UNCOVERING INFLUENCES ON OUTSOURCING
DECISIONS IN HEALTHCARE: THE CASE OF MEDICAL
EQUIPMENT
Master Thesis, MSc, Supply Chain Management University of Groningen, Faculty of Economics and Business
January 27, 2020
IRIS VAN DER MEULEN
ABSTRACT
Purpose – The purpose of this study is to explore how outsourcing decisions of medical
equipment are influenced by underlying processes. Previous studies have found contradicting outcomes in achieving expected outcomes of outsourcing. This evokes the notion that there may be more behind the decision to outsource than is immediately apparent. However, current studies often overlook outsourcing decisions. Therefore, it is interesting to investigate the outsourcing decision in more depth.
Method – This study conducted a single case study at a Dutch healthcare organization. The
methods employed included a series of 10 semi-structured interviews and informal conversations, as well as observations and analysis of confidential documents and data.
Findings – The findings show that outsourcing decisions are often based upon ambiguous data,
making the decisions largely subjective. Moreover, integration both internally between multiple levels of the organization and externally between the healthcare organization and suppliers is crucial in the outsourcing decision. Without integration, expectations and implications are not aligned which negatively influences setting realistic expected outcomes.
Research limitations and future work – Since this study shows ambiguity in outsourcing
decisions, future research could focus on decreasing this ambiguity in healthcare organizations. Avenues for future research include exploring how the quality of data can be increased, thereby leading to less subjective outsourcing decisions. In addition, studies could focus on increasing integration within healthcare organizations.
Practical implications – This study suggests that internal integration could be enhanced to
improve outsourcing decisions, ensuring the quality of care. Moreover, organizations should be aware of the subjectivity of outsourcing decisions. It must be decided upfront which criteria will be included in outsourcing decisions.
AKNOWLEDGEMENTS
First and foremost, I would like to thank my thesis supervisor dr. ir. Paul Buijs. His trust provided me with the opportunity to conduct my research in the healthcare sector. Whenever I found myself in trouble, his guidance made sure that I kept my focus and continued in the right direction. I also express my gratitude to Romée Janson for sharing her knowledge in the field of healthcare logistics. In addition, I must thank every member of staff at the healthcare organization who has been involved with this research. Not only their input, but also their enthusiasm has made my time spent on-site considerably more valuable and enjoyable. I would particularly like to thank Mr. Pieter Vlot for introducing me at various locations within the healthcare organization. Lastly, I am grateful for the support of my family and friends, who have supported me throughout my studies.
Groningen, January 2020
TABLE OF CONTENTS
1. INTRODUCTION ... 5
2. THEORETICAL FRAMEWORK ... 7
2.1. Logistics in Healthcare Organizations ... 7
2.1.1. The Backlog of Logistics in Healthcare ... 7
2.1.2. Influences on Logistics in Healthcare Organizations ... 8
2.2 Outsourcing in Healthcare ... 9
2.2.1. Motivators of Outsourcing in Healthcare ... 10
2.2.2 Risks of Outsourcing in Healthcare ... 10
2.2.3. Outsourcing Decisions in Healthcare ... 11
3. METHODOLOGY ... 12
3.1 Research Setting ... 12
3.2 Case Selection ... 13
3.3 Data Collection ... 14
3.4 Data organization and analysis ... 17
4. FINDINGS ... 19
4.1. Cost Savings ... 19
4.1.1. Difficulty in Quantifying Potential Savings ... 20
4.1.2.Differences in perceived Costs ... 22
4.2. Improved Quality ... 23
4.2.1. The Quality of DME ... 24
4.2.2. The Quality of Care ... 24
4.3. Increased Flexibility ... 25
4.3.1 Flexibility of Processes ... 26
4.4.1. Operational Level Requirements ... 27
4.5. Risks of Outsourcing ... 29
4.5.1. Loss of Control ... 29
4.5.2. Loss of Knowledge ... 30
5. DISCUSSION ... 32
5.1. Subjectivity in Outsourcing Decisions ... 32
5.2. The Influence of Integration ... 33
5.2.1. Internal integration ... 33
5.2.2. External integration ... 34
6. CONCLUSION ... 37
6.1. Theoretical Implications ... 37
6.2. Managerial Implications ... 38
6.3. Limitations and Future Research ... 39
7. REFERENCES ... 41
8. APPENDICES ... 48
A. Cost Calculations ... 48
B. Overview of Underlying Processes ... 50
1. INTRODUCTION
Providing care has long been the primary focus of healthcare organizations, while the supporting logistic functions were a secondary area of focus at best (Abdulsalam & Schneller, 2019). One of these logistic functions is related to ensuring the availability of medical equipment such as hospital beds, lifters, insulin pumps, thermometers, and pacemakers. The availability of medical equipment is critical in supporting the provision of high-quality care. However, due to the lacking focus on logistical functions, the availability of medical equipment cannot always be guaranteed, potentially impairing the high quality of care (de Vries & Huijsman, 2011; Moons, Waeyenbergh, & Pintelon, 2019; Zepeda, Nyaga, & Young, 2016). Moreover, the management of medical equipment places a great burden upon healthcare organizations’ resources in terms of time and costs (Abdulsalam & Schneller, 2019; Denton, 2013; OECD/EU, 2017). Therefore, improvements in logistical functions related to the management of medical equipment are needed.
