First your hospital had vendors, wholesalers that delivered the equipment and supplies your employees need to take care of patients. Then most hospitals outsourced certain non-medical functions like housekeeping, security, and meal preparation to companies that could apply economies of scale while relieving the administration of responsibility for hiring, training, and managing individual employees.
Many hospitals applied a similar outsourcing approach to high-skill functions within the hospital like IT and even around-the-clock medical specialties like emergency department physicians and radiologists.
As healthcare becomes ever more complicated and financial margins ever harder to achieve, hospitals are looking for ways to improve medical and financial outcomes beyond the low-hanging fruit of vendors offering the best prices on supplies and service providers that primarily manage low-cost staff hours. Hospitals, especially independent community hospitals that may have trouble recruiting and retaining top-level expertise, are looking for strategic partners that bring significant domain expertise and assume more of the technical functions that are required by modern healthcare.
The future of healthcare, in the words of Thomas Koulopoulos, chairman of the Boston think tank Delphi Group, is Smartsourcing. Instead of recruiting and maintaining individual expertise for every business process, a hospital can contract with organizations that specialize in functions that are peripheral to the hospital’s core mission of high-quality patient care. Certain functions can be entrusted to experts who are not necessarily on-site but nonetheless share the hospital’s goals.
What Is Smartsourcing?
In short, smartsourcing is a business strategy of shifting towards partnerships that focus an organization on its core competencies and core mission, and to then shed the processes that are not core to the organization’s mission to a partner.
“The processes that are ‘shed’ become the responsibility of another organization for which, in turn, these processes are core,” Koulopoulos wrote in his book Reimagining Healthcare. “The objective is to make sure that every task in a value chain of activities is ultimately performed by an organization for which it is a core competency.”
“Smartsourcing is founded on a fundamental premise, that the cost and friction of maintaining a large vertically integrated infrastructure of non-core activities is greater, and less effective, than the cost of coordinating an external value chain with the same activities among partners who are core in these same areas. This is key to understanding the shift that is occurring among community hospitals and hospital systems, physicians’ groups, and which will ultimately impact all healthcare providers.”
Sidenote
Unprecedented Field Test
As little as 3 years ago, the notion of utilizing remote teams rather than having all employees in-house may have given hospital leaders pause. However, the COVID-19 Pandemic served as an unprecedented field test of remote work, settling the debate once and for all of whether physical presence was required to perform timely and reliable work. Instead, companies who’ve disabused themselves of the in-house-is-best myth discovered they removed an enormous barrier to recruiting top talent — geography.
Most importantly, Koulopoulos asserts, these Smartsourcing partners, called HSPs — healthcare services providers — have every incentive to continually innovate rather than merely streamline existing processes. Their survival, like that of their hospital partners, depends on being cutting-edge in their area of expertise.
While the terms outsourcing and smartsourcing may sound interchangeable, there are some key distinctions between the two notably different business strategies.
First, outsourcing is usually driven purely by cost-cutting. So when the organization outsources a process, it sheds not only the process but also all of its employees who were once responsible for that process. And because of that, it is a solution that only replaces the status quo (i.e. it doesn’t enable more resources to focus on core competency work.) A common application of outsourcing in healthcare is food services. This business function can be shed to a company for which that process is core. But the staff who formerly handled that function internally wouldn’t be the skillset to refocus on core competency work of improving care.
“While an organization may be able to define its core competencies—which it will keep in-house— and its extreme outliers—which it will outsource—the area in-between these two extremes is often difficult to outsource since it is still intimately linked to supporting the organization’s core,” Koulopoulos writes.
A perfect example of this is data collection related Core Measures and Registries like NCDR or Get With The Guidelines (GWTG). The accuracy and timely availability of this data is critical to supporting performance improvement. But the abstraction of the data from medical charts is not in and of itself core competency work. That’s where an expert smartsourcing partner comes in.
While there are multiple traits that differentiate smartsourcing from outsourcing, the most telling distinctions are as follows.
The answer to this question will depend entirely on your healthcare organization’s core competencies, and acknowledging that another organization might be more competent can be hard. In 2019, John Muir Health in the San Francisco Bay Area leaped into smartsourcing in a big way by entering a multi-disciplinary contract with an HSP called Optum that includes managing the revenue cycle, some care management, information technology, and the purchasing department.
