Over the years, outsourcing has emerged as a winning business model for Indian hospitals. Many have outsourced noncore hospital jobs to the specialized sector. The objective - to focus on the quality of healthcare delivery rather than on other allied time-consuming yet essential initiatives. Outsourcing relieves the burden of administration, procurement, accounting, logistics and other responsibilities on management, thus generating savings of indirect costs related to such functions.
Another point of view, which applies in the case of outsourcing diagnostic or super-specialized services, is to leverage the knowledge and infrastructure of an external party for enhanced cost efficiency and quality in healthcare. 1
Outsourcing is not a recent trend. Wockhardt Hospital in Mumbai outsourced its payroll activity to Mafoi, a leader in handling HR solutions, for a range of industries way back in October 2007. Care Hospital in Hyderabad followed suit and emulated the concept2.
Further, outsourcing is not restricted to HR payroll and soft skills. Hospitals today outsource services such as billing, revenue cycle management (RCM) for credit billing, back-office work, medical records storage (both electronic and hard copy), patient record transcription or medical transcription, and diagnostic facilities1.
Outsourcing specialized services
Outsourcing has been particularly prominent in the areas of radiology and imaging, nuclear medicine, oncology, dental services and ophthalmology recently. For instance, Fortis Hospital, Sir Gangaram Hospital and Dr. BL Kapoor Hospital have all outsourced their radio-diagnosis facilities2.
The rising cost of high-technology equipment is the primary driver of this trend. With technology evolving rapidly, hospitals are finding it difficult to invest significant capital in equipment so frequently. Thus, outsourcing functions that entail the use of complex and expensive equipment becomes a viable solution, allowing hospital owners to lower risk in terms of technology evaluation and other factors such as potential returns.
Cath (catheterization) lab outsourcing is another trend gaining ground. Outsourcing the lease of cardiac cath lab equipment and the provision of cath lab staff services, along with lab maintenance, is a rapidly evolving trend in many countries, including India. Medical equipment manufacturers have a wide presence in this niche space. In a market where the majority of patients are opting for interventional cardiology procedures over conventional surgeries, the demand for such services is only expected to increase.
Outsourcing in healthcare is currently neither homogeneous nor organized. While some early players are now expanding beyond the initial centers, the capital-intensive nature of the business does not make it rapidly scalable.
Further, outsourcing services is an option only for large hospitals with worthy substantial revenue base. For small establishments, such investments may not be as feasible. The viability of an outsourcing arrangement depends to a great extent on the revenue-sharing pattern and the understanding between hospitals and vendors.
In the case of noncore activities, outsourcing is fairly straight-forward, as the vendor belongs to a specific industry and errors do not have serious implications. However, when diagnostic/ therapeutic services are outsourced, the implications are far more serious. In such cases, the credibility of the service provider, domain knowledge and quality become critical.
Various medical device and medical equipment companies have expressed interest in becoming outsourcing partners to hospital chains. Due Diligence is an imperative part of this decision along with establishing commercial viability.
1. KPMG in India Analysis
2. Outsourcing is in – Express Pharma – October 2007