Healthcare organizations increasingly consider outsourcing as a means to improve their subordinate logistical functions (Volland, Fügener, Schoenfelder, & Brunner, 2017). However, articles that empirically study enablers, advantages, barriers, and risks of outsourcing in healthcare are scarce (Volland et al., 2017). Some studies state that, a renewed strategic focus, cost reductions, quality improvements, and increased flexibility can be drivers of outsourcing both clinical and non-clinical activities. Moreover, they emphasize the importance of proper control mechanisms since a loss of control over the supplier is a main risk of outsourcing (Kavosi, Rahimi, Khanian, Farhadi, & Kharazmi, 2018; Moschuris & Kondylis, 2006). However, these prior studies do not show how these drivers and risks are considered in outsourcing decisions altogether.
perceived as the expected outcomes of outsourcing (Renner & Palmer, 1999; Young, 2005; Young & Macinati, 2012). Nonetheless, these studies do not demonstrate the underlying processes influencing the outsourcing decision. Therefore, the question of how healthcare organizations construct the expected outcomes that influence outsourcing decisions remains. It is unclear upon what information the expected outcomes are based and which expected outcomes are decisive in the outsourcing decision.
Moreover, these current studies often present contradicting findings in the achievement of expected outcomes of outsourcing (Beaulieu, Roy, & Landry, 2018; Young, 2005; Young & Macinati, 2012). Therefore, the assumption that drivers and risks of outsourcing directly result in the expected outcomes may be false. There may be more underlying processes (activities, choices, and events) that are of influence on setting realistic expected outcomes. To uncover these influences, it is important to understand the underlying processes (Langley, 1999). Hence, more knowledge is needed about how healthcare organizations construct expected outcomes and how these processes influence the outsourcing decision.
Therefore, the goal of this research is to investigate the processes that underlie outsourcing decisions of healthcare organizations. So, this study answers the following question: ‘How are decisions regarding the outsourcing of ownership and management of
medical equipment influenced by underlying processes?’ To address this question, a single
2. THEORETICAL FRAMEWORK
2.1. Logistics in Healthcare Organizations
In healthcare, logistic processes can concern flows of physical products as well as patient flows (Lee, Lee, & Schniederjans, 2011). This research focusses on the logistics of medical equipment. Medical equipment pertains to all instruments, devices, implants, machines, software or any other item that is used alone or in combination in the provision, diagnosis, and treatment of illnesses, injuries, and handicaps (FDA, 2019; NVZ, NFU, & RN, 2016). Medical equipment ranges from non-critical devices with minimal potential harm for the user to highly critical-devices that sustain and support life (FDA, 2019).
2.1.1. The Backlog of Logistics in Healthcare
2.1.2. Influences on Logistics in Healthcare Organizations
Research about the logistics of medical equipment in healthcare organizations has stated that the healthcare industry differs from conventional industries due to its distinct characteristics (Volland et al., 2017). It is important to comprehend these characteristics of healthcare organizations as they (indirectly) influence the logistical processes (Volland et al., 2017). The influences stem from internal and external sources.
Internally, research has demonstrated that healthcare organizations must manage conflicting stakeholder interests. Multiple stakeholders on multiple-levels of the organization (e.g. physicians, nurses, facilitating staff, management) have different (logistic) responsibilities and preferences, which results in coordination and integration problems (de Vries & Huijsman, 2011; Groop, Ketokivi, Gupta, & Holmström, 2017; Moons et al., 2019). These different interests are often related to the costs and quality of care, which are on a collision course if not managed well (Bendavid, Boeck, & Philippe, 2012). Aligning these interests can however be troublesome as healthcare staff possesses great autonomy in their work (Moons et al., 2019). Healthcare staff provides both the diagnosis and treatment of patients as well as deciding which medical equipment is needed in this treatment (Dobrzykowski, 2019; Shah, Goldstein, Unger, & Henry, 2008). Moreover, this may hinder the ability of the healthcare organizations to switch between suppliers of medical equipment to simplify logistical processes by (Montgomery & Schneller, 2007). Hence, the different interests of stakeholders along with healthcare staff their autonomy may complicate a healthcare organization’s logistical processes (Montgomery & Schneller, 2007; Moons et al., 2019).
stages. Since governmental regulations cannot be influenced, this complicates the improvement of logistical functions of medical equipment.
In addition, another influence comes from patient demand. Is has been found that patient demand is often highly volatile and hard to predict for healthcare organizations (Jack & Powers, 2009; Lewis, Balaji, & Rai, 2010; Zepeda et al., 2016). Variability is caused by both the arrival of patients as well as changes in the care path once a patient has been admitted (Efe, Raghavan, & Choubey, 2009). This variability can be artificial (i.e. controllable) and natural (i.e. potentially uncontrollable) (Litvak et al., 2005). Due to this uncertainty, healthcare staff tends to overstock equipment, which further complicates insight in logistical processes as it leads to low utilization of equipment, (ironically) a loss of equipment, and puts a great burden on healthcare costs (Landry, Beaulieu, & Roy, 2016; Zepeda et al., 2016). Uncertainty of patient demand thus complicates logistics of medical equipment.
Although these influences are recognized as having an impact upon the logistical processes of healthcare organizations, it remains unknown if and how these characteristics influence their outsourcing decisions (Cruz & Rincon, 2012).
