Kemp Health Center Outsourcing Plan Business Outsourcing

Kemp Health Center Outsourcing Plan

Business Outsourcing

The Kemp Health Center (KHC) is actively pursuing organizational changes to allow the hospital to operate in a more efficient manner. With an increasingly negative debt looming over the 2009 fiscal year, the Board of Directors has asked the Performance Management Team to analyze how KHC can reduce the anticipated $2.5 million deficit of 2009 and eliminate debt by 2010.

This report outlines the findings of the Laboratory Performance Management Team. The team investigated various options to help the Laboratory (lab) at KHC operate as efficiently as possible without impacting the ability to provide cost-effective, patient-focused and quality healthcare to our patients. The following paragraphs illustrate the options explored and the proposed solution that will help KHC enhance operations and illuminate the organization's mission and vision statements each and every day.

Current State of the Kemp Health Center' Laboratory

The KHC lab is currently operating with 30 full time employees and is one of the financial drains of the institution. As all the equipment has been fully depreciated, it is old, only partially automated, often inaccurate, and subject to frequent breakdowns. Because of the institution's financial situation, KHC cannot afford to replace this equipment with newer, more automated equipment. Test runs often have to be delayed due to failure of the equipment, and many tests have to be run several times due to suspected inaccurate results or failure of the equipment during a run. Therefore, there are significant increased costs in staffing due to operating equipment that is not fully automated and for the necessity of repeat runs of testing. The repeat runs also result in significantly higher costs for supplies. In addition, the laboratory is often faced with the unexpected expenses of frequent equipment repairs.

Because of the problems with KHC's laboratory, in order to obtain federal CLIA licensure the lab had to use the least stringent certification program available. This has placed KHC at a disadvantage with the nearest significant competitor in Pocatello as they advertise having a CAP certified laboratory. Furthermore, because of the frequent problems with the laboratory, many patients in KHC's service area prefer to drive the additional distance to Pocatello in order to receive what they perceive to be superior care, significantly impacting the overall revenues of KHC.

Outsourcing: An analysis

Hospitals often consider outsourcing for financial and efficiency reasons. Expert Gary Procop, MD states, "In the community hospital setting, tests that are too complicated to be performed onsite, and those that are rarely ordered should be sent to a respected, reliable reference laboratory (Griffith & John, 2007).

One of the first questions often asked is, "When should a healthcare organization (HCO) consider outsourcing?" There are both cost and quality factors to consider. A clinical laboratory is one of a hospital's largest departments and produces vital information for the effective delivery of healthcare. An HCO has to consider various options when it decides it wants to outsource. One of the big factors is financial. Does the HCO have enough funds to run the lab or should it outsource the services? Most HCO's have limited funds with KHC being no exception. With rapid advances in laboratory medicine, the increasing number of tests being demanded by physicians and the continuing investments required to be made in new equipment, hospitals are realizing that running a lab by themselves is hard, frustrating and uneconomical. From a business perspective, an extensive range of specialized services and tests is not a cost effective offering for smaller hospital facilities -- service levels can be compromised.

The chief motivating factor on deciding to outsource laboratory services is to save money. Economic and investment reasons are high on the list for considering outsourcing. With budget restrictions and low reimbursement from insurance companies, several HCOs are considering outsourcing hospital microbiology and other laboratory services. Outsourcing individual, highly complex tests by community hospitals, which has always occurred, is based not only on fiscal considerations, but also on the available technical expertise and adequate test volume to maintain competence (Harrison, 1986). Regardless of the hospital setting, the decision should not be based solely on financial considerations and, above all, must preserve high laboratory quality for optimal patient care (Winn and Procop). In fact, estimates show that clinical labs provide about two-thirds of all objective information on patients' health status.

In the case of KHC, with budgetary issues, old equipment and inaccurate tests results, this is a good time to consider partially outsourcing the laboratory. The capability of the microbiology staff needs to be seriously assessed to help determine which tests will remain in-house. With the abundance of inaccurate tests it is important that only tests that the staff can effectively handle remain in-house. Incorrect interpretations result in flawed therapy. Physicians rely heavily on fast, accurate tests for disease prevention, diagnosis and prevention.

Cost and Quality also play a big role in making the decision to outsource. With the prevalence of inaccurate tests at KHC that impact quality and reduced reimbursement rates from insurance companies, outsourcing is an option that could possibly reduce the looming debt. For a community hospital as small as KHC, tests that are too complicated to be performed onsite, and those that are rarely ordered, should be sent to a respected, reliable reference laboratory such as LabCorp or another HCO. On the other hand, standard microbiologic tests, particularly those used for the direct examination of clinical specimens for microorganisms, probably should not be outsourced. For example, if test results could require individuals to be placed in isolation for the protection of health care workers, those tests should be performed in-house.

By correctly identifying and implementing an outsourcing solution, a healthcare organization will realize some benefits. The in house laboratory in most cases is low on the list for budgetary funds, despite the impact on healthcare delivery. Without funding, the lab is unable to remain competitive and provide state-of-the-art testing, which very often is what is required by clinicians. For the lab at KHC to be competitive it would require a large investment which the hospital is unable to provide. A partial laboratory outsource would provide the following benefits:-

Financial saving -- Money will also be saved on equipment, supplies, and personnel. The equipment that would be needed to perform outsourced tests will be provided by the outsourced lab. In-house laboratory functions are characterized by relatively high fixed costs for supplies, high capital investment, and associated benefits and salaries, and yet these assets and manpower are usually under-utilized.

Cost-effective, high-quality testing of patient specimens -- This will save the hospital money and provide more accurate testing of specimens. Each individual test result will be backed by quality processes that have met the accreditation requirements

Increase in Patient satisfaction -- The increase in accurate test results this will result in higher patient satisfaction. The patients will feel more confident about having their tests performed via KHC by a reputable lab like LabCorp or a well-respected "local" lab and prevent them from driving one to three hours to another facility for evaluations and testing.