Staying Nimble, Saving Money: Considerations for Outsourcing HR

Recently, hospitals and health systems have begun to hone in on improving efficiency and reducing costs in order to survive and thrive in the new era of healthcare under reform. One area where many healthcare organizations can stand to make great strides in both improved efficiency and cost reductions is human resources.

Historically, hospitals and health systems have fairly complicated human resource departments, since they have fairly stringent requirements to follow when it comes to human resources. For example, nurses, physicians and staff track their time in different ways, which can be difficult to coordinate, causing inefficiencies. On top of, and partly because of, that unique aspect of healthcare organizations' human resources, hospitals tend to patch together human resource software services and processes, which also leads to issues.

"Most…healthcare organizations in particular have a lot of technology and service providers that are involved in the delivery of human resource functions," says Terrence McCrossan, division vice president of ADP Strategy, a provider of business outsourcing solutions. "That creates inefficiency."

That was precisely the case at Pacific Hospital of Long Beach (Calif.). "We actually had three separate vendors involved with time collection and payroll," Tia Schiller, the hospital's vice president of human resources, said in a report. "One handled the time and labor information. Another processed the payroll. Still another printed the checks. It was all very strange, very complicated and extremely error-prone." Those problems and inefficiencies can be solved by outsourcing.

When it comes to human resources, outsourcing can mean a variety of things. "People picture a surrender of control," says Mr. McCrossan. "It generally isn't what organizations get out of a service partner." In fact, outsourcing can involve as little as relying on a partner for payroll processing and tax filing. In most instances, outsourcing means leveraging technology and infrastructure along with administrative efficiency such as tax filing or garnishment processing.

Pacific Hospital of Long Beach ended its human resources madness by outsourcing to a single-source provider, ADP.

Benefits of outsourcing

Outsourcing some or all human resource functions to a single vendor can have a major impact on hospitals' and health systems' balance sheets, opportunity costs and future successes.

Saving money. First and foremost, outsourcing human resource duties to an outside vendor can save hospitals and health systems money. Currently, the average hospital or health system spends anywhere from $1,400 to $2,000 annually per employee for in-house administration of payroll, workforce administration, time and attendance and health and welfare benefits, according to a PricewaterhouseCoopers report, The Hidden Reality of Payroll and HR Administration Costs.

The report, published in 2011, shows that organizations have, on average, a human resources total cost of ownership that is 32 percent higher when managing these functions in-house via multiple platforms as compared to those that outsource to a vendor via a common platform. "Leveraging a service provider, when considered in conjunction with technology, overall is the most optimal way to achieve gains," says Mr. McCrossan.

Opportunity costs. When hospital and health system employees spend time on administrative human resource tasks, they are not able to spend that time on strategic aspects of running and growing a facility. "The more time you spend on administrative tasks, the less time there is for strategic tasks," explains Mr. McCrossan. "[ADP] look[s] to take as much of the administrative tasks as possible so organizations can focus on the strategic tasks."

The staff at Pacific Hospital Long Beach found more time on their hands thanks to outsourcing. "Increased automation means less paper," Ms. Schiller said. "The automation relieves your people of repetitive tasks."

Staying nimble. Healthcare-regulating legislation is anything but static. Healthcare organizations need to keep up with fluctuating laws, whether it be changing tax rates or general employment law. "Most [organizations] don't have that expertise in-house," says Mr. McCrossan. "Leaning on a company that does that full time is a major benefit for these organizations." By outsourcing human resource functions, hospitals and health systems can adhere to change without using their own time and manpower.

Partnering up

Finding the right vendor to outsource to can seem like a daunting task, especially because there is no outsourcing silver bullet that will work perfectly for every organization. However, there are two traits Mr. McCrossan recommends honing in on when choosing a human resources outsourcing partner.

A sliding service continuum scale. While outsourcing human resources can certainly help most hospitals and health systems, deciding on the right level of outsourcing can be difficult. "Every organization has a mix that is optimal for them in terms of internal risk profile or budget or strategic road map," says Mr. McCrossan. Therefore, they should partner with an outsourcing company that allows them to slide along the continuum of outsourcing options without locking in to just one option. That way, as the organization grows and evolves, the outsourcing company can grow or evolve with it.

Future-proof technology. Technology and software are constantly changing and updating, so a human resources outsourcing partner should be able to do the same. "Pick a partner that will keep pace with change," Mr. McCrossan urges. The partner should be able to integrate technology and not corner the hospital or health system into a software model or version that will limit them down the road.

Generally, the right vendor "should allow you to slide [on the continuum] but also bring breadth and depth of technology that allows you to grow and evolve," says Mr. McCrossan.

Ms. Schiller appreciated ADP's ability to adapt to her hospital's future needs. "Their functionality and scalability are enormous features. We know we can count on those solutions to help us efficiently pay and manage our people, whatever the future might bring."

Overall, outsourcing some or all human resource functions can provide major benefits for hospitals and health systems looking to save money, become more efficient and charge into future changes with ease.

More Articles on Hospital Cost Savings:

Can Employee Sleep Coaching Save Hospitals Money?
How to Create Sustainable Hospital Financial Improvement: 3 Steps
5 Hospitals Saving Costs, Boosting Revenue Through Real-Time Capacity Management

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