[pic] MGT 6220 – Health Care Human Resource Management Outsourcing Trends – Health Services Professionals Fall 2012 Research Paper Anthony Edens Thomas Grumley Outsourcing Trends – Health Services Professionals In today’s healthcare environment, hospitals are facing increasing pressure to reduce costs, increase efficiency and improve the quality of patient care. Although some of the details of the impending changes may not be perfectly defined, the industry is certain that changes are inevitable.
Going forward, there will be an increased focus on quality; penalties for re-admissions, medical errors and hospital acquired infections (Buser, 2010). Several factors, such as aging populations, new treatments, low patient financial responsibility and misalignment of incentives have forced the Government to reconsider current Medicare reimbursement arrangements (Kaplan, Porter, 2011). For example, fee for service, which reimburses providers and hospitals based on the procedure performed, are not based on the desired outcome which should be good patient health.
Therefore, the incentive for the provider could be to perform more of the higher reimbursement procedures and not to focus on decreasing the costs of business. Unfortunately, this has lead to a cycle of increasing costs for the government and payers, who are now looking for ways to decrease reimbursement and align incentives with quality while reducing re-admissions. Decreasing reimbursement will force hospitals that are not currently focused on cost control to rethink the existing strategies. In light of this, hospitals will need to concentrate on expense control, staffing productivity and service line efficiency.
Crucially, hospitals will need to focus on effective alignment with physician practices and hospitalists. One consideration that continues to arise is whether to outsource certain functions from an employment model to one involving outsourcing, and one which will be discussed at length in the following pages. The current climate is signaling a clear increase in the trend to outsource a multitude of functions, for both large and small hospitals. In Modern Healthcare’s 33rd Annual Outsourcing Survey, 42 firms reported a 14% increase in the number of healthcare clients from 2009 to 2010.
The following year’s survey, reported that among the top 20 outsourcing firms there was a reported 13. 1% growth from 2010 to 2011. The top 5 services which are currently outsourced are laundry, housekeeping, clinical/diagnostic equipment maintenance, hospital based emergency departments and food services (Kutscher, 2012). Additionally, the outsourcing of back office functions continues to increase. For example, firms providing accounts receivable functions reported a 21% increase in 2010 and firms providing medical record services reported a 6% increase in 2010 and an 8% increase in 2011 (Kutscher, 2012; Daly, 2011).
Also related to the back office functions is effective revenue cycle management. When considering the tightening of the current and future reimbursement environment, the ability for a hospital to successfully collect monies owed and to reduce bad debt will be crucial. For example, in May of 2011, Conifer, a subsidiary of for-profit hospital chain Tenet Healthcare Corp. , Dallas announced that it closed on a deal to provide revenue management services to 56 hospitals (Kutscher, 2012). Another area of explosive growth is in the IT sector.
Part of the reason is that there is a federal mandate which requires hospitals and physician practices to show “meaningful use” of electronic records. Not only are there financial incentives for implementing electronic health records early, there are financial penalties for those that have not implemented a system over the next few years. Robust growth can also be seen among the firms that provide diagnostic equipment maintenance. In Modern Healthcare’s 33rd Annual Outsourcing Survey, these firms saw 12. 6% growth from 2009 to 2010 and the following year’s survey showed a 16. % increase. This is due to the fact the medical equipment is growing increasingly more complex and that specialized firms are able to adhere to strict maintenance schedules, provide detailed documentation and track repair costs. One of the largest areas of growth is in the outsourcing of anesthesia services. From 2009 to 2010, the growth among survey respondents was 147% to a total of 222 contracts. One of the reasons for this is that anesthesia services can operate as a self contained unit within a hospital.
This works more efficiently than if each physician would bring in their own team by providing both consistency and cost effectiveness. However, there are concerns regarding outsourcing hospital services. Reasons for hesitation among hospital executives can be corporate culture, patient privacy and regulatory compliance. There are definite security and compliance concerns related to the outsourcing of electronic medical records. For instance, while Indian insurance and pharmaceutical companies have had success, gaining market share from U. S hospitals may prove to be difficult. As soon as it leaves the confines of the U. S. , it’s not subject to the same rigorous laws as we are,” says George Conklin, chief information officer of Christus Health (Sharma, 2010). Here, we are going to focus on outsourcing the hospitalist and revenue cycle functions and show some of the advantages and limitations of each. The number of hospitals that have hospitalist programs continues to grow, and today 2/3rd of all hospitals use a hospitalist program. Additionally, the demand for these providers currently outweighs the supply with a total of 31,000 covering the country’s demand of 40,000 (Buser, 2010).
