It's no secret that hospital executives nationwide are scrambling to cut costs. Operating budgets across even the most successful institutions are being reduced as the economy demonstrates few signs of recovery from the current recession. The bleak economic outlook has prompted many to consider outsourcing some key organizational services, particularly those within the IT sphere.
Indeed, IT vendors appear poised for an increase in demand for their services. A November 2008 survey by leading outsourcing firm CSC found that 74% of hospitals have begun implementing operational changes in response to the economic crisis. This pattern is not new. During the economic downturn from 1999 to 2000, hospital partnerships with outsourcing firms increased by nearly 20%, according to a study by VHA and Michael F. Corbett & Associates.
Driven by the promise of cost savings and great hype boiling over from other industries, many hospitals in 1999 and 2000 outsourced significant portions of their IT departments. Though these arrangements typically were effective in managing costs, attaching too great an emphasis to the bottom-line often constrained innovation. In recent years, many fully outsourced IT departments have been brought back in-house.
Hospital-vendor partnerships now tend to involve smaller-scale outsourcing engagements centered on commodity services. Common opportunities include the functional outsourcing of support processes such as transcription, help desk, Web site maintenance and applications development. More recently, hospitals have outsourced data storage through remote service hosting and cloud computing. Each of these options often can be accomplished more cheaply and efficiently by a third party and remain distant from core customer operations.
Models To Consider
Previous experiences with hospital-vendor partnerships have shown that cost savings should not be the primary motivator for outsourcing. However, in a scenario where IT departments face staff and budget cuts, leveraging an external vendor could enable CIOs to better manage their in-house staff. Greater economies of scale permit outside vendors to provide basic services without compromising IT work that directly affects patient care.
Research has revealed four key models worthy of consideration:
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Model 1: Incremental Staffing: The IT department secures the services of supplemental contract staff during predictable intervals of high volume work. This model is most commonly employed on an as-needed basis in lieu of hiring permanent employees.
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Model 2: Outsourced Functions: Discrete functions such as Web site maintenance and help desk services often can be outsourced with minimal disruption to daily work. Application development also is common, though there are concerns about knowledge transfer when the contract expires.
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Model 3: Data Outsourcing: Remote hosting has emerged as a new outsourcing opportunity for hospitals tasked with storing medical records online. Both space constraints and the expense of maintaining servers make outsourcing attractive, and it frees up IT resources for strategic work.
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Model 4: Departmental Outsourcing: The least common and challenging of options. Though the cost benefit can be quite large, concerns over staff alignment and strategic potential should first be weighed. Keeping leadership in-house is a must for this route to be effective.
In assessing potential outsourcing options, CIOs must establish a clear baseline for acceptable performance. Establishing concrete goals for the partnership will aid leaders in selecting vendors who are experienced with their IT systems, and more importantly, capable of meeting the hospital's discrete needs.
Potential Pitfalls
CIOs must consider not only the financial benefits of outsourcing but also the less tangible aspects, such as service levels and institutional culture. Outsourced workers feel far less engaged in an organization's mission and are less inclined to go beyond the status quo. Though outsourcing offers the expertise and scale of an experienced third party, failure to consider its risks can prove catastrophic.
Furthermore, embedding operational capabilities beyond the walls of the hospital can create an enormous knowledge vacuum upon a contract's expiration and a reliance on the vendor for continued services, even if there have been escalating costs and unsatisfactory service. Worse, incremental hidden costs often make vendor contracts far more costly than originally envisioned and can lead each new request to begin with a negotiation.
The success of any vendor relationship is tied to how diligently it is managed. To ensure expectations are met, it is prudent to identify a series of metrics that can be objectively monitored throughout the outsourced engagement. Tracking metrics will help guarantee agreed upon service levels are never compromised.
In the present economic climate, it is appropriate that CIOs consider all cost-saving strategies as a means of dealing with budget constraints. Outsourcing presents an attractive option that can be tremendously cost-effective if done selectively. Leaders should consider both the risks and rewards when doing so, stressing the unique needs and culture of their institution. In doing so, efforts should be made to safeguard the strategic needs of the organization while off-loading commodity services that can be done more cheaply and efficiently by outside vendors.