Outsourcing nonclinical services has long been a way for healthcare organizations to transfer day-to-day management of noncore functions to firms that specialize in such services. But in the drive to deliver high-quality, cost-effective care, hospitals are considering the use of outside resources to provide clinical and diagnostic expertise as well.

According to a survey on healthcare outsourcing conducted by Waller, a Nashville, Tenn.-based law firm, the top five outsourced patient care services in 2012 were those related to anesthesia, emergency department (ED), dialysis services, diagnostic imaging, and hospitalist care. In comparison, in 2006, the top five outsourced clinical services were dialysis services, sleep disorders, diagnostic imaging, laboratory services, and physical therapy.

Today, additional services that are being outsourced include surgical services and specialty services, such as labor and delivery (laborists) and orthopedics.

“All healthcare providers—particularly those that deliver inpatient care—are looking for ways to contain costs and drive quality. One way this can be done is by outsourcing certain clinical services to companies that have a proven track record of outstanding clinical quality, data-driven results, and robust emphasis on compliance while focusing in-house labor and resources on the organization’s core capabilities,” says Melvin F. Hall, PhD, CEO, SpecialtyCare, Nashville, which provides clinicians and technicians to operating rooms in more than 800 hospitals throughout the country.

No matter the service, providers should fundamentally understand that outsourcing means transferring the work—not the overall responsibility—for a particular program.Assessing the feasibility of outsourcing a particular service, setting expectations, and then following through to ensure that the performance of the outsourcing partner meets those expectations are imperative to the success of any outsourced program.

Why Consider Outsourcing?

Some services, such as emergency medicine and anesthesiology, are commonly outsourced. According to TeamHealth, a Knoxville, Tenn.-based provider of clinical services, out of 5,000 community hospitals nationwide, approximately 81 percent outsource ED care and approximately 90 percent outsource anesthesia, primarily to small, local groups.

Traditionally, the opportunity to reduce cost has made outsourcing such services an attractive option. Improving quality is at the other end of the spectrum of considerations. TeamHealth president and CEO Michael D. Snow describes the decision to outsource as either a defensive or offensive move.

“It comes down to a make-or-buy decision for the hospitals,” Snow says. “Maybe they have a cost structure that is not sustainable, so they’re looking for an outsourced alternative to help them maintain quality, but at a lower price point.”

Exhibit 1

SAS_Outsourcing_Exhibit2

A hospital may want to play offense by enhancing a certain clinical area, such as obstetrics. So the hospital may bring in laborists to try to improve patient satisfaction or even drive volume in its labor and delivery program, Snow says.

Declining payments from government and commercial payers can make outsourcing certain functions, such as imaging services, an attractive option, say authors Damien Coltey, Sandra G. Lawson, and Les Jebson (“Mitigating Outsourcing Challenges,” CFO Forum, HFMA, October 2012). If maintaining profits on these services is too challenging, transferring the service to a group that can more easily spread out costs among several clients is often more cost-effective. Healthcare organizations also may outsource imaging services because they lack the capital funds necessary to invest in new and advanced imaging equipment.

However, as reform puts pressure on hospitals to reduce inpatient volume, meet outcomes targets, and provide cost-effective care, the decision to outsource often is based not on only cost or only quality. “You have to look at it much more holistically,” Snow says.

For example, if a hospital’s 30-day avoidable readmission rates for heart attack increase while patient satisfaction scores decline, the hospital will be penalized under new value-based rules, meaning its payment will decline, as well.

“In many cases, it’s just that local groups lack the resources to deliver on how hospital finances are going to be rewarded going forward,” Snow says. “The steady march toward greater transparency, greater visibility, and higher accountability is making hospitals evaluate their programs, and they are finding that many of their local groups just lack the resources to deliver on that product. That really as much as anything is the source of request for outsourcing proposals that we receive today.”

The ED, in particular, has become more important under healthcare reform, Snow says. As more nonurgent services are delivered in the outpatient setting, a greater number of admissions are coming through the ED, making it the de facto “front door” to the hospital and of major importance to the organization’s business. If a hospital’s patient wait times in the ED or admission times from the ED are too long, patient satisfaction and business will suffer. If the hospital, cannot improve emergency services through internal resources, outsourcing becomes an attractive option, he says.

