9 Thoughts on Outsourcing: When To Outsource and How to Do it Successfully

Hospital budgets are become increasingly constrained as a result of declining Medicare reimbursements, less funding and a struggling economy. Because of these dynamics and in efforts to protect their bottom line, many hospital CEOs are turning to outsourcing various services, including hospitalist units, nursing staff or food services, as a cost-cutting measure. Here are nine key considerations hospitals must beware of on the issue of outsourcing.

1. Not everything should be outsourced. Services, whether clinical or nonclinical, should never be outsourced to vendors without a thorough investigation of whether that relationship maximizes clinical outcomes and greatly helps a hospital's bottom line. "At every hospital, the board and executive team need to do an accurate and rigorous assessment of their strengths and weaknesses," says Connie Curran, EdD, RN, president of Best on Board. "If a hospital finds, for whatever reason, it's really good keeping costs down but has trouble maintaining patient satisfaction because of long waits in the ER, it should consider installing a new manager in the ER to supervise that department's processes. If that doesn't work, the hospital can then consider bringing in someone from the outside."

Irwin Hurn, a hospital executive and partner at executive services firm Tatum, agrees contracting services should depend on what resources and expertise are already immediately available to a hospital. "In terms of what you should outsource, it'll depend. For example, let's say a hospital needs ten security staff members, but there's already a security director," he says. "The hospital CEO will probably want to handle that staffing issue internally, but some organizations have staff turnover. So if a hospital CEO is lacking that expertise, they'll want to look outside the hospital for help. What's important is to get beyond just wanting somebody to do it for cheaper."

2. Research which vendor is the best fit. Kevin Troutman, partner at law firm Fisher & Phillips and chairman of the firm's healthcare practice group, says hospitals would benefit from talking to their peers and other hospitals that have experience in outsourcing with a particular vendor. Consulting other healthcare organizations can help a hospital weed out vendors that may not be a good fit from the get-go. Aside from determining which vendors provide better services compared to others, it's also in a hospital's best interest to carry out reference checks to gain additional feedback on candidates and ask for materials explaining each company's background and services.

"Hospital CEOs want to make sure that other key executives are also involved in the process of choosing which company fits the best," Mr. Troutman adds. "For example, for almost any clinical service you outsource, those contracted employees are going to be interacting with your nursing department. So you want to make sure your key nursing leaders are involved."

3. Conduct meaningful in-person interviews. Hospital CEOs should conduct in-person interviews with potential vendor companies in a strategic way that will allow better insight into the vendor's compatibility with the hospital. One way to conduct more meaningful in-person interviews is by asking candidates various "scenario" questions, which will help hospital CEOs gauge how that candidate would react to a specific situation.

"During the interview, you'll want to think back to some hard times your organization has encountered, put that to the candidate and ask them how they'd respond to that situation," Mr. Hurn says. "If you're trying to improve a patient's wait time in the ED, ask the candidate what they've done before to improve that area of weakness. Other critical questions could include how to get a buy-in from staff on solving issues together, how to gain the confidence and cooperation of physicians they'll be working with and so on."

4. Make sure the vendor is aligned with your hospital's core values. Hospital leaders must remember that outsourcing a particular service is not as easy as plucking a company from a list of vendors and inserting it into the organization — at least not without any serious complications. Hospitals have to be absolutely crystal clear with vendors what their core values are. If a hospital has a strong religious affiliation, the hospital CEO is responsible for communicating that core value to the contracted vendor.

"Hospitals want to communicate with these companies that this is the way patients are treated, that it says please and thank you and it cleans between patients," Dr. Curran says. "They have to have the mindset: 'This is our hospital, we own it, our name is on this place, and although you might be managing a certain department, you have to respect our organization's values and give evidence to those values'."

