Shared Services: A Strategy to Reduce Costs Without Compromising Patient Care
Do you remember medical imaging before PACS? There were images stored in different ways, in different places, at different times; images were lost, and images sat in stacks, waiting to be filed. Hours were spent retrieving them or searching in vain. It was frustrating and inefficient. By creating one common, shared service for image storage, PACS centralized multiple, disparate forms of image capture, bringing order to chaos (not to mention saving time and money). Now consider medical imaging today in different hospitals and practices, in the same or different locations. You probably wouldn’t be surprised to learn that hospitals and practices run different kinds of scheduling systems; operate separate payrolls; and purchase different types of the same medical supplies (such as stents, catheters, and contrast media) from separate vendors. Shared services can be used, with careful planning and implementation, to improve patient care by freeing money, time, and personnel. The Case for Shared Services As growth in health care costs continues to exceed the growth of the economy, governments and health-management teams must constantly explore new business models to reduce costs, especially where those models are not associated with frontline patient care. To put the opportunity for savings in perspective, consider that US spending on health care in 2006 surpassed $2 trillion, or 16% of the gross domestic product, averaging $7,026 per US resident and amounting to three times the amount spent in 1990.1 This cost is expected to increase to $13,100 per person by 2018, accounting for $1 of every $5 spent in the entire economy.2 With health care spending on the rise in these recessionary times, solutions that could trim back-office costs must be explored. A shared-service entity is an effective model for reducing costs without compromising patient care. Shared-service entities realize cost savings through economies of scale and the optimal leveraging of purchasing power, processes, and technologies. They originated among large, global corporations that sought centralization of common functions across business units and subsidiaries in order to reduce costs. Duplication of effort was eliminated, and best practices and technology solutions were leveraged across the organization. Essentially, running the back office became a business within a business, with compensation linked to reducing costs and improving service levels. The target functions included high-volume, nonstrategic processes such as payroll, check processing, accounts payable, and expense-report processing. Faced with increasing cost pressures and declining government revenues, health-management teams have been attracted to the substantial savings opportunities available through service sharing. This has accelerated the establishment of health shared-service entities. Many Canadian provinces, including Ontario, Quebec, British Columbia, and New Brunswick, have moved in this direction. One of the newest shared-service organizations was established in British Columbia; on December 9, 2008, George Abbott, health services minister, announced, “Through the consolidation of health authority supply chain services, we anticipate savings in excess of $150 million over five years that can go to direct patient care.”3 Business Models A common shared-service business model implemented in the Canadian health care market has been the member-owned, not-for-profit organization, governed by a board comprising member/customer CEOs and a minority of external members. Different approaches to sharing costs and benefits have been established. An effective approach, where members differ significantly in size and in per-unit process costs, is equal-return gain sharing. Under this approach, all investments and benefits are aggregated and shared in accordance with a single gain-sharing formula, so each member’s dollar share of the net cash flow differs in proportion to its size, but each has the same return on investment in percentage terms. Other models include one in which member-owned, not-for-profit organizations share investments under a cost-sharing formula, but benefits are not shared and accrue directly to members. In another model, for-profit providers of outsourced services assume full accountability for a particular process, either directly with the health-service provider or indirectly through a shared-service entity under a traditional outsourcing contract. There are probably as many business models as there are shared-service entities, each designed to meet the specific needs and objectives of the members. The key to the selection of an appropriate business model is to follow an approach that addresses the issues and concerns of each member, early in the process, in a structured manner. Recommended Approach The establishment of any new venture is challenging, particularly in health care, where every innovation is scrutinized in terms of its impact on patient care and the financial benefits achieved. The five-step method illustrated in Table 1 will accelerate creation (and reduce the risks associated with implementation) of a multiple-entity, multifunction shared-service business among health-service providers.
Table 1. Five Phases of Implementation for a Sharedd-services Model
The five steps take sponsors through the development of the vision and strategic context, the selection of a business model, the preparation of foundational legal documents, planning for (and performance of) the transition of operations to the new entity, and the management of operations and implementation of the transformation plan. Implementing a shared-service business is complex, particularly when multiple, independent health-service providers establish a single entity to maximize leverage and economies of scale. The most common challenges that result in cost increases and schedule delays are summarized in Table 2.
Table 2. Lessons Learned in Implementing a Shared-services Program
Implementing a shared-service enterprise focused on the supply chain, in particular, creates a critical need to form an effective physician/clinician-engagement process. Sreekaanth Isloor, PhD, a supply-chain shared-services specialist associated with Medical Methods Inc, Toronto, Ontario, Canada, suggests: “The early and transparent engagement of physicians/clinicians as active participants in developing the medical/surgical sourcing and deployment strategy is the most important critical success factor to achieving planned improvements in standardization and enhancing cost efficiency.” In addition, Isloor recommends listening to all issues raised by the physicians/clinicians and addressing them transparently, in the context of sourcing, to build the long-term partnership and trust required to bring about standardization. Conclusion In these challenging times, there will be many new, innovative ideas and business models designed to improve the effectiveness and efficiency of the health care system. The establishment of a multiple-entity shared-service business focused on the health care supply chain and back-office management is one innovation that is proving highly successful. PACS is just one example of the successful use of shared services within radiology. Many practices and hospitals already enjoy the benefits of the integrated back office and other shared functions. Many more opportunities are also available. For example, a shared-services approach to image scheduling, similar to Sabre (the shared-reservation system established by American Airlines and used throughout the travel industry), may be an opportunity to explore. The imaging industry, like airlines and hotels, is highly capital intensive; as a result, capacity management is a critical profit driver. In Vancouver, British Columbia, Canada, two independent regional health authorities with separate boards and management teams have decided to implement a shared-scheduling system. The planned solution (now in development) will be a single point of contact for referring physicians accessing over 20 imaging sites that serve approximately 2.5 million people. According to Mike Nader, executive director, clinical support services, Vancouver Coastal Health Authority, “The new and cross-region image-scheduling system is anticipated to improve the overall patient imaging experience, increase access to services, and reduce the average wait time.” While it may be easier to implement shared-service organizations in the not-for-profit Canadian system, solutions that will improve patient access and choice (as well as maximize capacity utilization) will ultimately benefit patients and service providers. As with any innovation that changes the fundamental operating model of an industry, a careful assessment of its impact on each participant in the value chain is essential. As seen with PACS, and as anticipated in British Columbia, a shared-services approach in radiology can bring tremendous benefits.