Healthcare Providers’ Perfect Storm and How Outsourcing Can Help Weather the Winds | Article

First Aid KitToday’s healthcare provider market is bracing for a perfect storm that’s been a long time brewing. Whipping winds include:

  • HIPAA. The Health Insurance Portability and Accountability Act of 1996 is now in full force. The Act has had a major impact on healthcare providers and their business partners as it sets stringent standards for patient security, privacy, and electronic business transactions. Providers must respond with new operational and technical capabilities.
  • JCAHO. The Joint Commission on Accreditation of Healthcare Organizations pens protocols for medical procedures. This voluntary, non-governmental organization also establishes standards for the operation of hospitals and nursing homes, which receive a certificate of accreditation if they comply. Being JCAHO certified has become a selling point. Many facilities, faced with the fact the hospital down the street is certified, feel they must now spend the money to get certified to be competitive. Hospital and nursing home administrators spend months readying their staffs for accreditation committee visits.
  • Educated consumers. Thanks to the Internet, patients are more informed about their healthcare options since the days of Hippocrates. Eight in ten adult Internet users have sought out health information online, according to a study conducted by the Princeton Survey Research Associates for the Pew Internet and American Life Project. More than one-half do so on behalf of someone instead of for themselves. Three-quarters (73%) say going online for health purposes has improved the overall quality of the health information and services they receive. Presumably they have become more knowledgeable when interacting with their healthcare providers.

    Add to this the efforts of The Leapfrog Group, a coalition of more than 150 public and private organizations that provide healthcare benefits. The Business Roundtable, a national association of Fortune 500 CEOs, founded The Leapfrog Group to help save lives and reduce preventable medical mistakes. The Leapfrog Group gives consumers pertinent information to make more informed hospital choices.

  • Market pressures (Supply/Demand). Consumers today are having more elective procedures like plastic surgery. And they know they have a choice for some medical events like childbirth. Hospitals have to compete like private industry for these discretionary dollars. For example, Harris Methodist Hospital in Fort Worth, Texas, markets its obstetrics practice as “quality birthing,” providing comfortable chairs for the dads and soft lighting for the working moms. Medical City Hospital in Dallas, Texas has a gourmet food program allowing patients to order food from the city’s top restaurants if they are not on a restricted diet.

    At the same time, payers (insurers) are designing health plans that encourage consumers to make treatment choices based upon a limited pool of healthcare dollars.

  • Staffing shortages. Currently American hospitals are suffering from a registered nursing (RN) shortage. According to the US Bureau of Labor Statistics, “employers in some parts of the country are reporting difficulty in attracting and retaining an adequate number of RNs, due primarily to an aging RN workforce and insufficient nursing school enrollments.” The Bureau says “more new jobs will be created for nurses than any other occupation” through 2012 as healthcare educators try to correct this imbalance. Until then, hospitals will have staffing trouble.

    For example, Las Vegas has been the fastest growing city in America for the last eight years. According to the Nevada Hospital Association, today there are 1,400 nursing positions open in Nevada hospitals.

How can healthcare providers weather the storm? Oddly enough, some providers’ early reaction has been to introduce complexity into the healthcare environment. For example, several providers pursued significant investments in cardiology facilities and technologies requiring additional operational support functions (i.e., staff, procedures, and systems). Then, a new procedure using drug-coated stents quickly removed the potential upside of those investments. However, the costs of the complexity remained in place, contributing to higher capital costs. Ouch! (A stent is a device used to open coronary arteries to prevent heart attacks and strokes. The drug coating significantly reduces the need for additional heart procedures because it reduces the scar tissue that reblocks the arteries just opened. Johnson & Johnson introduced drug-coated stents last year.)

Others hospitals have chosen to retrench and focus on removing their organizations’ operational costs.

When other industries faced similar perfect winds, outsourcing provided a viable means to weathering the storm. When healthcare providers outsource, they focus on the outcomes they want to achieve, then set appropriate parameters. Achieving these outcomes and determining what complexity to inject into the solution is the supplier’s burden. An outsourcer understands the relationship between cost and complexity. Their viability and profitability depends on their ability to provide options (complexity) and offset those costs through the leverage they achieve through scale, expertise, and advanced processes.

Applying this understanding can reduce healthcare provider costs and may even improve patient care.

I maintain a prudent sailor always will examine where and how options exist that can help his/her organization safely navigate this perfect storm.

Lessons from the Outsourcing Journal:

  • Healthcare providers are facing the elements of a perfect storm. HIPPA, JCAHO, The Leapfrog Group, more demanding consumers, marketing pressures, and staffing shortages are buffeting them.
  • The providers’ initial reaction was to add more complexity to the process. But this added cost. Outsourcers, however, understand the relationship between complexity and cost. They can help healthcare providers survive the storm by cutting complexity, lowering costs, and ultimately improving patient care.


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