Outsourcing budgets to rise 30 percent by 2003 - In the News - Brief Article - Statistical Data Included

Healthcare Financial Management, Jan, 2002

Healthcare industry outsourcing budgets will increase 30 percent by 2003, according to a survey by VHA Inc., Irving, Texas, and Michael F. Corbett & Associates, Ltd., LaGrangeville, New York. Study findings show that healthcare executives perceive significant benefits from using outsourcing and that strategic use of sourcing options can help them manage the industry's changing business environment. Survey results from 153 executives at VHA-member organizations were compared with results from Corbett's annual outsourcing study, which polled 225 executives from other industries.

Almost half of healthcare executives believe that the industry's ways of doing business change completely every five years, and 93 percent of the respondents believe that the pace is accelerating. Only 26 percent of the responding healthcare executives, however, believe their organizations regulary reengineer processes to accommodate change and achieve improvement.

The survey also found that healthcare industry operating budgets for outsourcing will reach 17 percent in 2001, rising to 22 percent in 2003. In general industry, on the other hand, more than half of operating budgets will be allocated to outsourcing in 2003. Hospital support services are outsourced most heavily (30 percent of respondents), followed by information technology (22 percent), finance/capital functions (20 percent), and clinical functions (11 percent).

Healthcare executives believe outsourcing will deliver innovation, higher quality, and lower costs and will increase speed to market for key services. Healthcare executives also rate the lack of internal resources and potential for reduced operating costs as the primary reasons for choosing outsourcing. Secondary reasons include access to world-class capabilities and ability to free up resources for other purposes. Healthcare executives cite the impact on employees as the top barrier to outsourcing, whereas general industry executives cite measuring the value and losing control over the work as the top barrier.

Many healthcare executives feel that outsourcing allows the organization to deliver the most current technology without having to commit additional capital resources. In addition, 94 percent of healthcare executives prefer paying as they go rather than making large upfront investments, and 81 percent would rather base payment on performance than on cost-plus margin. The survey also found that 50 percent of healthcare executives in 2001 accept high risk and reward sharing, compared with 35 percent in 2000.