Additional Opportunities

As healthcare reform affects traditional areas of outsourcing, it also may be creating new areas of opportunity for outsourced services. One possible area for outsourcing that may be emerging as a result of changing payment models is clinical outreach within accountable care organizations (ACOs), says John Boland, managing director in the healthcare practice of Chicago-based Navigant, Inc.

Boland says the need to use midlevel practitioners, such as physician assistants and nurse practitioners, who coordinate care through methods such as patient education and home monitoring, can mean a significant investment—particularly for smaller hospitals.

“In some of the data that I’ve seen, the cost of that outreach program for ACOs has been a very high component of the overall cost of developing ACOs,” Boland says.

According to a 2011 report by the American Hospital Association, the cost of developing an ACO for a single hospital with 80 primary care physicians and 150 specialists is $5.3 million, including $550,000 for ACO managers and staff.

Exhibit 2

SAS_Outsourcing_Exhibit 1

The cost for a five-hospital system with 250 primary care physicians and 500 specialists is $12 million, including $600,000 for ACO management and staff (The Work Ahead: Activities and Costs to Develop an Accountable Care Organization, April 2011, American Hospital Association).

As hospitals work more closely with physicians through some form of clinical integration to meet cost and quality demands, they also need to place physicians in management roles, and these physicians will require at least a basic understanding of employee management. Outsourcing can provide the requisite managerial training that individual hospitals or smaller health systems may not be able to afford.

“Many outsourcing companies put a lot of emphasis into clinical leadership,” says Jason Standifird, CFO of EmCare, a Dallas-based provider of ED and facility-based physician services.

Outsourcing firms, for example, may send on-site medical directors to educational conferences that cover areas such as how to manage employees, how to hold staff accountable, and how to work better with administrative management. The outsourcing partner may even have its own training academy to provide specific education focused on hospital goals.

“Management training is not something taught in medical school,” Snow says.

Sidebar: The Strategic Value of Laboratory Outreach

Assessing Need and Fit

Although outsourcing can offer attractive benefits, it is not necessarily a good option for all hospitals. The first question healthcare organizations should ask in deciding whether to outsource is, “Why?” To answer this question, the organization should critically assess the state of the clinical service that is being considered for outsourcing, the desired end state, and what it will take to get there, Boland says.

“First and foremost, healthcare organizations have to take a real hard look at their own performance, from a clinical side and a cost side. And they have to understand where they want to be,” he says.

For example, does the organization want to reduce readmissions for patients with congestive heart failure to meet payer-required targets? What internal processes would need to be modified or added to reach that goal? How much of an investment would that require?

Additional factors include how the outsourcing will affect internal staff morale and the hospital’s public reputation, Boland says. Will there be a staff reduction, or can staff within the service that is to be outsourced be reallocated to another area? “Hospital leaders also have to take a hard look at the impact on the community and if, in fact, outsourcing is going to put their organizations in a better or worse position moving forward,” he says.

Boland says an organization may rely on its public relations department to gauge the internal and external impact of the outsourcing option through messaging campaigns and other forms of outreach.

The selection of an outsourcing partner also should take into account many factors. Perhaps the No. 1 consideration for a hospital in judging a firm’s fitness as a potential outsourcing partner is whether the firm and the hospital share the same strategic vision. “If hospitals want to have a highly efficient model and are interested in clinical leadership, then they need to choose a partner that can support efficiency and provide access to high-quality clinical leaders,” Standifird says.

Healthcare organizations should also ensure that the outsourcing candidate’s pool of clinical resources is adequate. Can the firm, for instance, adequately staff a site in rural Kentucky with physicians who have experience with small-town living? Would the outsourcing provider be able to quickly pinpoint such candidates?

The pay scale for outsourced clinicians should be fair and market-competitive, and the organization’s retention rate should be excellent to ensure the quality and caliber of the labor remain high, Snow says.

“Through market-competitive rates and appropriate incentive-based provider compensation, physicians are aligned with the hospital’s goals, which results in client satisfaction and retention,” Snow says. Physician and client retention rates for the outsourcer should be at least in the low 90s. “That speaks to the caliber and stability of the organization,” he says.

