Hospital Outsourcing: The Opportunities And Challenges


Jacob Kupietzky is President of HealthCare Transformation, a company dedicated to providing hospitals with experienced interim executives.

So you want to run a hospital. How would you do it?

If you take the traditional route, you’d operate it like a brick-and-mortar business, a self-enclosed unit where a team of executives managed the entire facility, from clinical care to nutrition to transportation to the gift shop out front. You’d have complete control and autonomy but also complete liability. Plus it might be hard (and expensive!) to build up your resources and skill providers to create a best-in-class facility.

But today, we live in a world of specialists, people with particular expertise in specific services. What if you ran your hospital less like a big box business and more like a shopping mall? In this kind of model, you could attract only the best offerings, with full authority over which brands provide which services. You could focus on what you’re good at — operating suites and ICUs — and outsourcing the rest. Maybe Walgreens could manage the pharmacy needs, Wolfgang Puck Catering could manage non-patient food needs, Hertz could take over non-emergency transportation and ADT could manage security.

By adopting a distributed model, focusing on what you do best and coordinating the rest, you could still provide a world-class experience while limiting your liability. Plus, those third-party vendors would compete to operate in your facility, helping you keep costs down.

This future of specialist-run healthcare isn’t some distant vision. It’s here now. According to market research from 2019 (paywall), the healthcare outsourcing market is projected to reach nearly $450 billion worldwide by 2023. And a recent survey of more than 500 hospitals and inpatient organizations found that 90% of healthcare executives are exploring cost savings through relationships with third-party vendors.

The Business Case For Outsourcing

Part of this fundamental shift in how we look at hospital care is economic. Even before the pandemic, hospitals were struggling financially. Prestigious facilities like the MD Anderson Cancer Center had reported operating losses of hundreds of millions of dollars, largely due to shrinking patient admissions and inadequate workforce management. One 2019 report found that hospitals across the country were experiencing a 21.3% decline in operating margins. This crisis was only made worse during the pandemic. The American Hospital Association estimated that more than one-third of hospitals will end 2021 with negative margins. As bad as this might sound, the outlook for rural hospitals is even worse. More than 100 rural hospitals have closed since 2013, with closures hitting a record high in 2020.

As a result, many healthcare facilities are looking to save money by turning to more of a distributed model, with some success. For example, Sheridan Healthcare outsourced its anesthesia and perioperative services and reduced the time required for operating room turnover by 35% (registration required), allowing the organization to add 250 extra patient cases each month. When Georgia Regents Health System partnered with Philips Healthcare to manage radiology and cardiology services, it saw increases in the number of vascular and interventional radiology scans, MRIs, ultrasounds and CT scans, resulting in $7 million in savings. And after deciding to outsource environmental services, one rural hospital in Arcadia, Florida, saw increased turnaround times for its Med Surg and ICU units and a 10% annual savings in departmental spending.

The Human Case For Outsourcing

Of course, the most important benefit to outsourcing can be higher-quality care and better patient outcomes. This is accomplished primarily in two ways:

• Allocate resources away from areas with less specialized expertise. Healthcare facilities develop proficiency in particular areas for a variety of reasons, such as organizational mission, community needs, talent pool to recruit from, competitive landscape or availability of financial resources. Yet that doesn’t mean other areas can be ignored. By outsourcing areas a facility lacks expertise in, they can still provide exceptional service and do so more efficiently (often with cost savings).

• Allocate resources toward areas with more specialized expertise. Hospitals that outsource can free up their own internal staff and let them better focus on what they do best, including growing service lines, training and talent development. Those cost and personnel savings can even create better outcomes in those specialized areas than they would otherwise achieve.

This is particularly important in rural facilities, which often don’t have the resources to fund best-in-class services. Academic Medical Centers (AMC), on the other hand, are highly funded and can provide unparalleled care and rely on philanthropy to close gaps. Imagine if a rural hospital could outsource emergency care to the closest AMC. The AMC could expand training opportunities for its students and clinicians while supporting a facility that can’t source it themselves thereby creating a “win-win.” This kind of real medical partnership could make an enormous difference in the lives of the nearly 20% of Americans served by small-town hospitals.

There are clear benefits to outsourcing and leveraging external partners who are experts in their fields. But outsourcing isn’t a panacea for financially stressed healthcare organizations. If not executed and managed carefully, it can create inferior patient outcomes and undermine an organization’s mission. It’s vital that hospitals consider all the risks before adopting a distributed model. By doing so, they can experience the rewards while mitigating potential setbacks.


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