One of the reasons for this increasing demand is it allows those physicians with busy outpatient practices to concentrate on those practices and for the providers in the hospitalists programs to concentrate on the inpatients. Additionally, hospitalists can focus their attention to the details of inpatient management due to their more consistent practice patterns and expertise which all helps to reduce average length of stay and increase patient health and satisfaction. Hospitals can choose from either employing and managing the group of hospitalists directly or using a 3rd party vendor such as TeamHealth or EmCare to outsource the service.
For instance, a hospital may choose to employ a group of hospitalists directly if it’s looking to ensure quality and bring the programs under local control to align the program with their own mission and values. However, crucial to the success of this is effective leadership and expertise. In some instances, employing hospitalists directly may require abundant investment in IT systems and other tools which will require large amounts of capital dollars that some smaller hospitals may not have access to.
In these instances a hospital may choose to outsource this function to take advantage of the large economies of scale and expertise a large vendor may be able to offer. For instance, in the article “Hospital Medicine’s Management Shuffle” by Bonnie Darves, Martin Buser, MPH, who is the co-founder of the hospitalist consulting firm Hospitalist Management Resources LLC, attributes the decisions to outsource to rapid growth of programs in which the hospital did not have the proper infrastructure and financial support to carry on with the program.
Additionally, by outsourcing the practice the hospital reduces its regulatory risks as well as administrative and recruiting burdens. For example, in 2007 Hospital Specialists of Georgia, turned over management services to Cogent, a prominent and large vendor of hospitalist programs. At the time the group was handling a third of the medical center’s admissions and could not increase that without support.
Without available capital, the company was not able to meet the growing demands of IT, especially as quality and performance measurement started to become more prevalent. (Darves, 2007). Using a 3rd party vendor whose expertise lies in focus and efficiency, and especially when combined with firms who bundle ED and hospitalist services, hospitals can reduce patient wait times and reduce the number of patients who leave the ER prior to triage or treatment. Ultimately this acts to increase the overall volumes of the hospital.
Additionally, for 2012, CMS (Centers for Medicare and Medicaid Services) created two new critical measurements which measure, in minutes, the time from ED arrival to ED departure for patients admitted from the ED to the facility and from the admit decision time to the time of departure from the ED for patients admitted to inpatient status. Improving these times has a multitude of positive effects on the facility. For example, this can reduce the ED length of stay, increase the ED capacity, improve the admission process and ultimately improve the patient outcome.
Conversely, some may argue that quality and alignment with the hospital are better achieved when providers are employed directly. For example, Kadlec Medical Center of Richland Washington decided that in 2006 it would discontinue its arrangement with a large vendor and bring its program in-house. The hospital wanted more control over the number of hospitalists as well as the scope and quality of services (Darves, 2007). However, the data suggests that quality does not suffer when outsourcing a hospitalist program. This is why we recommend outsourcing in the case of a hospitalist program.
In a 2009 survey released by the Medical Group Management Association, the data shows that a hospitalist from a large vendor sees, on average, more than 19% more patients per day than a hospitalist employed by the hospital. Patrick Hays FACHE and C. Thomas Smith explain in their article “Why the Independent Hospitalist Practice is here to Stay,” that this does not imply an adverse effect on the quality of the healthcare, and is instead the result of a focused effort where other hospital assignments are not competing for attention.
An increase in focus and expertise can lead to early detection and better diagnosis of disease which ultimately leads to less expensive and less complex treatments, and importantly, to fewer re-admissions. Outsourcing the hospitalist practice is also cost effective. A 3rd party hospitalist vendor can usually integrate its existing software with the hospitals and reduce training and orientation costs that could come with having to learn a new EMR system. In addition to IT and recruiting costs, there can also be costs associated with billing, accounting, legal, regulatory, marketing and quality control.
Should a hospital choose to employ the physicians and experience rapid growth without the proper infrastructure, these costs can quickly deteriorate the earnings of the group. Regulatory and legal costs can be especially problematic. For instance, Stark and Anti-Kickback Laws limit what a hospital can pay to an employed physician and require that each contract be put under scrutiny to ensure fair market value scrutiny to guarantee there are no conflicts of interest between the physician, hospital and patient.