2.2 Outsourcing in Healthcare
2.2.1. Motivators of Outsourcing in Healthcare
Outsourcing is expected to reduce the costs of healthcare organizations by allowing the healthcare organization to benefit from a supplier’s economies of scale (Abdulsalam & Schneller, 2019; Renner & Palmer, 1999; Young & Macinati, 2012), realizing savings on resources and workforce (Kavosi et al., 2018; Volland et al., 2017; Young, 2005), and gaining more flexibility (Guimarâes & de Carvalho, 2011). Increasing flexibility allows healthcare organizations to manage variability in demand and to quickly react to changing environments since investments in new internal resources are no longer needed (Brunetta et al., 2013; Guimarâes & de Carvalho, 2011). As a result, flexibility is presumed to reduce the need of healthcare staff to overstock equipment, simplifying the management of medical equipment and reducing costs.
Reducing the burden of non-clinical tasks on healthcare organizations is another key driver of outsourcing (Kavosi et al., 2018; Roth, Tucker, Venkataraman, & Chilingerian, 2019). Research states that outsourcing provides access to the talent and unique capabilities of suppliers that are not available to the healthcare organization (Brunetta et al., 2013; Guimarães, Carvalho, & Maia, 2013; Young, 2005). Since the capabilities of healthcare organizations to manage and maintain medical equipment are often inferior to those of suppliers, outsourcing can positively influence the quality of medical equipment (Cruz & Rincon, 2012). As a result, healthcare staff may be relieved of their logistical tasks which allows them to focus on their primary task: providing care. Consequently, the increased availability of healthcare staff could result in an improved quality of patient care.
2.2.2 Risks of Outsourcing in Healthcare
variation and loss of quality (Bertolini, Bevilacqua, Braglia, & Frosolini, 2004; Brunetta et al., 2013; Guimarães et al., 2013). Poor performance of a supplier will directly impair the availability of medical equipment resulting in higher waiting times and a reduced quality of care (Cruz & Rincon, 2012). It is thus important to closely monitor supplier performance to ensure the provision of a high quality of care (Brunetta et al., 2013; Guimarâes & de Carvalho, 2011; Kavosi et al., 2018; Renner & Palmer, 1999; Young & Macinati, 2012).
2.2.3. Outsourcing Decisions in Healthcare
3. METHODOLOGY
The aim of this research is to explore how decisions concerning outsourcing the ownership and management of medical equipment are influenced by underlying processes. Since these are complex processes, in-depth knowledge is required. Therefore, a single case study is used (Eisenhardt, 1989; Karlsson, 2016). Case studies are particularly useful to study complex, unique, and exploratory phenomena in real-life settings (Karlsson, 2016; Meredith, 1988; Seuring, 2008). Hence, researching a single case allows for gaining in-depth understanding of the processes influencing outsourcing decisions of medical equipment in healthcare organizations (Karlsson, 2016).
3.1 Research Setting
This study was conducted at a Dutch healthcare organization consisting of one hospital, multiple nursing homes, and many residential care centers. This healthcare organization has been ranked as the best healthcare organization of The Netherlands for several years now (Elsevier, 2018).
the desired results, the outsourcing of DME was being reconsidered. Insights from the previous outsourcing decision was valuable to the researcher to increase the understanding of the recent outsourcing decision.
3.2 Case Selection
The unit of analysis of this study is the decision concerning the outsourcing of ownership and management of DME that the healthcare organization is considering. To gain an understanding of this outsourcing decision, an in-depth single case study was conducted at multi-levels of the organization. The healthcare organization’s management is tasked with making the final decision on outsourcing, the impact of which will be felt by healthcare staff at the operational level. Therefore, to gain an understanding of the processes influencing the (expected) outcomes of outsourcing and the outsourcing decision, both perspectives were considered.
Since there was only one cross-functional (middle) management team that was concerned with the outsourcing decision, this team was included as the managerial perspective on the outsourcing decision. In addition, this research included four departments to analyze their perspectives on the outsourcing decision. It was expected that the outsourcing decision had different implications for the distinct departments, which may lead to different perspectives towards the outsourcing decision.
expected that outsourcing DME would have different (expected) outcomes for these departments resulting in different perceptions about the outsourcing decision. The selected perspectives can be found in Table 1.
Table 1: The selected departments and their high (H) and/or low (L) variability and specificity in DME
3.3 Data Collection
Since the outsourcing decision affected employees at multiple levels of the organization, the insights of managers, as well as healthcare staff were collected. Data was collected in two consecutive periods between September 2019 and January 2020. In total, the researcher has spent over 20 days at the healthcare facility in which 10 interviews were held with 12 employees (Table 3). Also, the researcher had over 25 informal conversations with different members of the organization. The observations, business meetings, informal conversations, and interviews resulted in over 150 pages of written documentation. In addition, secondary data of 11 previously conducted interviews with stakeholders of Janson (2019) were analyzed to increase the researcher’s understanding of current practices at the healthcare organization and to validate the researcher’s findings.
During the first period (from September until November) the primary aim was to obtain insight into the managerial actions, choices, and perceptions towards outsourcing DME. The researcher was part of a pre-set-up cross-functional project team that was concerned with the outsourcing decision. This cross-functional project group consisted of two (facility) managers from the healthcare organization, two employees from the supplying organization, one location
Nr. Considered perspective Variability Specifity
1 Management team N/A N/A
2 Assited Living Residence L L
3 Assisted living Residence / Long Term Care L L
4 Long Term Care H/L H/L
leader of a residential care center (representing healthcare staff), and two researchers from the University of Groningen.
