• When to Outsource Versus Insource

    Lola Butcher Aug 20, 2014

    Outsourcing services—from laundry and information technology to dialysis and hospitalists—can sometimes boost operational performance. Yet, so can insourcing. Which is the best approach? With increasing pressure on their bottom lines, healthcare leaders need to think strategically about the best approach to procuring the various services their institutions need.

    Healthcare organizations that are searching for ways to improve performance with limited resources are embracing a balanced approach to outsourcing. “Right-sourcing” means putting aside preconceived notions that certain services should always be maintained in-house or outsourced. Right-sourcing decisions looks beyond cost savings to consider quality and expediency as well as the organization’s overall business plan.

    The rapid consolidation within the healthcare industry means that many organizations are getting so large and multifaceted that they may need to reconsider their outsourcing versus insourcing strategy. An organization’s size, in and of itself, does not signal that a certain service should be outsourced or maintained in-house. Rather, a period of growth or a major strategic change may mean that the decision may need to be reviewed.

    Catholic Health Initiatives (CHI), which operates 93 hospitals in 18 states, has partnered with several external companies—including a multinational firm that provides IT services and a revenue cycle management company—as part of its strategic plan. J. Dean Swindle, CHI’s CFO and president of enterprise business lines, admires the ideology used by VF Corp., a textile manufacturer based in North Carolina.

    “They’ve said, ‘What are the three or four critical things that we have got to get right? That is what we need to put our internal energy on,’” he says. “Then let’s find ways of partnering with others who have already developed capabilities for the other things.”


    That line of thinking prompted Oklahoma’s INTEGRIS Health System to outsource some of its IT functions—and insource some functions that used to be done externally, says Greg Meyers, system vice president-revenue integrity. “In the last few years, we have really tried to focus on things that touch the patient,” he says. “If we feel we can do a better job and it makes sense financially, we want to bring those functions back within the hospital.”

    Partnering on Capabilities

    Most CHI hospitals have outsourced some services for years, but system-level executives are now looking to external partners for an entirely different kind of relationship. To prepare for value-based purchasing, CHI is in the midst of a five-year plan to close a $2 billion gap between expenses and revenues—and long-term partnerships with service providers is a key element of its strategy.

    pg41_feature-3_chiThe fast-growing organization is reinventing itself to succeed under healthcare reform, Swindle says, and that means strategic decisions about every capability the system needs: Should CHI build the capability internally, buy the capability, or partner for the capability?

    For IT technical services such as help desk, client computing, data center/servers, and network functions, the answer was “partner.” In late 2012, CHI signed a contract with an India-based company that is expected to save CHI $42 million over five years.

    That IT deal came just a few months after CHI announced a partnership with a company that provides patient referral and scheduling solutions, practice analytics and practice management, revenue cycle management, and other services to more than 2,900 CHI physicians.

    Shortly before that, CHI announced a 10-year agreement with a company to provide patient access, revenue integrity, and patient financial services for 56 hospitals, which together generate more than $6 billion in patient revenue each year. That partnership is designed to let hospital leaders focus on patient care and quality issues, while the external partner focuses on improving their financial performance. “If someone has already developed a capability that could help you, why recreate the wheel?” Swindle says.

    That thinking extends to patient care. As part of its partnership strategy, CHI purchased a home health organization with 30 sites in three states and is building it into a national company to serve patients who need in-home rehabilitation or chronic disease management.

    As outpatient services grow in importance, Swindle expects CHI will develop a system-level partnership with companies that own ambulatory imaging or surgery centers to benefit from their retail orientation and lower cost structure. Because freestanding facilities are smaller and highly focused, those companies often provide better customer service, same-day appointments, and faster turnaround times than full-service hospitals, he says: “We are all getting better at those things, but there are certain skill sets in running ambulatory assets that health systems may not have.”

    Choosing partners. When considering system-level arrangements, Swindle prefers the term “partner” to “outsource” because it connotes a longer-term relationship that is about more than saving money. CHI spends months vetting potential partners to determine if their corporate culture and values match those of the Catholic health system.

    During the “discernment process,” CHI leaders assess the potential partner’s business practices by focusing on three key areas:

    • Sponsorship, or the oversight, endorsement, and support by a group that commits to advance the healing ministry of Jesus
    • Ethical issues
    • The social teachings of the Catholic Church

    In addition to verifying that the potential partner’s operations are sound, a multidisciplinary group at CHI seeks to identify any violations of the church’s teachings regarding the rights of workers, labor practices, environmental protection, human rights, and social/community responsibility. That requires a review of the potential partner’s wages and benefits, workplace safety and diversity, child labor issues, support for local businesses, and community benefit.

    Trading employers. The downside of outsourcing is that health system employees may be directly affected. In the case of revenue cycle services, CHI employees remained in their locations, but they became employees of the vendor and were trained to use its processes and technology. Even though such transitions may be good for their careers, the change can be tough to accept.

