Use of contracted services increased in 16 of the top 20 categories, according to this years survey. Some of the biggest gains came in areas where hospitals have traditionally shied away from outsourcing. They include pharmacy services, which reported a 44.7% increase in hospital clients between 2006 and 2007; accounts receivable, which experienced a 37.1% increase; information systems, which saw a 27.7% gain; and clinical/diagnostic equipment maintenance, with a 20.9% increase.
David Klumpe, executive vice president of enterprise accounts for the Dallas-based group purchasing organization Broadlane, says he isnt surprised hospitals are moving to outsource a broader range of services. The business of running a hospital is incredibly complicated, and as specialty companies emerge that focus exclusively on a particular area of business, then hospitals are interested in using them to achieve best practices, Klumpe says. They are increasingly looking for any source of competitive advantage that they can find.
Hospitals are also increasingly looking toward outsourcing as a method for cutting costs in a tightening economy, says Randy Walter, executive vice president of enterprise solutions and contracts for St. Louis-based GPO Amerinet. A multitude of hospitals are saying, Is there a way we can peel off certain services and move them off-site as a way to save money?
Outsourcing can help achieve that goal by allowing hospitals to downsize their employee rosters, Klumpe says. He notes that some outsourcing arrangements allow hospitals to transfer employees off their payrolls and onto the payrolls of vendors hired to manage the departments. Providers not only are transferring out that salary expense but also the overhead that it costs to provide benefits for that employee, Klumpe says.
While employee satisfaction with such arrangements can vary widely, Klumpe says they can result in win-win situations for workers and hospitals. Those (transferred) employees tend to make more and have greater promotional opportunities, explains Klumpe, who says companies specializing in highly skilled sectors such as pharmacy services or information technology can provide their employees with greater training opportunities and a more sophisticated management structure than most hospital systems.
Such factors are what led Sharp to outsource its clinical and diagnostic equipment maintenance business some years ago, Serpico-Thompson says. There is a very specific expertise that you need but we couldnt get for our biomedical engineers, she says. Now they have access to training that otherwise wouldnt be available.
Payer mandates to improve quality also top the list of reasons hospitals outsource, says Dave Edwards, vice president of supplier relations for the GPO Premier. Many hospitals are looking to shift ancillary operational responsibilities elsewhere so they are free to focus on caring for patients and meeting quality mandates.
The strongest argument for outsourcing is when a hospital has made several attempts to manage a department and they cant get their arms around it, Edwards says. Then they often say, This is drawing our energies and not letting us focus on our core business, which is caring for patients.
While outsourcing can shave dollars off hospitals overall expenses and help staff focus on delivering healthcare services, the practice can also create a need to manage the very activity that was embraced as a means toward simplicity and greater efficiency.
Its not unusual for hospitals not to know how much business theyre outsourcing, says Tina Norris, senior director of purchased services for the GPO VHA. With nursing, for example, you can have several departments outsourcing nurse duties and using several staffing services. As a result, Norris says, hospitals often miss the opportunity to maximize savings by applying the same type of volume-purchasing principles to their service contracts as they do to their commodities contracts.
The need to manage such practices has some hospitals turning to their GPOs for help. At VHA, for example, purchased-services account executives help hospitals get a handle on their outsourcing needs, Norris says. Managing outsourcing contracts are a little more intensive than commodities contracts, she explains. With service agreements, its not uncommon that an outsourced employee will come onboard and live at the hospital. So, theres a lot more involvement on our part in terms of integrating those services into the culture of the hospital. Were going to monitor those agreements and stay with the hospital through the life of a contract.
While VHAs free outsource-contract-assistance services focus more on troubleshooting contracts negotiated by the GPO for the entire membership, Broadlane has stepped into the outsourcing arena with a fee-for-service workforce-management product aimed at helping hospitals standardize their individual contract terms and pricing in the areas of outsourced nursing and allied-health staff, says Jeff Ondeck, Broadlanes senior vice president of workforce management.
We standardize the pricing for a hospital so that it typically pays the same rate for a particular level of employee within a given market, Ondeck says. The service also defines and standardizes the required skill set for each type of contracted employee, guaranteeing hospital clients quality and continuity, he says.
The workforce-management service is essentially a response to hospitals needing help managing their contracted employees, Ondeck says. We definitely get involved in running the contract labor process.