The project group held bi-weekly meetings in which the needs of the healthcare organization were discussed based on data about demand, costs, and care heaviness. The role of the researcher was to calculate the costs of the different outsourcing options (e.g. which products and what tasks to outsource), which allowed the researcher to access reliable and trustworthy qualitative and quantitative data. Being present at these meetings provided insight with regard to feelings and ideas the participants held towards outsourcing. In addition, the final business case concisely stated all information that was being shown to the board of the healthcare organization. This business case provided insight in the key drivers and expected outcomes of the decision regarding the outsourcing of DME.
The insights gained were supported by four semi-structured interviews to explain the identified actions and choices of the different participants in the management team (Table 2). Semi-structured interviews allow for retention of the standard questions to cover the complexities identified in literature, but allowed for the flexibility needed to gain more in-depth knowledge and add complexities (Karlsson, 2016). In addition, secondary data about the previous tender process of outsourcing that was executed in 2014 were analyzed to enhance these insights. This previous tender process was won by the supplier that is currently under consideration as being the supplier of choice once again. These documents provided insight into the value the supplier can add to the healthcare organization.
conversations about their ideas and perceptions of the outsourcing decision. Moreover, the researcher gained an insight in the current processes. The conversations and observations provided the researcher a more practical perspective. In addition, semi-structured interviews were held with location leaders and healthcare staff to gain insights from different hierarchies at the operational level. The interviews focused on (1) the outsourcing decision (2) the medical equipment, and (3) the healthcare organization. All interviews were structured using an interview protocol. Interviewees were selected based on whether they were involved with medical equipment in their tasks. In total 6 interviews were conducted at these healthcare departments on the operational level (Table 2). All interviews lasted between 30 and 75 minutes. The conversations, observations and interviews provided the researcher with in-depth knowledge about the perspectives healthcare staff held towards outsourcing and how outsourcing would influence their tasks. This increased the researcher’s insight in the processes underlying the decision whether to outsource DME.
The insights gained at the healthcare organization were supported with an on-site visit to the supplier. Here, the researcher got an insight into the suppliers’ processes and activities. Also, an employee and the manager of the supplying company were interviewed. The employee currently manages all contact with the different departments of the healthcare organization and
Function Company Department Reference Interview Nr.
Business Operations Healthcare N/A M1 1
Manager Logistic Services Healthcare N/A F1 2
Account Manager Supplier N/A S1 3
Location Leader Healthcare ALF LL1 4
Nurse Healthcare ALF N1 5
Nurse Healthcare ALF N2 5
Care director Healthcare LTC/ALF CD1 6
Nurse Healthcare LTC N3 7
Care director Healthcare R&R CD2 8
Ergotherapist Healthcare N/A E1 9
Manager Supplier N/A S2 10
Operational Employee Supplier N/A S3 10
thus has extensive knowledge about the current processes. In addition, this employee used to work at the healthcare organization for over 20 years. Hence, this employee has a unique insight into the healthcare organization and the value the supplier can add to their business. Furthermore, the manager of the supplying organization also has experience with supplying other healthcare organizations. Therefore, this manager provided more general knowledge about the value the supplier can add to the healthcare organization. Some example interview questions are exhibited in Table 3.
3.4 Data organization and analysis
The quantitative data that was obtained to calculate the costs of different outsourcing options was structured in Excel. Data about the variability in demand for certain DME, the required
Organizational level Operational definitions and Interview Questions
Managerial The interviews at this level focussed on how managers considered the (outcomes of the) outsourcing decision.
Example questions: What was the initial reason to rethink the outsourcing decision? How is outsourcing going to influence the current processes? What makes this decision so complex? How is the contract managed?
Operational The interviews at this level focussed on how operational employees currenty experience the processes and their perceptions of
outsourcing.
Example questions: What is the current basis of the ownership / outsource decision? How do these processes currently work? What is the most important difference? What should be considered by
management?
Supplier The interviews at this phase aimed at gaining insight in the current and possible futute processes to support the findings at the healthcare oragnization.
Example questions: What caused the renewed negotiations with the healthcare organization? Can you describe the current collaboration? What can you offer the healthcare organization? How do you monitor each others processes?
capacity, and the costs associated with owning and outsourcing provided the basis for the cost calculations. These calculations resulted in extensive insight in the economical aspect of the outsourcing decision. Appendix A displays a more elaborate explanation of the cost calculations.
All interviews were recorded, transcribed, and coded. The interviews were coded following the coding process of Corbin and Strauss (1990) as discussed in Karlsson (2016). This coding scheme consists of three steps. The first step is open coding in which important segments of the interview were selected and given a code. The assigned codes were assured to be relevant for the research, keeping the complexities from literature in mind while also considering newly identified complexities. Hence, core concepts were identified and developed into core categories. Thereafter, in the axial coding process, these categories were being rationally linked to each other and regrouped. In the selective coding step, which is the last step of the coding process, core categories were selected and related to other categories. The resulting coding trees showed the main issues and opportunities that are considered about outsourcing for multiple levels of the healthcare organization.
4. FINDINGS
At the start of the project the key informants at the healthcare organization mentioned reducing costs, improving quality, increasing flexibility, and sharpening the focus on the core business as the main reasons to consider outsourcing DME. The healthcare organization considered outsourcing as a renting (i.e. pay-per-use) agreement for outsourcing the ownership and management of DME as opposed to keeping it inhouse. Upon investigation about which processes underlie the setting of expected outcomes inducing the outsourcing decision, it was found that setting realistic expected outcomes is not as straight forward as it is thought to be. There is often no clear-cut path in how the activities, choices, and events related to the outsourcing of DME influence the expected outcomes of outsourcing at different levels of the organization. In addition, the findings of this study suggest that some typical characteristics of healthcare organizations influence the outsourcing decision.
