What happens when a health system is in a financial bind that threatens its ability to pay the fees for its outsourced contracts? Its outsourcing partners might be expected to cut off services.
But that's not what happened when St. Vincent Health System in Little Rock, Ark., found itself in financial trouble a couple of years ago. Its information technology vendor, Eclipsys Corp., let the four-hospital system lower its monthly payments substantially until the financial crisis passed. In return, St. Vincent, part of Catholic Health Initiatives, extended the contract and paid back the higher fees at the tail end of the contract period. Neither the company nor the hospital would provide additional details on the deal.
"It was indicative of what you can do with an outsourcing arrangement," says Tommye Billing, St. Vincent's chief information officer and vice president of IT. "It's more than you work for me and I pay you a certain amount."
Successful outsourcing contracts are true partnerships, Billing says. "We both have the same goal, and that is the success of both of our companies."
The decision to outsource a particular function at a hospital-whether laundry, food service, nurses, emergency department or pharmacy-is never a simple one. Sometimes outsourcing allows a hospital to save money, recruit more qualified employees or gain access to best practices. In other cases, it might be unpalatable for a system to cut jobs and farm them out.
Whatever the case, more hospitals seem to be exploring the outsourcing option, according to the results of Modern Healthcare's 28th annual Outsourcing Survey.
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. While slightly fewer companies responded to this year's survey-37 compared with 39 last year-the majority of this year's top 20 firms say their number of healthcare clients rose in 2005.
"There's an increased interest in outsourcing services across the board," says Scott MacLellan, president and chief executive officer of Morrison Management Specialists, a national food service provider for acute-care hospitals and senior living communities.
Morrison, among the top five outsourcing firms in this year's survey (See chart, p. S3), reported 824 healthcare clients in 2005, up 48.5% from the previous year. In Morrison's case, about half of the growth in contracts came from an acquisition. Morrison purchased HDS Services in Farmington Hills, Mich., in part to beef up its Midwest presence, MacLellan says. But Morrison is not alone. Overall, the top 20 outsourcing firms in the survey reported 10,227 healthcare clients, up 16% from 8,820 in 2004. And of the 13 firms that provided financial information, revenue rose 6.4% to nearly $2.8 billion from more than $2.6 billion in 2004.
Hospitals generally are focused on two things, lowering their costs and improving patient satisfaction, MacLellan says. "We've spent quite a bit of time trying to do both of those."
Meeting the unique needs of each client and carving out niches of expertise has become even more important for outsourcing firms as the competition for contracts has grown more intense.
One way Morrison is trying to differentiate itself is by using sustainable and environmentally friendly practices in its food service business where appropriate, MacLellan says. The company has introduced organic products, eliminated trans fat frying oils, and stopped using pork from pigs fed antibiotics. "We're trying to lead the marketplace with that," MacLellan says.
Other companies have tried to gain clients and keep current ones satisfied by adding more services to their portfolios. HHA Services, which provides support services such as maintenance, housekeeping, laundry and transportation to hospitals and other healthcare facilities, added food service to its menu in 2005. Adding food service has increased the number of bids the company has been invited to submit by roughly 25%, says Paul Fayad, HHA's president and CEO. "And then obviously the more we get invited to, the more we win," he says. HHA's number of healthcare clients rose 8% to 95 in 2005.
As some of the giant outsourcing firms have gobbled up smaller ones in recent years, hospitals increasingly are looking for companies that can provide the broad range of services of the major players but also the personal touch of a smaller company, Fayad says.