According to Koulopoulos, the payback for John Muir Health is expected to be $300 million a year. But, in a webinar, CFO Chris Pass described two unexpected ways that the smartsourcing relationship promptly proved its worth when the COVID-19 pandemic arrived less than a year later. One was leveraging the HSP’s purchasing power and vendor relationships for PPE. Another was having a “virtual” workforce already in place when California’s shelter-in-place and social distancing policies dramatically limited the number of employees who could come to the office.
Sidenote
Why Not Just Merge?
Merging to create or become part of a bigger healthcare organization certainly remains one option for helping community hospitals and physician groups survive. But the cost savings achieved by mergers, typically less than 3.5%, may be matched by reductions in revenue. And innovation for all merger partners will be at the mercy of the umbrella organization.
If the goal is more than survival, smartsourcing non-core functions by partnering with highly specialized HSPs can be the path to “radically alter the infrastructure of health care,” as Koulopoulos puts it.
Muir “never missed a step,” Pass said. “When we entered into this [smartsourcing relationship], it was the last thing on our mind that we thought we would have to be concerned with.”
Another example of smartsourcing is that of Loma Linda University Health, also in California. Assistant Vice President of Quality & Patient Safety Brenda Bruneau, MBA, RN, is a strong proponent of smartsourcing the data collection process so she can make more strategic use of her clinical personnel and focus them on their core competency — improving care. “My former abstractors are now stronger partners with our operations teams, like our physicians or our nurse clinicians, in really understanding and dissecting the data, and being able to participate in quality improvement,” Bruneau said. “Their clinical brain is now transitioned from abstraction to partnering in making our performance better. And that’s been a big win for many of our teams.” (Loma Linda works with American Data Network as its systemwide smartsourcing partner for data abstraction.)
Loma Linda received national recognition at an Epic EHR conference where they presented on a Stroke Treatment Documentation project that was made possible through smartsourcing. “In many of our Comprehensive Stroke measures, we were struggling,” said Bruneau. So she tasked her former abstractor to team up with the operations and Epic EHR teams to create a summary view. As various individuals are feeding the EHR, it creates a real-time picture of each episode of care for stroke patients. “It displays a coalition of information for all of our providers to see the summary of the trajectory of that stroke patient to make sure that all of those elements that are required in our performance are actually met. And if they’re not, it identifies it.” For example, Bruneau said, if the NIH score was not documented on admission, the electronic summary presents it to the clinician as a missing element so that it can be addressed in a timely manner.
Rather than focusing on her previous job duty of routine data collection, Bruneau’s team member was able to innovate instead, becoming an active change agent rather than a passive data collector. That is a textbook example of the innovation enablement created by a solid smartsourcing partnership. “We now routinely achieve high compliance with Comprehensive Stroke,” Bruneau said. “That work was able to be done because the individuals who know that data best were able to partner with our operations and Epic teams to say, ‘How do we do this better?’”
What Loma Linda and John Muir are doing is certainly forward-thinking in healthcare. But the concept of smartsourcing has long had a foothold in other industries.
The shift to “the cloud” in IT is a prime example of how the industrial age “economies of scale” status quo has been disrupted. It’s no longer more effective nor cheaper for an IT department to build and manage servers at each and every company.
In an economy full of services based on knowledge work, no one could argue that file sharing and storage are not critical components in the value chain. But because of innovation in technology, it’s now much cheaper and more effective to rent rather than own that part of the value chain.
Bruneau noted that for a quality team considering smartsourcing data abstraction, it does require a mental shift away from the economies-of-scale mindset (that many hospitals are still stuck in) of owning every aspect of the value chain. “I think it’s important to understand that when you smartsource, it doesn’t mean you let go of the accuracy or the completion of that data. You don’t ever let go of that,” said Bruneau. “However, when I smartsource it, I have another partner. And I am not solely responsible for the obtaining of that data. It actually makes it easier because a smartsourcing organization has a little broader ability. They’ve got a few more people than you likely have.”
What healthcare organizations like Loma Linda and John Muir are realizing is that to survive and thrive in a market of accelerating technological advancement coupled with intensifying economic pressure, they have to be more agile. And to do that, they must narrow their focus to their core competencies and partner on peripheral processes that get in the way of core innovation.
By eliminating friction caused by administrative processes that distract them from their core competency, leading hospitals move faster, innovate more, and deliver better care while growing revenue.
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