4.1. Cost Savings
In previous years, the total expenses of the healthcare organization had been rising while concurrently the profits disappointed. Consequently, to remain financially stable, top management voiced its desire to reduce cost. Upon investigation of middle management, it was found that ownership and management of DME put a great burden on the costs of the healthcare organization. “Long-term care appeared not to be working well with their durable medical
equipment, which was a huge burden on our expenses … That is of course also the cause, can we save some money on this?” (M1). Therefore, management considered outsourcing DME as
an option to reduce costs.
possible” (N3). “A colleague of mine once recommended a bed system to a location leader. This system costs €1500.- and that amount of money was not available. … Sometimes if equipment is not available this requires nurses to sedate this client at night” (E1). However, as
providing a high quality of care is the most important objective of the healthcare organization, this compromise on the quality of care was stated to be unacceptable. It was thus found that costs reductions are of great importance for both management and healthcare providers. However, in determining the expected savings, some obstacles were identified.
4.1.1. Difficulty in Quantifying Potential Savings
thus benefit from outsourcing equipment by realizing cost savings. Management was certain that if all related costs were known, the outsourcing option would overall, be cheaper.
Interestingly, choices about which expenses were to be included in the cost calculations were very subjective. It was found that even if the burden on nursing and technical staff was quantifiable, they would not be included in the cost calculations. Since the savings in time were expected to be spent in other tasks, these savings would not directly result in savings on the invoice. Therefore, they were not acknowledged as cost savings. “We cannot say that we are
going to save 5 hours at a certain department. That will solve itself in some way. Eventually we would be able to work with less people, but that is not directly accountable” (F1). Similarly,
the additional transaction costs that result from the outsourcing option were not included in the cost calculations. Managers perceived these costs as being part of the organization. “Not all
costs are included in the calculation of the costs. For example, the costs of contract negotiation and contract management. We perceive those as costs that we have to make as an organization anyway, we have those departments” (F1). This study thus observed that the calculation of the
Durable medical equipment BEP in days organization BEP in days department Obese bed 66 28 Low/low bed 146 60 High/low bed 180 53 AD mattress 126 55 Bed parrot 156 156 Douche brancard 181 83
Douche toilet chair 118 38
Douche toilet chair advanced 189 83
Sling 553 239
Patient lift active 145 63
Patient lift passive 267 95
Stand-up help 50 20
Walker 87 20
Weelchair 83 15
Toilet seat 36 36
current and expected expenses is subjective due to the lack of available data in the healthcare organization and the freedom in deciding which costs are included in calculating the costs of ownership and outsourcing. Consequently, the expected cost savings supporting the decision to outsource DME are subjective.
4.1.2.Differences in perceived Costs
When considering the costs related to keeping the ownership and management of equipment inhouse versus the costs of outsourcing on a renting base, this study found that the level of reasoning greatly influences the perception of these costs. Even though outsourcing was expected to realize cost savings for the organization as a whole, the bureaucratic nature of the healthcare organization diminishes the cost savings at the operational level. When the healthcare organization purchases DME, some of the costs related to managing the equipment linger at several levels of the organization. Therefore, if DME are bought, the department only directly pays for the investment costs. Contrarily, when DME is outsourced, the costs which a department must directly pay to the supplier include the item price, maintenance, and transport costs. The break-even point of these costs in number of days is displayed in Table 4. These findings show that outsourcing is preferred when equipment is needed for a short period of time. In addition, this break-even point also displays the difference in (experienced) costs of departments versus the organization wide costs.
Even though other costs related to the ownership and management of DME (e.g. purchasing, transport, maintenance, cleaning, etc.) may be (indirectly) accounted to the department, the departments do not experience these costs as being related to the ownership and management of DME. Therefore, departments using DME for the long term perceive outsourcing to be more expensive than purchasing. “If I decide to buy equipment … I calculated
but if you consider the maintenance and certifications that is all included in the price” (E1). “Location leaders do not think about maintenance of certifications when they buy equipment”
(M1). Consequently, departments tend to reject outsourcing based on this cost consideration. However, organizational wide, the costs related to the ownership and management of DME are expected to be higher than the costs of outsourcing. Currently, management is unaware of the differences between the costs paid for at the operational level versus the costs calculated at the organizational level. This results in different preferences for the outsourcing decision. Consequently, the decision to outsource DME can be based upon the wrong considerations, leading to disappointing outcomes of outsourcing. A summary of how the costs are considered by management and operational level is displayed in Table 5.
4.2. Improved Quality
Providing a high quality of care is the most critical task of the healthcare organization. It is recognized that DME plays an important role in providing this high quality of care since it supports the care function. Currently, both management and healthcare staff do not exactly know which DME are owned and where they are located. Consequently, the organization is not always able to provide the required maintenance. “It has to be clear what we own so we can
guarantee the quality and maintenance of the equipment” (M1). Therefore, the quality of DME
in ownership of the healthcare organization cannot always be guaranteed.
Management Department
1. Outsourcing reduces costs (A) 1. Outsourcing is often more expensive (A)
2. Accountability of costs is different (A) 3. Compromises on quality (C)
Similarities
1. Not all costs are quantifiable (E) 2. Low availability of expenses (E)
3. Subjectivity in what costs are included (C) Cost Savings
Table 5: Costs considerations of outsourcing.