    “We have a lot of employees who made a very specific decision to work for CHI, or, more importantly, to work for one of our specific ministries,” Swindle says. “When we make a partnership decision, we effectively have impacted that personal relationship.”

    Taking off rose-colored glasses. It is easy to get caught up in the excitement of a new partnership, but don’t get fooled into thinking everything will be a snap, Swindle says. “Regardless of what your potential partners tells you, they are learning your environment as they come in, and there are going to be issues. Be ready for them and be proactive.”

    That means implementing an effective communications plan. In fact, a CHI communications professional is assigned to work specifically with Swindle to make sure that information flows to everyone who needs to know what is happening. “Recognize that there will be some pressure on the culture that you have to deal with and over-communicate everything to the people impacted,” he says.

    Maintaining responsibility. Hospitals may be able to outsource food service and forget about it until the contract is up for renewal, but the kind of long-term partnerships that CHI is developing require constant attention. Communication, monitoring, problem-solving, and optimizing the relationships take time. “Partnering for a capability doesn’t minimize the amount of work you have to do—it’s just a different type of work,” Swindle says. “For your partner to be successful, they need you to be a partner too. It’s a two-way street, and it’s a lot of work.”

    Seeking Value in Radiology

    Outsourcing the reading and interpretation of diagnostic images has become so common that some hospital executives consider it a standard business practice. That is a short-sighted view if health systems want to improve the value of patient care, says Vijay Rao, MD, chair of the radiology department at Thomas Jefferson University Hospitals, a three-hospital system in the Philadelphia area.


    “Before health system leaders get totally enchanted with this idea that they can just outsource readings and save money, they need to look at their radiology group as physicians that need to be engaged in the entire physician team,” she says.

    Reducing unnecessary tests. Rao oversees 60 faculty members and 58 residents who perform nearly 500,000 imaging studies each year. She and her colleagues are fighting against the idea that radiology services are a commodity that can be easily outsourced. Rao does not quibble about the quality of image reading that is performed by radiologists who work for outsourcing firms. Rather, she points out that image reading is just one of many services that radiologists provide—and the importance of radiologists is growing as population health management advances.

    The move to value-based payment gives health systems a financial incentive to avoid unnecessary images. “Radiologists have to become gatekeepers, responsible for making sure that the study that is being requested is appropriate for the clinical condition that the patient is being examined for,” Rao says.

    Under new payment systems like shared savings and bundled payments, unnecessary images—particularly high-tech studies using CT scans, MRIs, ultrasound, and nuclear medicine—are expenses that should be avoided. Further, they needlessly expose patients to radiation that may imperil their health, and they often lead to more extraneous healthcare services. “The more tests you do, the more incidental findings you discover,” Rao says. “Unnecessary tests lead to more unnecessary tests, and lead to more unnecessary procedures and complications.”

    Within the Jefferson system, she and her colleagues are educating physicians and residents about appropriate imaging utilization. They are promoting the use of the American College of Radiology’s appropriateness criteria and developing decision-support algorithms for clinical conditions. They also created a consultation service that allows physicians and residents to get immediate guidance from a subspecialist—a neuro-radiologist or abdominal radiologist, for example—about imaging decisions.

    “Honestly, it’s not the cost savings that really drives the issue of appropriate imaging,” Rao says. “The bigger issue is serving our patients appropriately. It’s a question of quality rather than cost, although both go hand-in-hand.”

    Improving timeliness. Conversely, Atlanta Medical Center South, a 210-bed hospital in Atlanta, turned to outsourcing in 2011 as a way of improving the quality of its radiology services. The hospital was experiencing instability in contracting with different individuals and small groups of radiologists and some physicians expressed concern about the timeliness and consistency of image reads.

    Since deciding to outsource all image reading to a national company, the hospital keeps three general radiologists on-site to manage the radiology program and provide coverage for interventional radiology procedures. This teleradiology approach provides around-the-clock access to radiology subspecialists that the mid-size hospital did not previously have access to.

    “Not only have we stabilized an unstable situation, we now provide a higher level of care in imaging,” says hospital CEO William T. Moore. “Instead of one generalist trying to read the less frequent, highly specialized types of films, we have subspecialists reading them.”

    By outsourcing the work, the hospital controls timeliness: Emergency department final reads are turned around within 30 minutes, inpatient reads within 90 minutes, and outpatient reads within 24 hours. In addition, the contract includes peer review of readings. All radiologists have 2 percent of their reads, selected at random, reviewed by another radiologist.

    “If you have a smaller hospital, with two or three radiologists who are best friends, unbiased peer review can be difficult to obtain,” Moore says.

    Bringing Collections In-House

    INTEGRIS began insourcing its accounts receivable collections in late 2009 when it took a fresh approach to measuring success. Rather than tracking the average number of days in accounts receivable, the 14-hospital system decided to focus on the cost of collection.

    System leaders thought they could reduce collection costs and improve patients’ experiences with collections—and they were right. Insourcing reduced costs by about 25 percent; INTEGRIS now spends about two cents per dollar collected. Plus, customer service calls related to billing and collections decreased by 40 percent.

