In this era of cost control, reduction, and containment, your healthcare organization’s contract administrators should be analyzing what functions, services, and systems to outsource or insource so they can cut your operating expenses to the bone. What is the right answer to these important outsourcing or insourcing decisions? Well, it all depends on how you answer these four strategic questions:
1. Is the function or service mission critical? Would the failure of a function, service, or system put you out of business for a day, week, or month? If you decide that the risk of this failure is too high, you will then need to insource this function, service, or system. For instance, the failure of a sterilization service to deliver for even one day would put your operating room and same day surgeries out of business. However, if your concierge car parking service didn’t show up even for a week your business would go on as usual. Get the picture?
2. Are the savings worth the effort to change? If your savings to outsource a function, service, or system are projected to be two, three, or even five percent, maybe the cost of change isn’t worth it. You see, every change has its hidden cost in time, labor, and resources to affect the change. We estimate the cost of change to be in the range of 9% to 12% depending on the level of difficulty to make the change.
3. Can you improve your costs to match an outsourced provider? We find that in many situations a healthcare organization can match or improve on an outsourced provider’s cost if they re-engineer what they are doing. In many cases, an outsourced provider can easily save you money because your operations are wasteful and inefficient. That’s why in many cases, all it takes is hiring a new manager to reinvent what you have been doing to match their cost.
4. Will the service quality be better than your current scorecard? We have clients who contracted with outsourced companies that had a worse service quality scorecard than their prior inhouse department or service. Therefore, don’t take the contractor’s word that they can do a better job than you can. Verify and scrutinize every claim that they make to ensure that their service quality will actually be better than your own track record!
By consistently asking and answering these four strategic questions as you are deciding to outsource or insource a function, service, or system, you can be assured that you are making the right decision for your healthcare organization. Remember, outsourcing or insourcing isn’t always about cost savings!
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