In addition, it was found that it can be unclear to healthcare staff who performs maintenance on owned DME. “What recently happened is that I wanted someone to do
maintenance on our Carendos [electrical douche chair] … We thought that the technical service was responsible, but they said the supplier is responsible. Then the supplier said no, those are not ours” (CD2). It has thus been observed that the current processes related to the
maintenance of DME are complicated, which could result in an insufficient quality of DME. Management believes that outsourcing DME will improve the quality.
4.2.1. The Quality of DME
Since the supplier’s core focus is the provision and management of DME, it is believed that outsourcing DME will alleviate quality issues. The supplier has excellent insight into what is being rented out to which Department and for how long. Consequently, they can guarantee the quality and ensure that DME has the required certificates. “We can do this better than the
healthcare organization since we are the specialist in JCI, that really is integrated in our complete organization and we make sure to complete that circle every time” (S3). “Since we work with the supplier, I can really see that the quality and maintenance of equipment has increased” (E1). Hence, management prefers to outsource DME to the supplier. However,
among healthcare staff there are mixed opinions. While some staff does support outsourcing to increase the quality of DME, others do not experience a difference in quality between outsourced and owned equipment and therefore do not have a preference for either one.
4.2.2. The Quality of Care
This study observed that healthcare staff holds specialist knowledge about the needs of their patients. Therefore, to ensure the quality of care, including healthcare staff in the outsourcing decision is vital. During the previous outsourcing decision, not including healthcare staff has had adverse consequences for the quality of care. “Previously, [the supplier] has been forced
experience with that so that was dramatic for the quality of equipment and care” (E1).
Therefore, even though the supplier may be specialized in DME, they may not have all the required knowledge to deliver specialized equipment as well. Management should thus include healthcare staff in deciding what equipment to outsource.
However, some healthcare staff currently feels left out as they are not consulted about their preferences and requirements. The supplier also noticed this dissonance. “They need to
include more operational staff” (S1). This study thus found that management should involve
healthcare staff in the decision to outsource DME as they have different perceptions about the. Not including healthcare staff has led to avoidable mistakes in the past.
4.3. Increased Flexibility
Outsourcing increases the flexibility in DME as it allows sending DME back when it is no longer needed. Consequently, this can result in cost savings. “These DME should actually be
outsourced. It are often items that are used for a particular client. If the client then deceases or the DME does not fit anymore, we can send it back and that is desirable” (E1). In addition,
since many departments have little storage room, they prefer outsourcing equipment. “We
literally have no room for storage … so if a client does require a certain bed, we cannot store the conventional one” (LL1). When a department has to deal with highly variable demand,
Management Department
1. Outsourcing DME increases quality for all DME (E)
1. Outsourcing does not always increase quality of equipment (E)
2. Outsourcing does not necessarily improve quality of care (E)
3. Healthcare staff holds expertise on equipment and should be consulted (A) Similarities
1. No insight in current inventory (E) 2. Little insight in current quality (E)
3. Unclear who is responsible for Maintenance (E) Improved Quality
Table 6: Quality consideration of outsourcing
outsourcing is thus more practical. However, it was found that demand was not variable for all departments. This was especially true for assisted living residencies where clients use DME on the long term. “If we rent, we really rent for longer periods of time” (CD2). These departments did not need and therefore did not benefit from the increased flexibility resulting from outsourcing DME.
4.3.1 Flexibility of Processes
It was found that the variability in required DME mainly resulted from acute situations in which there was a change in the condition of a patient. Outsourcing DME is then preferred as it is much faster than buying. “If we buy the equipment it takes a while before we have it here … If
we file a request to buy equipment , out location leader, the elderly physician, the ergo therapist, and the purchasing department first have to approve out request before we can buy it. Therefore, outsourcing is much faster” (N3). The complete process of buying can take up to
2/3 weeks. “buying the slings is really annoying. Slings really have delivery time of 2 to 3
weeks” (CD2). Contrarily, when a department requests a DME at the outsourced supplier, the
DME will be delivered the next day without exception. Since the availability of DME is of utmost importance for the quality of care, the flexibility of processes plays an important role for healthcare providers in preferring outsourcing DME over ownership of DME
Management Department
1. Demand is variable (E) 1. Demand for DME in long-term care is rather stable (E)
2. Speed of outsourcing is important for the availability of DME (A)
Similarities
2. Little storage area (E)
Increased Flexibility
1. Increased flexibility is needed to return equipment when it is not needed anymore (A)
Table 7: The increased flexibility of outsourcing
4.4. Focus on Core Business
Focusing on the core business of the healthcare organization is another major driver of outsourcing DME. Owning and managing DME is complicated due to extensive governmental regulations. It is expected that an outsourced supplier has more expertise in the management of DME. “Managing the durable medical equipment became a really specific task that requires
specific knowledge. We cannot do that better or cheaper than an external organization with more expertise” (F1). Via outsourcing DME, management aims to increase the available
resources in the provision of the core business. Decreasing the burden of healthcare staff, so they can focus on providing care, is an important part of this core focus. “If we have the same
number of employees with less logistical tasks, the quality of care will increase” (F1). Likewise,
management believes that outsourcing can decrease the burden on location leaders. “The
location leader is spending a lot of time to solve problems and searching for items.…. This time is at the costs of providing care, at the costs of managing and accompanying nursing staff ... Then our sick leave is increasing” (M1). Hence, management expects that outsourcing DME
benefits both the quality of care and the well-being of healthcare staff.