To make certain a hospital is not violating these serious and complex laws, it would need to employ and increase its legal department’s infrastructure to include a department specifically designated to physician contracts, a cost many small hospitals may not be able to afford. With so many reasons for a hospital to use a 3rd party vendor, hospitals may become increasingly interested in avoiding the employment model. John Donahue, CEO of Cogent HMG expects a “dramatic ramp up of hospitalist consolidation” in the coming years because of the new quality requirements the government is demanding the hospitals meet.
The large hospitalist companies already have effective ways to measure this as well as reduce length of stay and complications resulting from hospital stays (Robeznieks, 2012). Another step firms are taking to convince hospital executives that outsourcing is the right choice is using local contractors and simultaneously offering a national support model. For example, Radisphere, an Ohio based radiology outsourcing firm, uses local radiologists who work with a network of offsite subspecialists offering continuous access to consultations.
In summary, outsourcing hospitalist services can provide hospitals, large and small, a cost effective and efficient means to provide quality patient care. With an ever increasing focus on quality, using a group focused physicians with hospital expertise who do not have competing private practices can increase patient satisfaction, increase hospital capacity and volumes all while helping the hospital achieve its goals while creating and maintaining a good quality reputation in the community. Let us not forget, however, that the presence of Human Resources should be critical in this decision.
The head of Human Resources needs to understand the dynamics of the business and the challenges that lay ahead should the company choose to outsource an existing function or in-source a function currently delegated to a 3rd party firm. For instance, if a decision is made to outsource an existing department there will need to be a roadmap for the existing employees. Ask questions such as, “Will there be a severance package or can these employees be transitioned or transferred to open positions in other areas of the company? Furthermore, there needs to be discussions regarding the reliability of the outsourcing firm and a contingency plan should the firm go out of business or discontinue the relationship. Are there alternative companies that could provide similar services if this situation were to arise? Will the chosen firm be able to meet the projected volume needs to the hospital? Additionally, even if the hospitalist function is outsourced, communication from management and HR will remain important so that those in these new positions still feel supported and motivated.
HR needs to work closely with the firm providing the services so that boundaries, objectives and targets are clear. In a situation where an outsourced function is brought in-house, HR needs to ensure that the current management infrastructure can accommodate the new positions. Especially in the case of employing hospitalists, contracts as well as compensation and benefit packages need to be created. Another example of where opportunities lie for outsourcing departments is in office functions such as revenue cycle management.
In recent years, hospitals have steadily warmed to the idea of outsourcing functions which were previously kept in-house, such as business processes and information technology. However, a host of factors–including the passage of the Patient Protection and Affordable Care Act, the faltering economy and the increasing emphasis on quality and performance improvement–have pushed that trend into overdrive (McKinney, 2010). In order to remain competitive and stay afloat, hospitals and other healthcare organizations are desperately looking deeper into business functions to determine the areas that may be better off outside the walls. Faced with a potential flood of new patients and lean budgets, hospitals are carefully considering each department to determine which functions can be turned over to contractors, and more areas are fair game than ever before”, says Reggie Hill, a partner at Waller Lansden Dortch & Davis, Nashville (McKinney, 2010). Although housekeeping, food services, and diagnostic equipment maintenance are among the most common outsourced services, revenue cycle management is becoming increasingly popular. Because of the perception that there will continue to be cuts in reimbursement and new reimbursement models, hospitals are looking for ways to cut expenses and maximize revenue,” Hill says. “If an outsourcing agreement looks like it will accomplish those goals, it’s going to be something a hospital will want to take advantage of. ” In particular, there has been continued growth in the number of organizations that are seeking out revenue-cycle management services, Hill says. “There are vendors that have shown they can add value, and more hospitals are giving it a try” (McKinney, 2010).
Although more organizations are looking into the use of a vendor, it is important to consider all variables before determining the best option. Outsourcing the revenue cycle function does not fit all business models. Factors such as practice size, legal compliance, training ability, cost savings, quality, and efficiency should be studied carefully in order to realize the maximum return on investment. Companies that fit the outsourcing model and execute the transition properly can realize the greatest rewards.
Conversely, outsourcing may be the downfall of an organization if these factors are not considered. When a company commits to outsourcing, cost savings tend to dominate and labor rates are a large contributing factor. In search of satisfaction, many companies are looking to offshore vendors. Offshore outsourcing companies might save hospitals even more money in labor costs because employees in countries such as India often work for much less money than U. S. staffers (Mantone, 2003). Managing a department outside of the organization’s walls has its other cost saving advantages.