    “We were able to pay for the collection system software and hardware we bought within three months by reducing the amount that we were paying to external agencies,” Meyers says. “The return on investment for this was probably the best thing we have ever attempted.”

    Taking advantage of technology. INTEGRIS’ success hinges on propensity-to-pay software technology that allows collection activities to be tailored to specific subsets of its patient population. The health system hired six staff members and invested about $400,000 in technology to drive a largely automated collection process.

    The collection agencies that INTEGRIS contracted with previously used a single collections process for all patients, Meyers says. Now, the workflow for each patient reflects the individual’s financial situation and payment history. The patient’s propensity to pay is scored during the registration process, and the patient’s out-of-pocket estimate is calculated as well (see the exhibit below).


    “From the time of registration, we have a very high degree of confidence about whether that patient is going to pay his or her account or not,” Meyers says. “That takes us down lots of different roads on how we handle accounts to make sure that we deliver the best customer experience that we can.”

    The software assigns each patient to one of about 18 propensity-to-pay categories. Automated workflows are programmed into the software to drive different protocols for each category. For example, a patient with a high score gets a “concierge approach”—a call to inquire about the patient’s experience with the hospital and to accept payment that day—while a patient with a very low score is automatically assigned to charity care.

    “It reduces our collection expenses on the back end because we’re not going after balances that we know we are never going to collect,” Meyers says. “We filter those folks out right away so we can focus on those that we know are going to pay at least something.”

    Improving the experience. Within five months of insourcing collections, INTEGRIS had increased monthly collections by $350,000, and it has grown incrementally ever since. Other metrics have also been positively impacted. Days in accounts receivable decreased significantly and point-of-service collections surpassed $15 million in 2013, Meyer says. His staff continually tweaks the system for greater gain.

    Recognizing that the health system did not have the IT expertise needed to optimize its technology, INTEGRIS recruited an individual who had worked with the software vendor. While the technology is key to INTEGRIS’ ability to successfully insource collections, it is far from a turnkey solution. Health systems that wish to bring collections in-house must be committed to continual improvement, Meyers says.

    “First, they should ask themselves if they really are comfortable with the patient financial experience that they have in place,” Meyers says. “And then they must spend the time needed to whiteboard their current collection processes to find where processes are breaking down, where there are opportunities to improve that experience, and where they can take cost out of the system.”

    Outsourcing, then Insourcing

    In some situations, “rightsourcing” means outsourcing activities temporarily, then bringing them in-house. That was the case for Mountain States Health Alliance, serving 29 counties in Tennessee, Virginia, Kentucky, and North Carolina. To prepare for the era of population health management, Mountain States created Integrated Solutions Health Network, which owns the CrestPoint Health insurance company and the AnewCare Collaborative accountable care organization; Mountain States is a provider organization for CrestPoint and AnewCare.

    CrestPoint’s goal is to have 1 million members within five years. But when it launched in 2011, the company had no administrative systems to handle insurance claims and no capacity to manage utilization, patients with chronic diseases, or complex cases. And it lacked the ability to mine claims data and clinical data for insights into population health management.

    Rob Slattery, president and CEO of Integrated Solutions Health Network (ISHN), faced a decision: “How do we mitigate risk associated with doing things that we haven’t done in the past and how do we become good stewards of the financial assets that Mountain States is allowing us to utilize?” The solution was to outsource those functions to another insurance company.

    Within two years, however, success factors were changing. AnewCare had joined the Medicare Shared Savings Program, CrestPoint was responsible for more than 2,600 Medicare beneficiaries in a Medicare Advantage plan, and the organization was managing the health of nearly 15,000 Mountain States employees and dependents—and it needed more powerful data analytics.

    “We had a need that was outpacing the capability of our strategic partner,” Slattery says. “We needed to insource so we could keep up with the demand as we started to enter into these new programs.”

    This year, ISHN intends to bring disease management, case management, and utilization management in-house, while continuing to outsource administrative services. “When it comes to care management and managing populations, that’s done most effectively at the community level,” he says.

    Right-Sourcing for Reform

    Although each healthcare organization will have different needs, most will look externally for some services as they re-tool operations to succeed under healthcare reform, Swindle says.

    “I don’t think any of us have enough time and enough resources, either financial or human, to do everything we have to do, and do it ourselves.”

    Lola Butcher is a contributing writer and editor for Leadership who is based in Missouri.

    Quoted in this article:
    Greg Meyers is system vice president-revenue integrity, INTEGRIS Health System, Oklahoma City, Okla., and a member of HFMA’s Oklahoma Chapter.
    William T. Moore, is former CEO, Atlanta Medical Center South, Atlanta.
    Vijay Rao, MD, is chair, radiology, Thomas Jefferson University Hospital, Philadelphia.
    Rob Slattery is president and CEO, Integrated Solutions Health Network, Johnson City, Tenn.
    J. Dean Swindle is president, enterprise business lines and CFO, Catholic Health Initiatives, Englewood, Colo.

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