Establishing Expectations

Organizations may do a good job of assessing the need to outsource and selecting an appropriate partner. However, where they most often fail is in managing the outsourcing relationship, Boland says. “Sometimes the tendency is to think: ‘We’ve outsourced that. Now, we can breathe easier.’ Yes and no,” he says.

It is true that the daily tasks of the outsourced function are now the responsibility of the outsourcing provider; however, the overall responsibility for that service remains with the healthcare organization. Therefore, monitoring the performance of the outsourcing partner and maintaining regular contact are crucial. The best way to track progress is through key clinical and financial performance indicators developed by the healthcare organization and its partner.

In the ED, one metric that can gauge performance is the left-without-being-seen rate. Under the outsourcing partnership, is the hospital reducing the number of people who come to its ED but leave without having been examined by a clinician? Contracts may even be negotiated so that the outsourcing partner’s management services fee could be affected if it does not meet the target for the metric, Standifird says. For hospitalists, one measure of performance may be the hospital’s core measures. Are patients satisfied with the level of physician performance during inpatient stays? Each outsourced area should have a defined metric and a mechanism for regular feedback to discuss performance in that metric.

“What’s important is to have that conversation and set those expectations on the front end, and then expect regular scorecard reviews from your outsource provider,” Snow says.

Successful Outsourcing Outcomes

Outsourcing requires a lot of work, both in the decision to outsource and in maintaining the relationship. But the outcomes may speak for themselves.

Grays Harbor Community Hospital, Aberdeen, Wash., needed better leadership in its ED to improve patient throughput. The hospital selected an outsourcing partner that was able to recruit physicians from the area, which can be important in maintaining a sense of community and finding physicians that represent a good fit, Snow says.

The outsourcing firm also equipped the hospital with expertise required to facilitate improvement. For example, the hospital’s new medical director was trained through the outsourcing firm’s leadership academy, where ED physician and nursing staff also underwent training in communication and teamwork.

By working together, physicians and nurses developed and implemented solutions such as a patient tracking board, streamlined admissions process, scripting tools for patient communication, a rapid-assessment triage, a better way to manage volume surges, and an upgrade to the patient documentation system.

After the new processes were implemented, Grays Harbor’s time to bed after decision to admit was reduced from between 158 and 193 minutes to about 33 minutes; the percentage of patients who left without being seen was reduced from slightly less than 7 percent to about 2.5 percent.

Outsourcing partners are also sometimes more up to speed on technology that can help to make processes more efficient.

Two hospitals (a 101-bed general medical and surgical hospital and a 112-bed acute care community hospital) within one large national health system were able to cut ED admissions time about in half by outsourcing both ED and hospitalist services with the same outsourcing partner and making use of its proprietary software. The outsourcer provided its clinicians with technology that enables ED staff to quickly communicate clinical information (e.g., diagnosis, course of treatment) about patients whom physicians want to evaluate for further care, including observation and possible admission. The ED physicians input the information into the system and send it to hospital case management staff and hospitalists at the same time, enabling all parties to be fully apprised of the patients’ needs and expectations and well-prepared for the new admissions.

Traditionally, this information has been communicated by means such as a telephone or an internal paging system. The technology-based approach speeds up the communication, creating better efficiency. Follow-up questions are also easier to ask and address.

“Now, one firm can direct the efforts of the hospitalist group and the ED,” Standifird says.

The integrated outsourcing model coupled with EmCare’s technology enabled the hospitals to reduce ED admission wait times from three hours to about one hour, Standifird says.

Always an Option

As healthcare organizations consider outsourcing as a way to meet the mandates of healthcare reform, they should look beyond housekeeping and maintenance as areas to outsource. Keeping an open mind about what options are available for outsourcing is important to realizing all of the potential benefits outsourcing can provide.


Robert R. (Reed) Saunders is business development manager, Mayo Medical Laboratories, Rochester, Minn.

Arjen Westerink is director, business development, VitalHealth Software, Milwaukee.

This article originally appeared in the February 2012 issue of Healthcare Cost Containment.

Publication Date: Saturday, November 01, 2014