The track record on outsourcing clinical services is mixed.
Outsourcing hospital and health services can either be the greatest business move or the worst, depending on whom you talk to and how well it’s done. But one thing seems clear: Outsourcing is gaining popularity. The global hospital outsourcing market is anticipated to grow from $375.1 billion in 2023 to $612.24 billion in 2027, a 14.4% compound annual growth rate, according to Research and Markets, and North America was the largest hospital outsourcing market in 2022.
Outsourcing can include nonclinical or clinical services. The nonclinical services ripe for outsourcing include housekeeping, food/nutrition, patient transport, medical billing and coding, claims processing, medical record transcription, information technology management, accounts receivable and supply chain management. Organizations may outsource entire clinical departments — the emergency department, anesthesiology and radiology are among those most often farmed out — or specific services, such as virtual nursing command centers.
Dan Hurry, MBA, says he is seeing a lot of hospital administrators discussing whether to outsource some nonclinical areas, if they’re not already doing so. Hurry is chief supply chain officer of Bon Secours Mercy Health (BSMH) and president of Advantus Health Partners, which BSMH owns. Advantus sells purchasing and supply chain solutions to outside health systems and partners with other outsourcing vendors. He says many health systems are debating whether to tune up their in-house nonclinical services or move to outsourcing. “These spaces are being scrutinized. I think we’re in the early stage (of outsourcing).There may be more movement in 2024.”
Health systems are focused on financial sustainability, says Abby Johnson, a partner at EY, formerly Ernst & Young, a professional services company. The changing landscape, especially with health system consolidation, is leading administrators to consider creating shared business process services to support their merged organizations — or outsourcing them, she says. They are also debating whether to outsource and reimagine some nursing roles, according to Johnson.
Most conversations that Bobby Floyd, chairman and CEO of HHS, a hospitality and support service provider, has with hospitals that are potential clients “are because something is not going well.” HHS offers housekeeping, food, facilities, patient transport, healthcare technology management, and linen and laundry management. “By outsourcing nonclinical departments, they can focus on their core competencies: patient care,” Floyd says.
Hospitals have been outsourcing hospital housekeeping since at least the 1960s. One estimate shows that one-third of hospitals do so, and the number appears to be rising. In 2021, the healthcare environmental services market was $6.6 billion, anticipated to rise to $8.7 billion by 2026.
Companies like HHS continue adding new services, based on market need. Linen management didn’t exist until about five years ago, Floyd says. “People viewed linen as a cost of doing business, not as a controllable item that could be more efficient.” On average, Floyd says, their hospital clients outsource two or three services with them, the biggest being food and environmental services, followed by patient transportation.
Outsourcing clinical functions takes a number of paths. The nursing shortage continues to plague hospitals, says Johnson, so they need to rethink how to deploy nurses and provide patient care. Newer options include hospital-at-home programs and virtual command centers that can cut down on the number of people needed. “Organizations are thinking they don’t have enough nurses to operate in the traditional clinical model,” Johnson says. “How do they take care of patients more effectively at their home and leverage more of a command center model?”
In 2017, this type of thinking led Mercy Health (before its merger with Bon Secours) to create Conduit Health Partners. The health system experienced patient access challenges from feeder facilities like rural health hospitals when people needed a higher level of care. Conduit created a centralized and standardized transfer center, with nurses staffing all calls, later adding other virtual services such as triage and hospital at home.
The services hit a nerve with other health systems, employers and health plans, and Conduit began selling its services. Remote nursing needs accelerated during the pandemic. Triage calls quadrupled within days, says Cheryl Dalton-Norman, MBA, B.S.N., president and co-founder of Conduit. “We take the work off the shoulders of the people delivering the care in the hospital. That’s where we saw a lot of value, particularly during COVID,” she says.
After the COVID-19 pandemic, there was an exodus of bedside nurses, so it helped to outsource nonbedside roles and shift some care to be delivered virtually. Although health systems have difficulty recruiting nurses, Dalton-Norman says Conduit does not because they can work from home, and they recruit nationally, with nurses licensed in 47 states and Washington, D.C.
The track record on outsourcing clinical departments is mixed. It is not uncommon for the outsourced providers to have different insurance contracts than the hospital, so patients can get hit with surprise out-of-network bills. Researchers have documented problems with the quality of care provided by outsourced departments, and hospitals have sometimes not seen the major cost savings that were promised by the outsourcing companies, some of which are backed by private equity.
Considerations with outsourcing
Health systems considering outsourcing should look at the economics and metrics. “Be indifferent to deployment of the resources, but be consistent with the measurement you apply,” Hurry says.
That could be cost per patient meal or square foot of cleaning. He also recommends considering whether expertise is needed or the work can be done in-house. No process or activity should be out of the question, says Hurry.
“If better expertise can be bought than groomed, lean elsewhere.” And it doesn’t have to be all or nothing. Hurry says a hybrid approach can sometimes work, such as outsourcing leadership of a service but using local employees. Dalton-Norman observes that "it is not a detriment to your health system to outsource to other experts who focus very specifically on areas that are not your core competency.”
Transitioning from in-house to outsourcing, or vice versa, can be difficult, with change management measures needed, says Hurry. Technology and interconnectivity must be clean and tested, with good governance, goals and metrics set up.
Floyd at HHS says companies such as his invest a significant amount of time and money into technology that enables the outsourced departments to be more productive, providing the health system and HHS visibility into day-to-day management. This also provides data to more quickly home in on problems and find solutions.Data collection and analysis could, for example, identify a housekeeping issue that consistently occurs at a certain time each day.
Health systems also may find relief from nonclinical staffing challenges when using outsourced services. Hospital recruiting programs traditionally support nonclinical and clinical services, says Floyd, but there are only so many resources available. “Hospital HR (human resources) departments are stressed,” he says. Recruiting support staff requires a different approach, such as sending recruiters into the community.
Deborah Abrams Kaplan writes about medical and practice management topics for Managed Healthcare Executive and other publications.