4.4.1. Operational Level Requirements
Yet, it was found that outsourcing does not necessarily decreases the burden on healthcare staff. Sometimes, healthcare staff does not perceive the management of DME as being a burden. “For
me the processes are clear, but maybe that is because of my experience” (N3). “We have to keep a close eye on care … and when they cannot find a certain equipment, I can help them. That makes my job more fun” (CD2). Therefore, it can be questioned if outsourcing decreases
the burden at the operational level of the organization.
and deregister it when it is no longer needed. Furthermore, it can happen that there is something wrong with a DME the supplier has delivered, or that a DME requires corrective maintenance.
“yes, if they [Supplier] delivers a wrong item or does not leave a receipt … then we have to call them again so that requires some extra time” (CD2). Healthcare staff then still needs to
perform administrative and logistical tasks related to the correction of these events. Therefore, it is expected that these tasks will level each other out. “I do not have a preference … Currently,
there are so many additional tasks that we have to perform. But that is not unfavorable as long as these tasks remain simple” (CD1). This demonstrates that outsourcing DME will not
necessarily decrease the burden on healthcare staff, as new additional tasks will replace the previous tasks related to managing DME.
It has however been found that the processes of both renting and procuring DME are not clear to everyone. The biggest source of unclarity comes from complexities in the Dutch funding model. The Dutch government has set different sources of funding for different types of patients and equipment. To decrease the burden of DME on healthcare staff, healthcare staff has stated that they require more clarity in the handling of these parallel processes. “currently
both outsourcing and ownership is unclear to us, we just need more clarity” (N1). “I don’t care if we buy or outsource the equipment, as long as it is clear how both options work” (CD2).
4.5. Risks of Outsourcing
Next to the expected outcomes, there are also risks organizations encounter when they decide to outsource.
4.5.1. Loss of Control
The performance of the supplier is key in achieving the expected outcomes of outsourcing DME. However, it was observed that the healthcare organization did not feel the need to closely monitor the supplier. Since the buyer and supplier have been working together since 2014, they have a well-developed a relationship based on trust. In the past years the supplier has proved itself in providing high quality of DME and assisting the healthcare organization where possible. As a result, the healthcare organization believes that the supplying company’s abilities to manage DME are greater than its own abilities. Consequently, the healthcare organization performs more internal audits, than that they check the processes at the supplier. This positively influences managers their perceptions towards outsourcing.
The healthcare organization and its supplier have congruent goals which support a strong relationship. Both organizations are focused on providing the best care possible to the Table 8: Costs considerations of outsourcing.
Note: the activities (A), choices (C), and events (E) influencing this expected outcome are shown
Management Department
1. Outsourcing decreases the burden of DME on the organization (A)
1. Outsourcing is not experienced as being a burden (C)
2. Outsourcing DME decreases the burden of DME on healthcare staff (A)
2. Outsourcing results in additional tasks, resulting in a similar burden (A)
3. Clarity is needed to reduce burden (A) 4. The Dutch funding model increases burden on healthcare staff due to unclarity (E)
Similarities
Focus on Core Business
client. “Sometimes there are difficult cases … Then we have to go there four times a day to
make sure everything is good for the patient. That is also a service we deliver, I do not charge [the healthcare organization] all those costs” (S2). This goal congruence is also felt by the
healthcare organization. Often, healthcare staff contacts the supplying company referring to them as colleagues and asking for help. This is highly valued by both the supplier and the healthcare organization
Moreover, the healthcare organization is a large customer of the supplier. “They are a
very large client of ours… My goal is to extend this contract, that is what I have been working on for the past one and a half years” (S1). Moreover, the supplier has invested in dedicated
resources for the healthcare organization. All the equipment that is being delivered to the healthcare organization is only being used for this healthcare organization. Therefore, the supplier is committed to providing the best service as possible to the healthcare organization. It was observed that this strong relationship between the supplier and the healthcare organization positively influenced the outsourcing decision of the healthcare organization.
4.5.2. Loss of Knowledge
Healthcare organizaion Supplier 1. Loss of knowledge due to a loss of
communication with the manufacturer (E)
1. Dependent on the healchtare
organizaion for continuity of business (E) 2. Dependent on knowledge of supplier
(E) 2. Investment in dedicated resources (A)
Similarities
1. Supplier can guarantee quality (A) 2. Strong relationship based on trust (E) 3. Goal congruency (A)
4. Window contract to remain flexibility (A) Perceived Risks
Table 9: The perceived risks of outsourcing.
5. DISCUSSION
This study identified several underlying processes that influenced the decision to outsource ownership and management of medical equipment.
5.1. Subjectivity in Outsourcing Decisions
Corresponding to prior studies about outsourcing in the healthcare industry, this study found that enabling a sharp strategic focus, costs savings, quality improvements, heightened management control and increased flexibility are important drivers to consider the outsourcing of medical equipment (Kavosi et al., 2018; Moschuris & Kondylis, 2006; Renner & Palmer, 1999; Young, 2005; Young & Macinati, 2012). However, in contrast to these prior studies that often present explicit (expected) outcomes of outsourcing, this thesis found that determining the expected outcomes of outsourcing is not clear cut.
The results presented in this study show that outsourcing seems to have many (indirect) consequences. The data that was needed to evaluate whether and how these consequences result in the desired outcomes is, however, lacking. Complementing findings of Kaplan and Porter (2011), this study revealed that healthcare organizations have little insight in cost structures, making it difficult to connect the changes that result from outsourcing to expected cost savings. In addition, and consistent with findings from Abdulsalam & Schneller (2019), this study showed that there is a lot of freedom in deciding which expenses and savings are included in calculating the expected outcomes and which are not. This gave the impression that the expected economical outcomes of outsourcing could easily be shaped to provide evidence for which ever decision the decision makers had a preference.
