The impact of BPO on cost reduction in mid-sized health care systems

At the convergence of two politico-economic "hot topics" of the day--outsourcing and the cost of health care-lie opportunities for mid-sized health systems to innovate, collaborate, and reduce overhead. Competition in the retail health care market can serve as both an impetus and an inhibitor to such measures, though. Here we are going to address the motivations, influences, opportunities, and limitations facing mid-sized, US non-profit health systems in business process outsourcing (BPO). Advocates cite numerous benefits to BPO, particularly in cost reduction and strategy optimization. BPO can elicit cost savings due to specialization among provider firms, returns to scale and technology, standardization and automation, and gains in resource arbitrage (off-shoring capabilities). BPO can also free an organization of non-critical tasks and focus resources on core competencies (treating patients). The surge in BPO utilization has rarely extended to the back-office functions of many mid-sized health systems. Health care providers, still a largely fragmented bunch with many rural, independent non-profit systems, have not experienced the consolidation and organizational scale growth to make BPO as attractive as other industries. Smaller firms, spurning merger and acquisition pressure from large, tertiary health systems, often wish to retain their autonomy and identity; hence, they face a competitive cost disadvantage compared to their larger competitors. This article examines the functional areas for these health systems in which BPO is not currently utilized and dissects the various methods available in which to practice BPO. We assess the ongoing adoption of BPO in these areas as well as the barriers to adoption, and identify the key processes that best represent opportunity for success. An emphasis is placed on a collaborative model with other health systems compared to a single system, unilateral BPO arrangement.