Certain intermittent services such as pharmacy, laboratory and radiology have been and continue to be outsourced to hospitals or specialty companies, and rehabilitation services have been outsourced for some time.

But now with tight Medicaid funding, the potential for reduced Medicare payments and a surplus of assisted living options resulting in low occupancy rates, facilities are turning to vendors to supply dietary/food, laundry/linen and housekeeping services, and even for human resources, business office and information technology functions.

Facilities typically start to look to outsourcing services for cost savings. Today, however, the inability to find qualified staff for certain positions and more complex employee regulations play important roles in a decision to outsource services. The costs of complying with employment laws and the enormous demands that regulatory compliance places on management's time and attention can be real barriers to focusing on quality of care, resident/family satisfaction, occupancy, payer mix and financial viability.

IS IT FOR YOU?

If you decide that outsourcing services will reduce your costs and increase quality, use common operating benchmarks to determine which services should be outsourced.

You may be surprised to learn that sometimes the current in-house system of providing these everyday services is more costly than outsourcing; or alternatively, that outsourcing is more expensive than continuing the services on an in-house basis.

Dietary/food services: Under a typical outsourcing arrangement, a facility contracts for services that include dietary management and raw food costs per resident day. A 120-bed facility in the Northeast was outsourcing these services at a cost of $7.60 per resident day or $2.53 per meal. An analysis revealed that hiring a dietary manager and obtaining food from another vendor at a lower price would result in a total cost of $6.50 per resident day ($2.17 per meal). The facility's current method of outsourcing cost approximately $45,000 annually.

Laundry/Linens: For nursing facilities, a common benchmark is $2.50 per resident day for laundry and linens. An 88-bed facility in the Midwest was spending $111,000 per year on in-house laundry services. When they outsourced, the cost dropped to $72,088, saving $38,912 annually.

Housekeeping: Vendors usually price these services on square footage basis. An efficient long-term care facility staffs the housekeeping department at 20-25 hours per square foot per year. If costs exceed this benchmark, it's time to seek proposals to outsource this service.

Therapy services: While not typically provided in the assisted living market, many nursing facility providers outsource therapy services. If the volume of therapy required varies from week to week, or if there is a shortage of therapists in the market, consider outsourcing.

Therapy providers offer a range of options for contractual payments. Most facilities enter into contracts with payments tied to RUG categories for Medicare Part A and a proportionate share of the fee schedule for Medicare Part B therapies.

A 107-bed nursing facility in a western state with varying therapy utilization requirements saved $15,500 annually by outsourcing therapy services.

PITFALLS

Even when outsourcing provides financial benefits, there are several pitfalls that can have a negative impact on your organization. While overcoming these is possible, you must take special care to avoid common disasters, including the following:

Lack of control of staff: Even when they're working in your facility, outsourced staff members' allegiance is to their employing company. Strong relationship building is necessary to ensure that contracted employees are integral members of your team.

Poor service: There is inherent risk that outsourced services are poorer than expected, resulting in negative resident satisfaction scores.

Administrators must deal with service problems as soon as they arise and should assure that the contract with the vendor includes a clause that allows termination for cause.

Lack of continuity of services: Vendors may provide services using a staff pool, resulting in inconsistent services. Working with the vendor to ensure that the same staff provides services will reduce inconsistencies.

Outsourcing services by long-term care facilities is gaining popularity. Administrators and managers are becoming more sophisticated in assessing the cost-benefit ratio of outsourcing versus in-house services.

Mark MacCutcheon is senior consultant for Health Dimensions Group, Scottsdale, Ariz. Dr. Kathleen M. Griffin is president and CEO of Valley Consultants Inc. and national director of post-acute and senior services for Health Dimensions Group.