Outsourcing IT, revenue cycle takes toll on internal culture

Valerie Latimer had worked as a patient registration representative at Intermountain Healthcare for four years. She loved her job—she loved contributing to an organization that cared for the health of the community and working for Salt Lake City’s largest healthcare employer gave her a sense of purpose.

“I don’t know how to explain it,” Latimer said. “Telling people that you worked for Intermountain was something that you were really proud of. It was something that was really respected.”

That all changed Jan. 24, 2018.

In a morning meeting, Intermountain announced it had struck a deal to outsource its revenue cycle services to a third-party company, R1 RCM, with a vision of saving about $70 million over the next three years. Under the deal, 2,300 revenue cycle employees at Intermountain would be switching to R1 as their employer that April.

“We all kind of likened it to being sold off like cattle,” Latimer said.

Intermountain stressed that all affected employees were guaranteed their jobs at R1 without having to apply and at the same pay rate.

“The employees affected by this change are being well-cared for,” Robert Allen, Intermountain’s chief operating officer, said in a statement announcing the R1 agreement in 2018. “We’ve made every effort to ensure their jobs and incomes are secure, while at the same time balancing the need to make changes that benefit our patients and communities.”

As part of the agreement, R1 also established a revenue cycle management technology and innovation center in Salt Lake City, which Intermountain said brings new jobs to Utah.

Intermountain shared statements from two senior executives via email, but did not make them available for interview. An Intermountain spokesperson said some executives who oversaw the outsourcing transition—such as the system’s HR vice president—are no longer with the organization, since it took place two years ago.

R1 said the appropriate executives were not available for interviews and declined to comment further.

Outsourcing ancillary business segments like revenue cycle and information technology has become an increasingly popular way for health systems to consolidate operations and save money.

For those thousands of employees—now working for a different employer, but often still coming into the hospital and sitting side-by-side with remaining system employees—it can feel like they’re left in the lurch. It raises questions about what toll is taken on the employees who don’t get a say in these outsourcing deals and how the hit to internal culture stacks up against cost savings won.

Latimer, after weighing the pros and cons, ultimately decided to take the job with R1, in part because of loyalty to Intermountain. She would continue working at R1 for about a year and a half.

“I was frustrated with Intermountain,” Latimer said of her feelings in 2018. But “I loved the hospital, and I loved the nursing staff, and I loved where I worked. I really wanted to keep that the same.”

Latimer and her colleagues had gone through a form of outsourcing known as rebadging. Unlike offshoring, where a worker’s employment is terminated and their job moves overseas, in a rebadging deal, a worker’s employment is terminated but transitioned to the outsourcing vendor—so they get to keep their job, and maybe even continue to work with the same team at the same location.

Outsourcing, if done well, can provide significant savings.

That’s one of the drivers behind why hospitals across the U.S. have outsourced revenue cycle services to companies like Cerner Corp., nThrive, Parallon and R1. In one of the most recent deals, Adventist Health in Roseville, Calif., transitioned revenue cycle management from Cerner to Huron Consulting Group—rebadging dozens of employees in the process.

Eighty-eight percent of hospitals either have outsourced or plan to outsource inpatient back office revenue cycle management, accounts receivable and collections in 2020, according to a report by Black Book Market Research this year. Most hospitals are also outsourcing IT functions like app development, database management and technology support.

Businesses don’t strike these deals lightly, noted Mark Heaphy, chair of law firm Wiggin and Dana’s outsourcing and technology practice group. There are many reasons to outsource, such as possible cost savings and efficiencies gained from focusing on direct patient care, “but as you can imagine, for companies it can be an alien process, it can be a painful process—an expensive process,” he said.

Interest in outsourcing could rise in the wake of COVID-19, too, as health systems struggle to replenish some of their revenue lost from low patient volumes.

It’s not a foregone conclusion—many purchasing decisions could be put on hold as health systems deal with the pandemic—but any opportunities that might help organizations manage operating costs “will be on the table going forward to figure out how to best to keep organizations solvent,” said David Reitzel, national leader for healthcare IT at advisory firm Grant Thornton.

Rebadging—rather than laying off staff—offers some added benefits, since health systems and outsourcing companies both see advantages from having skilled employees who are familiar with a health system’s internal processes. It also helps to maintain a sense of continuity after a large outsourcing transition.

Rebadging is most common when the majority of an IT department or revenue cycle function is outsourced, said Parrish Aharam, a director in the IT practice at the Chartis Group, a healthcare advisory firm. For smaller outsourcing arrangements, rebadging isn’t as likely.

But while rebadging saves jobs—at least, when compared with offshoring or more aggressive outsourcing deals—it can be jarring for employees.