Having fewer internal employees reduces the need for back office space which will generate savings in rent. With a billing service, billing and collection activities occur off-site and therefore it may be possible for a hospital to reduce its current overhead costs or convert existing office space to a revenue generation, patient services area (Schechter, 2000). Furthermore, cost savings with outsourcing may also be realized in more subtle ways such as an adaptation of superior processes. The demand for standardization in revenue cycle management is on the rise. Despite growth in the industry, the floundering economy has made some providers skittish about first-time outsourcing deals”, Zambuto says. Another motivating factor that is convincing many to take the plunge is the need for standardization, he says. Outsourcing to a vendor can help ensure processes are done the same way each time at every location, which reduces the probability of errors, he says (McKinney, 2010). With this standardization comes an increased revenue flow. Many companies are careless with collections and spend unnecessary time, money, and resources on correcting mistakes.
Re-billing and managing overpayments can become costly due to the increased hours of operation and additional wages paid to employees working these claims. If the billing can be done quickly and accurately the first time, these costs will not have to be wasted in order to generate the same amount of revenue. For example, Marshall McHenry, MD, a Cincinnati internist, chose to outsource billing when he started his own private practice. “He pays an outside billing service 6% of collections or about $20,000 to $22,000 annually, he said.
In contrast, an in-house biller would have cost $30,000, including benefits, and a billing system would have cost several thousand, if not tens of thousands of dollars, Dr. McHenry estimates. Also, had he hired a biller, he would have had to factor in training and vacation time, and figure out how to avoid down time that could have seriously hurt his practice” (Chin, 2003). Additionally, this higher level of quality requires ongoing employee training which may become not only time consuming, but expensive. The billing service is responsible for hiring, training and supervising staff.
They also are responsible for coverage when any of their employees are out of the office. And they are responsible for acquiring and maintaining all necessary computer software and hardware as well as addressing other technology-related issues (Schechter, 2000). The relief of these burdens will allow management to focus more on its core competencies. Typically, a revenue-cycle outsourcing firm takes over some or all of a hospital’s business office functions, which can include everything from patient registration, accounts receivable, billing and coding.
They consolidate those functions into larger offices that serve many providers. The end result, outsourcing companies say, is a more efficient model that leaves more operating revenue for hospitals. Those types of business arrangements will likely continue as cash-strapped hospitals see the potential for big savings, says Dean William Harvey, a partner at the law firm Vinson & Elkins in Dallas (McKinney, 2010). Richard Garnick, chairman and CEO of Anthelio Healthcare Solutions, credits the “incredible” cost pressures on hospitals for the growth in his company’s revenue-cycle management services.
In the case of federal healthcare programs, Garnick has seen his client hospitals grow increasingly concerned that possible across-the-board cuts to Medicare and Medicaid could push them into the red. Those concerns have led some of Garnick’s core clients at community hospitals to replace their in-house back office staff with his employees to reduce the cost of those functions by 30% to 35%. “That gap will potentially allow that hospital to survive,” he says about one recent client (Daly, 2011). Success with outsourcing has also been achieved by Marc D.
Grobman, DO, a solo internist at Internal Medicine and Primary Care in Wilmington, DE when he chose to use Health Care Practice Management Inc. as a billing service. He says he is getting 98% of money due compared with 75% when he was part of the hospital network. “At first using a billing service was a virtual necessity. Now I see no reason to bring it in-house because it’s working out so well,” Dr. Grobman says. He also thinks he gets more expert billers through outsourcing, which in turn means he leaves less money on the table. Dr.
McHenry contends that he gets about 10% more — $35,000 to $40,000 a year — than he would have had he hired someone to handle billing. Because it’s a specialized skill, it can be hard to find good billers in the local labor pool, he added (Stevens, 2007). On the contrary, outsourcing does have its drawbacks, and most notably, a reduced sense of control is inevitable. Outsourcing firms are responsible for these functions which prevents the hospital from easily maintaining close management of operations. “The downside is you can lose control,” said Louis Korman, MD, one of Dr. Weinstein’s partners. “You can be taken.
There are a lot of people who think that doctors’ practices are just money mills they can take advantage of” (Chin, 2003). Additionally, an absence of direct management may result in poor customer service. Third party billing firms may be required to deal with patients directly and it is difficult for the hospital or physician practice to monitor this interaction closely. Many physicians believe that they are able to maintain better relationships with patients when billing functions are kept in-house. Without this strong patient – provider relationship, a healthcare organization may not be able to survive.
