This article was written by Lisa Miller.
Cost Effectiveness Outsourcing and Insourcing
Outsourced, insourced or hybrid services? What is the most cost effective model for your hospital to maximize profit and continue to deliver exceptional patient care?
Outsourced services can account for up to 40% to 50% of your organization’s non-labor spend. While outsourcing is regarded as standard across the US healthcare sector, it doesn’t have to be the norm for your hospital.
As health systems both merge and expand in concentrated markets, it’s imperative to determine which services should be outsourced, which should be performed in-house and which may benefit from a hybrid model.
Every hospital is unique, there is no ‘’one size fits all’’ solution and each must adopt a balanced approach to their outsourced services that meets its specific requirements.
7 key questions to evaluate outsourced services
The decision to bring services in-house, or create a hybrid model, is not straightforward. At VIE Healthcare®, we recommend the following questions to assist in your evaluation:
- Is the vendor providing what they have been contracted to provide?
- Are the vendor’s services being delivered as advertised?
- Can we perform these services at or above the current standard or quality?
- Can we perform these services at a lower cost?
- Are any of the vendor’s services negatively impacting patient care?
- Are the outsourced services being provided in a way that aligns with our values?
- Are we willing to take on the risk involved with specific services that are currently being outsourced?
As we have emphasized before, the decision is more than financial. Staffing, funding and liability issues may all play a role in the final choice.
I would also emphasize the need for close scrutiny and the value of line item analysis in your outsourcing versus insourcing decisions.
Line item access of your invoices is the key to informed decision making in your outsourcing versus insourcing analysis. Click To Tweet
Without the detail available in the line item access of your invoices, it’s impossible to make an informed decision over what might work best for your organization.
The following case studies help to demonstrate the need for accurate information.
Case Study 1: At VIE Healthcare®, we work with a lot of hospitals who will place an RFP or seek renegotiation, when in reality, they want to allow themselves time to reset and create some different expectations.
Working with a three hospital health system, we analyzed utilization for the outsourcing of nursing staff by department, by specialty and by RN level. From there, we analyzed the number of regular hours versus overtime, on-call and call back. It is the only way to clarify variances in each level of nursing.
In this example, we discovered that one hospital was charged $65 for a med search nurse, while the second hospital in the health system was charged $75 for the same service. This is why it’s important to understand all of the line items and different specialties. The level of detail enables you to decide how to reset your agreements and informs all of your decision making.
Furthermore, this type of work gives you a unique insight into your drivers of spend.
Depending on where the largest spend areas are, you might want to make different decisions.
In this example, the focus might be on a hiring campaign, to bring this spend in-house. The alternative is a hybrid arrangement, where outsourced agreements are only used where absolutely necessary.
Many hybrid models exist where, if your hospital has an unusually high spend area and you’re using an outsourced provider, you might want to insource a specific part of that service.
Remember, it’s not all or nothing.
Without the line item utilization of your invoices, you risk making a decision based on inaccurate information.
Case Study 2: One of our clients, who had outsourced their SPD management for many years, asked us to assist with the contract renewal. After analysis and benchmarking, we recommended insourcing as the costs were dramatic and escalating every year.
While some training and initial costs would be incurred, the overall savings were significant as the hospital had access to a talent pool with relevant skillsets. The result was a big cost savings win for the organization as this particular service was brought in-house.
Understanding long-term cost savings benefits
Sometimes the timing isn’t right to bring services in-house, but it is still beneficial to understand the potential long-term cost savings. We work with hospitals who know there’s a significant opportunity available to bring services in-house but the timing isn’t right.
In many cases, hospital leaders will plan to make a change within two to three years. I believe this is a smart approach to your outsourced agreements.
Are there any outsourced agreements that your hospital could bring in-house, not necessarily now, but in the next twelve months or two years?
I encourage all of our clients to think innovatively, to think differently. There are always different options in how you approach working with outsourced providers.
Discover best practices for your hospital’s outsourced agreements.
Would you like support to help your hospital achieve its cost savings goals? Schedule a call with Lisa Miller.