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Issues to consider in internalization of a service.

V A Diaz1

  • 1CIGNA Healthplans, Orange, CA.

Physician Executive
|April 8, 1993
PubMed
Summary

This study examines the decision-making process for healthcare organizations to internalize services, considering both service demand and financial feasibility. It provides a framework for evaluating cost-benefit and legal factors in service internalization.

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Area of Science:

  • Healthcare Management
  • Health Economics
  • Organizational Behavior

Background:

  • Healthcare organizations, particularly staff-model Health Maintenance Organizations (HMOs), face variable service demand across different areas.
  • High-cost or low-demand services are often outsourced to external providers.
  • Internalizing services may necessitate significant capital investment in equipment or facility renovation.

Purpose of the Study:

  • To analyze the key factors influencing the decision to internalize healthcare services.
  • To evaluate the service and financial considerations involved in service internalization.
  • To provide a decision-making framework including cost-benefit and legal aspects.

Main Methods:

  • The study adopts a conceptual approach, analyzing organizational and financial decision-making levels.
  • It incorporates cost-benefit analysis and legal issue considerations.
  • A practical worksheet is provided for organizational use.

Main Results:

  • The feasibility of internalizing services depends on a dual assessment of service needs and financial viability.
  • Capital budgeting is a critical component when internalizing services.
  • A comprehensive evaluation of cost, benefit, and legal implications is essential.

Conclusions:

  • Organizations must strategically weigh service demand, cost-effectiveness, and financial implications before internalizing services.
  • A structured approach, utilizing tools like the provided worksheet, aids in making informed internalization decisions.
  • Balancing internal capacity with external contracting is key to efficient healthcare delivery.

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