Moreover, a third party revenue cycle management firm may not hold the same work ethics as the healthcare entity which may result in subpar performance. A vital piece to the success of any billing department is legal compliance and these performance standards must be met. But revenue management outsourcing has its share of pitfalls, most notably legal compliance, he adds. Providers need to be confident in a contractor’s ability to manage the billing requirements of Medicare and other programs, while successfully complying with the Health Insurance Portability and Accountability Act of 1996 (McKinney, 2010).
Dissatisfaction with an outsourcer’s performance led Detroit Medical Center in February to sue to dissolve a 10-year, $300 million contract with Provider HealthNet Services, Dallas. Detroit Medical said the outsourced operation failed to achieve timely completion of medical records and had not delivered on a plan to train employees and organize the department for computerized records. Provider HealthNet said uncooperative and obstructive action by Detroit Medical officials caused the performance problems (Morrissey, 2003).
A company’s decision whether or not to outsource a department will inevitably require the presence of Human Resources. One advantage of outsourcing the revenue cycle management team is the distance that it creates between management and the frontline employees. In some cases, this disconnect is desired by the hospital because it relieves the duty of having to deal with employee issues. If an employee of a hospital is not performing, the management team will have to carefully follow HR policies and document progression of failing performance before termination may occur.
This can not only be time consuming, but it can hinder productivity until the change may be made. Utilizing a vendor will allow the hospital to simply request that a replacement be made for a certain employee without having to follow any HR policies. “While the net cost of farming out billing is unknowable, Dr. Schwartz does believe that whatever it is, it’s worth the peace of mind it gives him. ” An outsource service insulates us from the kinds of problems that could get us into financial trouble,” he says. There are some advantages” to not having him on staff, Dr. Weinstein said. “The biggest one is that if he’s not doing a good job, I don’t have to worry about firing him. I just have to say to the company, ‘Hey, this guy is not doing a good job. I want somebody else. ‘ They have to worry about firing him, and firing high-level people is not easy to do” (Stevens, 2007). Although some hospitals may find this ‘peace of mind’ to be worth a potential added cost, there are some disadvantages that an HR department may face with outsourcing a business function.
Whenever a hospital chooses to outsource a department or other function, it will unavoidably have to endure a layoff of some magnitude. A layoff or employee termination will most certainly involve a strong HR presence. No matter the level of expertise of the HR department, this process is never easy to manage. In some cases, a layoff may be necessary involving employees who have been part of an organization for years. Relationships have developed between the employees and management team which can make this event even more difficult.
However, if the business decision to outsource is made, many times a layoff is most likely unavoidable. Additionally, this will create a loss of jobs in the community. “Also it can be a “hard sell” because outsourcing hospitals are “taking jobs from the local community and putting them elsewhere,” Johnston says. “It’s not that big of a deal when the office has 10 people,” he says. “But when there are 100, 200 people in the office it becomes a big deal” (Mantone, 2003). This event can also create a negative image for the hospital which may not be beneficial for its reputation.
This challenge must be closely managed by the HR department. In conclusion, outsourcing can be an effective way to increase the efficiency and lower the costs of an organization. In the case of using a 3rd party hospitalist firm, it uses a focused group of physicians who not only help to decrease costs but improve patient care and decrease re-admissions. Also, with improved patient care there comes a decrease in the average length of stay which is obviously great for the patient but also enables the hospital to increase its capacity for additional patient services.
It can be advantageous to a hospital to use a 3rd party outsourcing firm so long as the goals and expectations are clearly outlined and defined within the contract terms with the firm providing these services. Another example of an opportunity to take advantage of the focus of a 3rd party firm is in the realm of the revenue cycle function. Advantages such as decreased overhead costs, increased expertise and augmented standardization are ways in which a hospital can improve its overall collections, decrease its net accounts receivable days and lower the amount of money spent to do so.
Outsourcing does not necessarily imply going overseas, as mentioned in the hospitalist example above, patient care mostly depends on human interaction in most services and so the local community economy remains intact. In the end, HR needs to be well versed in the goals of the company and be able to contribute to the decision by offering perspective on future labor needs, compensation and benefit costs or savings and strategic alignment with the hospital’s strategies and mission. “References” Buser, M. , (2010, December). Hospitalist Programs in the Age of Healthcare Reform.
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