Outsourcing in Private and Public Hospitals

Presenter: Racheli Magnezi, School of Health Sciences

Abstract

Rationale: Although outsourcing improves business efficiency, little is known about its application in hospitals.

Objectives: To analyze budgets allocation, types and factors which affect the decision to use outsourcing contractors, in private and public hospitals

Methodology: During 2008, a questionnaire was answered by deputy directors (administrators) of all major hospitals (>100 beds) in Israel: Ten, (27.8%) were private hospitals and 26 (72%) were public hospitals seven (27%) are self dependent, eleven (42 %) are government-owned, and eight (31%) are owned by a health maintenance organization (HMOs).

Results: Main areas in which all hospitals use outsourcing services are cleaning, security, and laundry. All hospitals allocate some budget (between 1-10%) to outsourcing. Privately owned hospitals use more outsourcing than government hospitals for services such as laundry, food, legal issues, and database systems. Seventy-five percent of all hospitals reported that outsourcing saves costs and services. The main savings were in cleaning (33%), security (28%), and laundry services (14%), and a reduced manpower quota by 1-10%. Most hospitals select a service provider based on: price offers (53%), after meetings with consultants and experts (50%), through prior experience (44%), cost containment (81%), client satisfaction (69%), focus on core services (72%), operational flexibility (75%), funding of service providers (80%), or lack of skilled manpower in the field (58%). In comparison to publicly owned hospitals, private hospitals rated cost containment less important (50% and 70-80%, respectively). In comparison to public hospitals, half of the private hospitals stated that focusing on core services played an important role in their decision to hire external services (public – 14.3%; government – 27.3%; HMOs – 37.5%). Cost containment was more important to hospitals owned by HMOs (87.5%) than to private hospitals (50%). In contrast to self dependent hospitals, improving client satisfaction was equally important to private as well as to HMO-owned hospitals (42.8%, 80% and 87.5%, respectively). In compare to large hospitals (>500 beds),Medium-sized (>100<500 beds) and privately owned hospitals allocate larger budgets to outsourcing.Compared to large hospitals, medium-sized hospitals use more outsourcing, mainly in medicine and laboratory services. Hospitals in the main urban regions use between four to seven outsourcing services, whereas hospitals in other parts of the country use outsourcing for three to five services. Hospitals in the main urban regions allocate more budgets to outsourcing than other hospitals (6-15% versus 1-5%). Hospitals which allocate 11% of their budgets to oursourcing feel there will be a gradual increase in outsourcing contracts in the near future. The most prominent disadvantages are dependence on the external service provider (36%), lack of obligation to the organization (31%), turnover and low quality manpower (20%), and poor work relationships (14%). Dependence on outsourcing was the most significant criterion for private hospitals (50%) compared to healthcare fund hospitals (12.5%).

Conclusions: Purchasing services from an outsourcing contractor is a well embedded managerial-strategy in hospitals in Israel. Differences in the budget allocation and type of outsourcing depend on hospital ownership and geographic location . Outsourcing presents new challenges and determines new rules ameliorating competion and hospital efficiency.