Outsourcing as a Strategic Weapon

Robert T. Yokl, President, SVAH Solutions

All healthcare organizations need to dramatically reduce their costs and improve quality to stay relevant in the current healthcare environment where customers are looking for the best value vs. just lowest cost options. One strategic weapon to reducing your hospital’s costs and improving your quality is outsourcing. Generally, outsourcing contracts can represent 12% to 25% of your total purchased services contract portfolio and can be a smarter, leaner, and more productive alternative to insourcing a function.

Strategic Weapon

Companies of all sizes are realizing that outsourcing, or the decision to have an outside party perform non-core support or clinical functions for their organization as opposed to performing it themselves, can be a strategic weapon. Why? Because an outsourced vendor can often provide a key function or service more effectively and cost efficiently than they can deliver with their own staff. For example, a few years ago we assisted a large community hospital to outsource all of their transcription services at a savings of $90,000 while at the same time updating their transcription service platform with state-of-the-art digital dictation equipment with no capital investment. This outsourcing decision put this hospital on par and exceeded their peers’ efficiency in transcription services. In addition, this  decision gave them a strategic weapon in retaining and attracting new physicians to their staff.

Partnership Relationship

A new way to think strategically about outsourcing is as a partnership relationship, aimed at developing a broad and true win-win solution as envisioned by Kate Vitasek in her book Vested Outsourcing, where companies and their outsourced partners become vested in each other’s success. “In a vested outsourcing deal, the economics of the business model are structured so that the company that is outsourcing reduces its costs while maintaining or increasing service levels and the service provider improves its profits.”

Vested outsourcing focuses on four Lean business concepts: Outsourcing, collaboration, innovation, and measurement. “At its heart, vested outsourcing is about all parties in the business arrangement going the whole nine yards to unlock the most efficient and effective solutions to work being performed.” When you look at outsourcing as a partnership, a whole new world of opportunities opens for both parties.

Catalyst for Change

Outsourcing can mean many things to many people, but at its core it can be a catalyst for change. A change that may be needed due to the following:

  • The cost and quality of a function or department has deteriorated.
  • A merger or acquisition has occurred requiring more efficiencies.
  • A costly update of hardware or software can be avoided.
  • New capital investments in new equipment or technologies is delayed.
  • The growing complexity of business, government, and regulatory policies.

These and other reasons for needed change can bring about the perfect opportunity for healthcare organizations to investigate outsourcing as an alternative to insourcing.

Growth Areas

For years, outsourcing in business had been limited to support areas, such as, housekeeping, laundry, materials management, food service, financial, and facilities. Now, hundreds of areas of  outsourcing growth include:

Information Technology Transcription Services
Legal Services Revenue Cycle Management
Software Development Enterprise Data Management
Software Asset Management Cloud Data Storage
Translation Services Portal Content
R&D Research Intellectual Property Management
Brand Management Online Banking
Data Analytics Content Marketing

As you can see, almost any function or service in your company is a candidate for outsourcing. The only question you need to research, analyze, and determine is if outsourcing is a good fit (culturally, operationally, and strategically) for your healthcare organization.

Obstacles to Outsourcing

Even though the sales representative from the outsourcing firm will make his outsourcing offer seem too good to be true, there can be three obstacles to outsourcing that you need to consider before signing a contract:

  1. Loss of employee relationships: Most outsource firms will either hire your employees, or they will hire their own employees to fulfill your contract. Either way, your relationships with these employees is severed forever. This can be a good thing or a bad thing depending on your situation. This fact must be factored into your decision to outsource.
  2. Loss of control: You will no longer have direct control over your outsourced function or service because you will be working through intermediaries to get things done. Even your on-site manager will not have the power to grant all of your requests. Can you live with these constraints?
  3. Loss of local connection: If you are trying to support your local vendors, then there is only a slim chance that your outsourcing vendor will come from your local community. Is this important to you?

If you can get past these three obstacles and the outsource contractor’s proposals look good to you, this could be the right decision for you. My own experience, after managing numerous outsourced contracts, is that the on-site resident manager is the secret sauce in what makes these contracts work as promised. So, make sure you meet and approve your on-site resident manager if you want your outsourcing to run smoothly, effectively, and efficiently.