‘Reverse outsourcing’ fattens hospital’s budget
Reverse outsourcing’ fattens hospital’s budget
But sidelines won’t totally offset payer cuts
Richard Henley used to flinch every time he closed a seven-figure deal on a CT scanner or a piece of high-end radiology equipment. Henley is executive vice president of the 320-bed Vassar Brothers Hospital and its parent organization Health Quest, both in Poughkeepsie, NY.
He says the sticker price didn’t bother him as much as the annual service contract that cost 10% of the purchase price for the life of the equipment. "It was nothing for us to pay $100,000 a year for just one machine," he says. There had to be a better way — and in the early 1990s, he found it.
Henley calls the process "reverse outsourcing." The original notion was to break the cycle of dependency on service contracts with outside vendors by recruiting and training biomedical engineers to maintain the hospital’s equipment. From there, the notion blossomed into several revenue centers that add about $1 million a year to the balance sheet of this not-for-profit system.
From outsourcing to self-sufficiency
The revenue centers are expansions of services the hospital uses to do its work. Health Quest put an entrepreneurial spin on some existing in-house services and pulled in as many outsourced services as feasible. Today, its leading revenue centers include:
• Biomedical engineering.
Health Quest’s engineers take care of all but the most complicated maintenance and repairs on the high-tech cardiology, radiology, and lab equipment. John Mallegol, the system’s director of materials management, oversees the operation.
"Part of the deal when we buy a piece of equipment is to build in an agreement for training our engineers to do the maintenance and repairs," he says. The engineers also maintain equipment for a few other providers in the area, including Vassar Brothers’ sister hospital.
• Ambulance service.
The original fleet of seven ambulances grew to 24 as Health Quest contracted to provide service for various municipalities in the Poughkeepsie region, which is 80 miles north of New York City.
• Vehicle maintenance shop.
As the ambulance fleet grew, it was obvious that in-house maintenance made better sense than outside service contracts. A full-time mechanic now takes care of the ambulances as well as the organization’s courier vehicles. He even does minor maintenance on employees’ cars.
"When he has a half-hour of down time during the day, he might change the oil for one of the hospital’s employees. But this is not a major part of his work," Henley explains.
• Call center.
What began as a 24-hour dispatch station for the ambulance service expanded into an after-hours answering service for physicians’ offices and nursing homes. The latest feature is a referral line to area physicians, the Health Quest facilities, and two other local hospitals. "We had the operators and the equipment. We added the services incrementally," observes Henley, "sometimes without even adding another employee."
• Print shop.
Health Quest does almost all of its own printing. "Every time we make a change in a form, we handle it on our own equipment," explains Mallegol, who oversees the function. The printing specialist works in his area and spends about 20% of her time on printing and graphics jobs. Health Quest’s investment in specialized software and digital printers saves more than $200,000 each year.
• Bakery and deli.
The dietary department offers a limited deli and catering line in addition to fulfilling the system’s requirements for food and baked goods. For example, a visitor can order a roast chicken and potatoes to take home the day her mother is discharged from the hospital. An employee might order a pan of lasagna or a couple dozen submarine sandwiches for a party. During the holidays, the department sells about 1,000 pies to staff and visitors. The deli is open Monday through Friday; catering is for pick-up orders rather than offsite delivery.
Core service with entrepreneurial spin
Health Quest’s reverse outsourcing venture evolved as new department heads stepped into job openings. "Each time we recruited somebody to fill a vacancy, we built another component by looking for a person with an entrepreneurial bent," Henley says.
"That was our technique, as opposed to a full-blown business plan that defined where we wanted to be in five years. It all depended on the right executive coming in," he adds.
According to Henley, the right executive is someone who is willing to embrace the challenge of fleshing out a department’s basic services with a small income-producing sideline.
However, he emphasizes, "When we hired the food services executive, we stressed that the first responsibility is always to feed our patients, employees, volunteers, and physicians. The rest is secondary." So it is with each revenue center.
The hospital’s net benefit of $1 million a year far exceeds the original objectives, and "when you think of the thin margins, that’s tremendous," he concedes. "[However], we are not bringing in so much that we can in any way offset the Medicare and managed care cuts."
Not a panacea
Henley notes that reverse outsourcing will never grow to a point where it will compete with biomedical equipment vendors or local merchants. "We’re insignificant in the scheme of things for other businesses," he observes. Nor will reverse outsourcing ever be the panacea that solves the economic woes of a community hospital.
Nonetheless, a million bucks in a not-for-profit’s budget is not to be scoffed at. "Every time we can add another $20,000 or $40,000, that starts to pay for nursing salaries and support services," Henley says.
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