In today’s environment of increasing margin pressure, hospital executives are constantly looking for ways to manage costs while ensuring clinical quality and patient safety. As they confront the cost/quality conundrum, hospital and health system leaders routinely weigh whether to outsource important hospital-based physician services such as emergency medicine, hospital medicine, anesthesiology and other service lines to a trusted third-party partner or take in-house ownership of those practices.
In this executive briefing, Dan Collard, Chief Growth Officer for TeamHealth, one of the nation's largest integrated physician practices, shares insights into the issues hospital executives should consider before making the decision to outsource key physician services or provide those services in-house.
Question: Most healthcare executives are familiar with the term outsourcing, but what does the term insourcing mean?
Dan Collard: Insourcing is commonly used to refer to an environment where a hospital or health system chooses to employ groups of physicians whose practices had previously been provided via an arrangement with an external firm or group.
Q: Hospital operating margins have never been tighter. On that basis, isn’t it logical to think hospitals might be able to provide certain services more efficiently on their own?
DC: This is the common build vs. buy decision for organizations. In many cases with service lines, build decisions often make sense at first
blush compared to paying additional service fees for the management of those service lines. However, the reality is that many health system
organizations have concluded that managing hospital-based physician practices isn’t one of their core competences. Oftentimes, the hidden
costs associated with back-office or infrastructure investments go well beyond the salaries of these physicians and APC's.
Q: Is it possible that hospital and health system leaders aren’t fully considering all of the risks and costs associated with bringing services in-house? What would a full cost/benefit analysis entail?
DC: A full analysis will touch on several areas, including revenue cycle, recruiting, credentialing and onboarding, professional liability insurance specific to practice specialties and managed care contracting for those specific services. The analysis would also have to assess whether the
organization has the ability to staff appropriately and flex quickly with volume spikes or declines without incurring a linear cost.
Q: Why is outsourcing certain hospital-based services to firms like TeamHealth considered good value?
DC: It's really the converse of the items mentioned above. For example, the individual encounter amounts billed for emergency medicine are traditionally well below the write-off threshold for most hospitals. That's really a specialty and more importantly a core competency of ours. Being able to recruit these very specific clinicians is also front and center of our work. We're able to compare and recruit primary care physicians, specialists, surgeons and others simultaneously.
Q: Besides recruiting and credentialing, what are some of the other differentiators a company like TeamHealth can offer a hospital or health system?
DC: There are several. TeamHealth can be a reputation differentiator, help reduce risks, improve patient safety, promote growth, and aid in the management of resources and care coordination to support success in a value-based environment.
Q: Are there instances in which TeamHealth has taken over management of services that were previously managed in-house? How
were those programs different one year later? Two years later?
DC: This happens fairly frequently. It represents the pendulum swinging the opposite of what we discussed earlier. Often organizations will make this buy vs. build decision based upon their own financial analysis or because they need an organization with the core competencies we've
discussed above. Because we align around operating goals, we often find outcomes like improved length of stay, improved internal transfer rates and improved surgical volumes.
Q: Any closing thoughts for leaders who are facing the insourcing vs. outsourcing dilemma in their hospitals?
DC: This decision to outsource vs. insource is one of the most visible pendulums that swing within healthcare. Over the last 20 years we've seen organizations go from employing the vast majority of their hospital-based physicians to moving to relationships with external partners. The factors that drive these decisions can be a blend of quality, safety and finance. The key is to establish relationships with organizations that are willing to align to the hospital's objectives and put skin in the game with that alignment.
Stability is also a key factor. One of the greatest risks for any senior management team is having to replace their incumbent hospital-based
practices. The politics involved are never small. The medical staff relationships are impacted. In many communities, hospitals leadership teams' attention is spread thin from a strategic standpoint. Find the right partner that can execute well and relieve the leadership team of a daily/weekly/monthly concern. This can be a welcomed relief valve for those leaders.