In an effort to find gains in efficiency and service in an era of escalating costs and decreasing payments, hospitals and healthcare organizations are increasingly turning to outsourcing.

In 2004, an estimated 75% of hospitals outsourced at least one function—such as IT, laundry/linen, and foodservice—and interest in outsourcing noncore business processes such as revenue cycle management was on the rise. Outsourcing as a whole for hospitals is expected to rise another 18% by 2006, making it a $66 billion industry.

When it comes to the reasons for outsourcing, a recent survey found that 55% of healthcare organizations did so as a means to improve the organization’s focus, while 54% wanted to reduce and control operating costs. Thirty-eight percent of respondents also indicated that outsourcing was a way to free internal resources for other purposes, while 36% saw it as a means to gain access to world-class capabilities.

Other reasons for outsourcing included the following:

• resources were unavailable internally;

• accelerate reengineering benefits;

• reduce time to market;

• share risks;

• take advantage of offshore capabilities; and

• function was difficult to manage or out of control.

Just as there is consensus among healthcare organizations about why they outsource, the triggers that resulted in actual implementation of an outsourcing plan are also fairly standard. Among the most common are as follows:

• current staff cannot meet the demand due to holidays, weekends, vacations, illnesses, etc;

• lack of available, qualified staff on the market;

• days or dollars in accounts receivable increases due to coding, transcription, and information management;

• facility is seeking a new solution that will reduce costs;

• consolidation of multiple vendors;

• access to resources; and

• best practice implementations.

Outsourcing Models
In healthcare outsourcing, there are three common models, each with its own unique benefits and drawbacks, and each more appropriate for different services.

• Functional outsourcing. This is a fee-for-service model wherein an organization will contract with one or two individuals to provide a specific service on an as-needed basis. It is commonly used for transcription services or functions involving the release of information, although it can also be used for coding services. An organization’s staff typically adjusts well to the functional outsourcing model because it does not require surrender of control and is used for commonly problematic areas. It also carries a low organizational commitment and carries a low risk because it involves specific turnaround times and function responsibilities.

The primary drawback of the functional outsourcing model is that internal staff is still responsible for at least some follow up because the facility maintains a degree of control. For example, when coding is outsourced in this manner, the information management department will still be responsible for providing records and following up on queries. If staffing is short, the tasks assigned to internal departments could still lag behind schedule.

• Departmental outsourcing. Often referred to as the partner model, departmental outsourcing involves an entire portion of a department. For example, release of information is commonly outsourced under the departmental model as a way to relieve the healthcare information management department of the need to staff this area, which tends to be costly with a low percentage of return. Transcription and coding have also seen an increase in outsourcing.

Departmental outsourcing is typically fee for service with incentives and/or penalties applied to customer service and performance. It takes overhead into consideration and can assist an organization by qualifying the cost of support services.

While performance standards are in place for any outsourcing arrangements, the departmental model requires a much higher level of measurability—such as productivity, efficiency, effectiveness, quality, timeliness, and resource utilization. Examples include uncoded account volume, coding quality, delinquent record levels, JCAHO scores or regulatory compliance, and turnaround times.

However, the model has drawbacks, including the loss of control, noncompliance for regulatory and/or hospital policies, and turnaround times exceeding acceptable levels. If your facility takes this approach, establish contract criteria to safeguard the facility and provider, ensuring that expectations are clear on both sides of the agreement.

• Cycle model. The approach remains a limited practice because it is so broad in scope. It is also a fee-for-service agreement that carries incentives and penalties but, unlike the departmental model, requires an additional investment from the outsourcing partner. An example would be outsourcing the entire revenue cycle—the outsourcing partner would be responsible for all functions and departments that affect the billing and collection of revenues.

The anticipated value of the cycle model comes from performance, risksharing, and capital investment. However, it requires a high level of support from senior administration.

Making the Decision
Just as there are various outsourcing models, there is an array of functions that can be effectively and successfully outsourced. In each instance, specific triggers should lead toward outsourcing, including the following:

• Interim management. Outsourcing is appropriate when a lengthy candidate search is planned, when a management position has been vacant for a long period of time, or when a change is made suddenly. Other considerations include the strength of the existing leadership structure, suitability of in-house candidates, and/or the need to reorganize departments or functions.

• Special projects. Defined as a one-time event that regular staff cannot perform due to time, skill set, or budget constraints, special projects should be outsourced when they involve tasks such as master patient index clean up, medical records purging, systems implementation, file conversions, project management, and/or release of an information backlog.

• Transcription services. Facilities have long outsourced their medical transcription. It makes sense when there is a lack of available transcriptionists, when the facility is seeking a new solution that will reduce the cost of providing the service; when the current staff can’t meet transcription needs due to coverage issues; or when the facility is undertaking a consolidation of multiple vendors.

• Coding. Outsourcing is appropriate when accounts receivable has increased significantly in a short period of time; training expertise is not available for new coders; skill sets are not geographically available; new record types have been assumed by the coding function; and/or staffing patterns are changing because of leaves of absence, vacations, vacancies, etc.

