firms, Crothall showed the largest growth, jumping 54.2% to 700 healthcare clients. Crothall's Carpenter says that while a significant portion of the company's growth has been in environmental services, patient transportation is an increasingly sought-after service.
"Five, 10 years ago, there was nobody offering outsourcing of patient transportation," he says. "It's much more efficient to pay a person wages appropriate for that skill level than pay an RN, who's in short supply, to wheel a patient to radiology and wait on that patient. I think that's an answer to the issue of becoming more efficient with your clinical nursing staff."
A flat market
Despite the optimism among survey respondents, others suggest that outsourcing is not a growth industry. Donald Death is the CEO of Sterling Services Group, a Eudora, Kan.-based firm that supports hospitals' own management teams in areas that are often outsourced-such as housekeeping, food service and laundry. He suggests that about 25% of hospitals outsource housekeeping and about 29% outsource food service, and those percentages haven't grown in recent years.
"The outsourcing market is, in fact, flat," he says. "I'm not saying outsourcing is a bad option at all. All I'm contending is that it's a no-growth option in the market."
Sterling's model is one of "in-sourcing," or working with a hospital's own management team to make improvements to a hospital's support services, with cost and quality guarantees worked into the contracts.
The company has about 150 hospital clients nationwide, he says.
Why do the majority of hospitals choose not to outsource? Death suggests that in many cases it's loyalty to the staff. "If you're a hospital CEO, you've got to be prepared to tell your management team that it's over," he says. "Some are, but some are not, obviously."
Barbara Kirchheimer, a former news editor at Modern Healthcare, is a freelance writer based in Highland Park, Ill. She can be reached at [email protected]
The complete ranking of all respondents to Modern Healthcare's 2005 Outsourcing Survey, along with additional charts, can be found in the Surveys/Lists/Data section of modernhealthcare.com
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