“One day, you’re a part of something, and then one day we’re all gone,” Latimer said.

It also meant losing benefits the health system had offered. Latimer said she was just about six months away from being eligible for the health system’s pension plan.

In 2018, the same year Intermountain outsourced its revenue cycle services to R1, the health system also rebadged 98 IT employees to DXC Technology.

Marc Probst, Intermountain’s chief information officer, said the health system “worked to minimize the impact” of the transition to DXC by ensuring rebadged workers would be guaranteed employment at DXC for at least one year and building a 10% pay increase into their contract with the company.

“We recognize the change may have been challenging for some of the transitioning employees, but the results have been positive,” he said in an emailed statement.

That included help desk improvements, like getting the average speed to answer IT requests to less than 20 seconds and nearly 70% of requests resolved with the first call, according to Probst.

Multiple former Intermountain employees who spoke with Modern Healthcare said that before their jobs were outsourced Intermountain had been the “perfect” place to work—leadership focused on training employees and made them feel appreciated, like a family. Former employees jokingly referred to themselves as “stepchildren” after being outsourced.

“It just felt like a major betrayal, of ‘Well, we’re all family, except for you,’ ” said Christopher Deal, a former coder at Intermountain who was rebadged to R1. “It felt like, ‘If you’re clinical, you’re important to us—but if you’re back behind the scenes, you’re not really as important. You’re not really family.’ ”

Deal left R1 less than a year later after a recruiter from another healthcare company reached out to him.

All rebadging agreements will differ, noted Nick Fricano, CEO of Healthfuse, a company that manages hospitals’ vendor relationships. But typically, employees at first will remain in the same location and roles. Over time, as vendors look to cut costs, the vendor may employ fewer people on-site, shifting workers or their responsibilities to a service center that manages multiple accounts.

“It’s not that there’s necessarily aggressive termination,” Fricano said. “What we oftentimes see is they’re not filling positions as people leave through attrition.”

He said it’s common for about 30% of employees to leave within the first year of being rebadged.

Some companies do cut headcount if they need to trim costs or no longer need the institutional knowledge of former hospital workers, among other reasons.

David Jefferson said he felt like that after his employer, BJC HealthCare in St. Louis, opted to outsource some of its IT in 2018. Jefferson, a customer support technician who worked on access management, said many of the others on his team were laid off, but he was one of a handful of workers asked to join the third-party IT company.

A BJC spokesperson said the system didn’t have time for an interview by deadline but provided the following statement on its most recent IT outsourcing transition, which took place in December 2019. BJC said that, under that deal, it shifted responsibility for most of its IT infrastructure to an unnamed managed services provider.

More than 70% of workers affected in the deal were placed into other roles at the health system or joined the third-party provider, according to BJC.

“Using managed service providers for IT services is a standard practice in many industries, including healthcare, and enables internal staff to focus resources on IT strategy and business solutions,” BJC wrote in an emailed statement. “We believe this approach enables BJC to take full advantage of the capabilities and core competencies of organizations that provide high-level IT services as their only mission, which will in turn better position BJC to focus on our core mission of healthcare delivery.”

BJC did not respond to a follow-up question on its 2018 outsourcing and hasn’t confirmed what vendors it has outsourced IT to.

Former BJC employees said the system in 2018 outsourced IT jobs to Tech Mahindra in India. Tech Mahindra did not respond to a request for comment.

Jefferson said that while some of his former BJC coworkers are still on staff at Tech Mahindra, he left after his boss in May 2019 told him he would probably be let go later in the summer.

In total, Jefferson worked at Tech Mahindra for less than a year. “I didn’t want to wait (for that), so I found something else and bolted,” Jefferson said. He said he had a feeling he would be let go in the weeks leading up to that conversation.

“I could tell that they probably wouldn’t keep us,” Jefferson said. “Most outsourcing companies try to get by with the bare minimum.”

Even for those who carry on at the new company, it’s a transition. Although on paper employees’ jobs remain the same, it often doesn’t feel that way.

While revenue cycle management firms position themselves as helping hospitals, it’s still a fundamentally different place in the healthcare ecosystem. A health system’s mission is typically to help patients and the surrounding community with their health; a revenue cycle management firm is hired to maintain the health system’s revenue.

So while an employee’s title may remain the same, the expectations for their role may change.

“R1’s focus was based on revenue,” said one former enterprise manager for revenue cycle at Intermountain, who requested her name not be published. She had worked at Intermountain for more than a decade, but went to R1 during the 2018 outsourcing deal. At Intermountain, she had been passionate about educating low-income patients about options like charity care.

She felt that wasn’t a priority at R1.

She ended up leaving R1 after less than a year, exiting healthcare altogether in the process. It was too difficult to find a hospital job with comparable seniority and salary in Utah, she said.