• Assembly/Analysis. Implementing a new computer system, such as PACS or electronic medical records, can overwhelm facilities with smaller staffs. Situations where assembly/analysis should be outsourced include when a change in internal processes, such as the elimination of assembly or a reduction in analysis items, is underway; when the facility is implementing a new computer system, such as an analysis package, electronic medical records, or document imaging; and/or when a significant cost benefit can be realized.

• Cancer registry. If a specific function—such as abstracting—is backlogged, outsourcing the cancer registry function is appropriate. Other considerations include situations where a change of leadership is required; a special project such as an annual report with an upcoming deadline existing resources can’t meet; the function requires reorganization such as consolidating piecemeal items; or a new program/registry needs to be established.

The Partnering Process
An outsourcing partnership should never be viewed as a quick fix for a facility’s problems. The right partner will mean the difference between success and failure, so it’s critical that decision makers identify certain key characteristics and follow a specific process to determine the best provider of services. Characteristics to look for in an outsourcing partner include the following:

• Commitment to outsourcing as a business model. Is outsourcing a key part of their business?

• Performance guarantees. What is the provider willing to put on the table?

• Additional service offerings. Can they help with other needs in the department or facility?

• Financial stability. If the provider is not financially stable, the problem they are expected to resolve may come back with more glitches than ever.

• Reputation. Does the provider have a reputation of excellence in the community and industry?

Identifying the right process involves first gathering preliminary background information and then developing a request for proposal (RFP). This can include networking with peers, checking with professional associations, and reviewing company Web sites to determine core and additional offerings. Request and check references from similar facilities and evaluate the stability of the provider—a key for the longevity of the project and the partner’s ability to provide services at the appropriate level.

The process should identify three or four outsourcing providers who will be invited to submit a response to your RFP. When developing the RFP, include all factors that will influence the final decision and request measurable criteria for those factors, such as the commitment to staff education. Establish an RFP submission deadline and a committee responsible for reviewing and scoring RFP responses.

Specific information to request from companies responding to the RFP include pricing, references, relevant work experience, available IT contacts, productivity, and quality reports.

The factual information provided in RFP responses only starts the evaluation process for potential outsourcing partners. The committee should also evaluate each candidate for specific qualities, starting with flexibility—a key factor in any business relationship. Are they willing to be flexible in both format and office needs? Will they accept overflow work?

Another consideration is the outsourcing provider’s media capabilities. Expected standards should include multiple options such as hard copy, fax, Internet, voice recognition, voice files, Virtual Private Network, electronic records, imaging, etc.

It’s also important to know whether there are pending changes or conversions in other departments in your facility that may affect your relationship and how new interfaces will be tested during the implementation process. Finally, ease of receipt and delivery should also be considered.

For information management services, performance standards should be established early. For example, the expected standard for quality should be at least 90% initially, increasing to between 95% and 98% as the relationship matures. Turnaround times are also important—for example, 24 to 48 hours for coding and 24 hours for transcription dictated over the phone. Of course, costs for the service need to be clarified.

Other considerations include privacy and security measures, which should be HIPAA-compliant, and flexible contract terms to deal with existing budget constraints.

A ramp-up period is to be expected but should temper out within a short period. After that, there should be clear performance expectations as well as an understanding of what steps the outsourcing partner will take if performance falls below the standard. Regular feedback is also important.

Making the Relationship Work
Selecting the outsourcing partner is just the first step in making the ongoing relationship work. As with any “marriage,” communication is critical to success.

From the outset, a clear definition of roles and responsibilities must be established and clearly communicated, and a single point of contact should be identified to manage ongoing communications to reduce the potential for confusion and misunderstandings.

It’s also important to communicate regularly—daily during the ramp-up period and weekly after that. Once everyone is comfortable with the progress and performance, status reports can be provided at a mutually determined frequency. Communications should also be standardized, including agendas and a status report template.

Another critical element of a successful outsourcing relationship is one that falls on the facility—maintaining good internal data collection techniques. This allows for accurate tracking of volume and provides a snapshot of how close the outsourcing provider is to projected targets.

Finally, in the case of long-term relationships, it’s important to understand that complex factors will inevitably come into play. Over time, priorities and people will change. To make it work for the long term, effective relationship management needs to be embedded in the business process.

In short, expect a period of transition when entering an outsourcing relationship. As appropriate, keep the staff informed about who is responsible for managing the process and when/if job shadowing is required. It may be necessary to devise a retention plan for key employees and severance plans and a reassignment program for staff affected by the new relationship.

Final Considerations
It can’t be stated often enough: Frequent communication is critical to maintain a healthy, effective, and successful outsourcing relationship.

Make sure the plan of operation sounds feasible and know what is achievable. Outsourcing providers typically have many resources available, such as staff and IT, but, as a manager, it’s important to ask how they plan to accomplish the objectives.

Listening skills are a true asset. The outsourcing partner must completely understand the goals and time frame of the project to ensure mutual success.