5. Establish clear goals and accountability. Another key to ensuring a successful outsourcing venture is to stay involved in that vendor's processes and procedures from start to finish. This means hospital CEOs must first lay down clear expectations of what the hospital hopes to achieve through the vendor, set measurable goals and keep the vendor accountable to those expectations and goals. Dr. Curran says hospital CEOs must remember that they always are held accountable by their patients, so extra measures must be taken to ensure the hospital and the contracted vendors are always on the same page.

"Hospitals have to be very careful that they don't just delegate all responsibilities to that company once they're contracted because at the end of the day, hospital CEOs still own all responsibility and are held accountable for the care and lives of every employee and patient," Dr. Curran says. "If, for example, a hospital looks at the rate of patients leaving without medical advice and finds the hospital is at 22 percent of patients, the hospital will want to come to an agreement on a timeline and outcome goal so the contracted vendor is clear on where exactly they're coming in."

6. Offer incentives and rewards for achieving great quality measures. Mr. Hurn suggests setting up a system of incentives or bonus payments for great performance. As more hospitals take on pay-for-performance measures for their physicians and employees, adopting that same approach for contracted vendors can help achieve goals in a more timely and efficient manner.

"In the contract, a hospital CEO may want to add on top of the base compensation a certain amount if the contracted service is able to achieve a higher level of performance," he says. "For example, if you're contracting out your hospitalist unit or laboratory services and they're charged with reducing patient wait time or reducing the number of infections, you may want to attach different bonuses to those goals to encourage them in that way. Overall, this will help the hospital in the long-run."

While setting up goals and pay-for-performance programs can help contracted employees stay on a clear path toward a specific goal, Mr. Hurn warns hospital leaders to watch for unintended consequences. Specifically, hospital CEOs will want to make sure that in the pursuit of achieving improved outcomes in one service, the quality of another service is not being compromised. "For example, let's say a hospital wants to reduce the rate at which a patient leaves an ED without being seen because of long waits and hires a contracted ED manager to shorten the wait. The hospital wants the ED manager to reduce that to zero but not sacrifice quality of care or patient satisfaction because they've been rushed through a visit."

7. Break down the silos between employees and contracted workers. Another critical factor to a successful experience with outsourcing services is to ensure the contracted company is integrated into the organization as seamlessly as possible. A cohesive culture, based around the same core values, is essential to continued employee and physician satisfaction as well as improved outcomes.

"A hospital CEO will want to focus on developing a culture of cooperation amongst the employees and the contracted company," Mr. Hurn says. "There has to be a common culture and message to your patients and the surrounding community, so hospital leaders will have to find ways to make the company feel like family, just like the hospital employees. It's about a relationship, not a contract. The contract just follows the relationship and memorializes it."

8. Be prepared for negative results. Even with the right amount of planning and research, somewhere down the line a hospital may find itself in a situation where its relationship with contracted employees isn't working out well because performance is gradually deteriorating over time or some other reason. Mr. Hurn says hospitals should proactively protect themselves from the headache of negative legal ramifications, financial backlash and very unhappy employees by including language in the contract that would provide the hospital an exit.

"The best thing for hospitals to do is lay out clear expectations in the contract in case the relationship cannot be saved," he says. "For example, with a laboratory contract, if the hospital must end the agreement, the question becomes who gets to own the equipment? Unless it's outlined clearly in the contract, the company could take back the equipment it brought with it to the hospital, and in that sense there could be financial consequences [because the hospital will have to replace that equipment]."

9. Consider all pertinent legal issues. Mr. Troutman says hospitals must be particularly wary of certain legal issues that arise from working with vendors. Hospital CEOs must be sure vendor contracts include specific language that defines whether or not the hospital is role a joint employer. As a joint employer, the hospital would exercise more control but also faces more potential legal exposure for employment decisions affecting the employee.

"The first thing a hospital has to do is clarify who is responsible for what, particularly when it comes to joint employment and termination," Mr. Troutman says. "If you become a joint employer, certain legal issues can come out of that. For example, that employee can now sue you for employee discrimination, wage claims or FMLA violations. Typically, if you're not a joint employer you're not going to have to worry about these issues."

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