“I wish that the leaders responsible for making this decision would have came down and talked to people about what this would mean and what people’s feelings were,” she said. She said her husband used to jokingly refer to her as an Intermountain “lifer”—before the outsourcing deal—because she had “never planned on leaving.”

“I never entertained any options for looking outside of Intermountain,” she said. “I just wasn’t interested in leaving, ever. I was extremely engaged and happy where I was at.”

An R1 spokesperson said company executives weren’t available for interview by deadline. R1 declined a request for comment on how rebadging at the company works.

Not identifying with a new employer’s mission can be a driving force behind employee turnover after a rebadging, Fricano said. That’s not unique to outsourcing in healthcare, he noted, but health systems do benefit from the fact that “hospitals, naturally, are very mission-driven organizations.”

He said identifying and promoting a mission that employees can rally behind is an important part of retaining workers across businesses in all industries.

“Employees very much respond to having a strong mission,” Fricano said.

Latimer, the registrar who transitioned to R1, stressed that R1 wasn’t a bad job, and she liked parts of it—it just wasn’t the job she had originally signed up for.

She said she thought R1 did a good job of educating patients on how much they’d be paying for services—“which I think is a really good thing,” she said. She often felt her team was helping patients make informed decisions for themselves, and liked how she could refer patients in need to financial counselors for support.

But as a registrar at Intermountain, she had felt like she was helping patients every day. R1, as a revenue cycle management company, had a sharper focus on collecting payments.

“We were not good collectors, necessarily,” Latimer acknowledges of her team. She said she hated feeling like she was “hounding” patients for money. “That’s why we didn’t work for collection agencies prior to that. We could never really keep up in that way, so a lot of the team fell behind because we couldn’t keep up with R1’s goals in the way that they wanted.”

“We just weren’t those personality types,” she said.

Intermountain’s agreement with R1 has been beneficial for the health system, according to senior leadership.

Intermountain has realized year-over-year revenue cycle cost reductions of 13% per adjusted admission since working with R1, according to an emailed statement from Todd Craghead, the health system’s vice president of revenue cycle. As of the end of 2019, procedures implemented by R1 contributed to delivering the lowest net accounts receivable days the health system had seen “in recent history,” with a reduction of more than 16%.

Patient satisfaction has also improved as customer service wait times are now consistently below 60 seconds, according to Craghead.

Overall, Intermountain has “realized significant benefits from the agreement with R1,” he said.

But that tension former employees noted—between the health system’s mission and that of the company—wasn’t just a personal struggle. It sometimes manifested between clinical staff and outsourced employees, too, they said.

“Nursing staff would get frustrated with us, because they felt like we were hounding the patients more for higher dollar amounts at point of service or at that initial collection point, instead of focusing on them getting better,” Latimer said.

Latimer ended up leaving R1 last summer. She said she’s going back to school for a nursing degree, so she can work in a more patient-focused role.

After a division is outsourced, unease can permeate an organization, as remaining staff become concerned it may signal more changes to come.

Sarah Hudspeth said she joined Tech Mahindra after its 2018 BJC deal; similar to Jefferson’s experience, she was let go almost a year later. Ultimately she was rehired by BJC as an IT security risk analyst. She left BJC this year when her husband got a job in another state, but said the fear that emerged when the health system outsourced IT roles in 2018 remains.

“When I left in January, there was still fear of ‘Who’s next?’ ” Hudspeth said. “People were just scared.”

She recalls trying to rally some coworkers to celebrate National Cybersecurity Awareness Month in October, but “that was the hardest thing to get people to participate in.”

“Most of the responses that I got were, ‘I don’t want to have fun at work, because I don’t want to give upper management a reason to let me go,’ ” she said.

Fear can be a common reaction among staff after learning coworkers have been outsourced, with employees worried it could augur more layoffs or rebadging.

It doesn’t always and depends on a health system’s reasons for outsourcing.

But if a health system is mainly outsourcing to reduce operating costs, additional workforce changes are “a real concern,” said Grant Thornton’s Reitzel.

“Some of those key support functions end up with very high labor costs,” Reitzel said, which—from the health system’s perspective—might be managed more cost effectively by a third party.

That’s something health systems should be transparent with employees about, experts say.

How an organization communicates during transitions can set a tone that lasts for years, said Heaphy from Wiggin and Dana. If a health system plans to reduce headcount, that shouldn’t be hidden from employees. Employees notice “how others are treated—and that will set a tone.”

“Don’t hide the ball and say it’s all going to be fine,” Heaphy said. “If there is an element of ‘We’re going to reduce headcount,’ I think you need to be honest about it.”