The results presented in this thesis add to those studies by showing that with low visibility of data, decision makers are restricted in determining which outcomes, in terms of cost and time savings, can be expected when ownership and management of medical equipment is outsourced. This low visibility thus influences outsourcing decisions by making it difficult to verify if and how outsourcing results in the expected outcomes.
As the determination of the expected outcomes originating from outsourcing was arduous and seemed to be easily shaped by decision makers, this study showed that most of the expected outcomes of outsourcing were subjective. Consequently, it can be argued that whether organizations decide to outsource or not, is related to the manner in which decision makers decide to display the outcomes that can allegedly be achieved.
Proposition 1: The outsourcing decision of healthcare organizations is subjective due to
ambiguity in determining concrete expected outcomes of outsourcing. 5.2. The Influence of Integration
This study illustrated that internal and external integration greatly influence the decision to outsource DME.
5.2.1. Internal integration
Prior studies about outsourcing in the healthcare industry largely focus on the perspectives of managers when discussing the expected outcomes of outsourcing. These previous studies lack the inclusion of healthcare staff’s perspectives (Kavosi et al., 2018; Moschuris & Kondylis, 2006; Young, 2005; Young & Macinati, 2012). However, results from this thesis indicated that including healthcare staff in outsourcing decisions is essential since different levels of the organization experience the consequences of outsourcing differently.
healthcare staff appeared to have a different perception about the expected outcomes of outsourcing. Consequently, the actual impact of outsourcing at the operational level remained unclear for managers. This insight is comparable to findings of Tsay et al. (2018) who state that, in other industries, a lack of integration is negative for setting and achieving the expected outcomes of outsourcing since even though high-level strategic concepts are valuable, the success of these concepts depends on the specifics of the operational processes. Hence, the results of this thesis pointed out that little recognition of the consequences of outsourcing for tasks at the operational level is harmful for understanding and determining realistic expected outcomes of outsourcing.
In addition, similar to findings of Dobrzykowski et al. (2016) this thesis revealed that integration is especially important since healthcare staff possesses expert knowledge about client care. Adding to that, the results of this thesis showed that if healthcare staff is not consulted about their needs before making changes in their ways of working, this can be problematic forthe quality of care. Since managers have insufficient knowledge about treatment of patients, they could contract outsourcing to suppliers that are unable to meet the requirements of healthcare providers. Consequently, this can result in a rejection of the supplier by healthcare staff. Therefore, limited integration of healthcare staff in the outsourcing decision can impair the expected outcomes of outsourcing and result in inadequate decisions.
To ensure and understand the expected outcomes of outsourcing at different levels of the organization, internal integration between management and healthcare staff is needed.
Proposition 2: The ambiguity in determining expected outcomes of outsourcing is, amongst
others, explained by a lack of integration between management and healthcare staff.
5.2.2. External integration
(Sanders et al., 2007). Previous studies show that one of the biggest risks of outsourcing is the loss of control over an outsourced activity to a supplier (Brunetta et al., 2013; Kavosi et al., 2018; Renner & Palmer, 1999; Young, 2005; Young & Macinati, 2012). These prior studies state that outsourcing healthcare organizations often do not reach the expected outcomes due to negative consequences such as high transaction costs, poor quality, and opportunistic behavior of a supplier. As these negative consequences are a primary reason to reverse the outsourcing decision, these risks thus negatively influence the outsourcing decision. To avoid a loss of control, prior research highlights the importance of closely monitoring the supplier to ensure quality and prevent opportunistic behavior (Kavosi et al., 2018; Young, 2005; Young & Macinati, 2012). In contrast to these prior studies, this study stressed that closely monitoring the performance of a supplier is not always perceived as being necessary.
The results of this thesis pointed out that a buyer-supplier relationship that is built on trust reduces the perceived risks of a buying company, positively influencing its attitude towards outsourcing. In addition, this study found that when a buyer holds (implicit) power over the supplier, the supplier is more inclined to meet the buyer’s requirements. These findings correspond to results from Pulles, Veldman, Schiele, & Sierksma (2014) who researched buyer-supplier relationships in other industries. Furthermore, consistent with findings of Tsay et al. (2018), Holcomb and Hitt (2007), and Beaulieu et al. (2018) in other industries, this thesis showed that relationship specific investments mitigate opportunistic behavior of the supplier. Lastly, it was found that focusing on a common goal benefits the buyer-supplier relationship. Consequently, the strongly felt relationship between the buyer and supplier decreased the perceived risk of outsourcing for the buyer.
similar to other sectors, having a strong relationship with the supplier mitigates the (perceived) risks of outsourcing. Hence, buyers are more inclined to outsource.
Proposition 3: The outsourcing decision of healthcare organizations is positively influenced
6. CONCLUSION
This thesis conducted an in-depth single case-study at a healthcare organization in the Netherlands. The aim was to explore the underlying processes that influence the decision to outsource ownership and management of medical equipment. Both a quantitative analysis of the costs related to outsourcing the medical equipment as well as a qualitative analysis were performed. The results of this study showed that reducing costs, increasing quality, and decreasing the burden of logistical tasks on healthcare staff are key drivers of the outsourcing decision. Interestingly, determining the (expected) impact of these drivers was found to be challenging due to a lack of data and internal integration. A clear overview of all underlying processes (activities, choices, and events) influencing outsourcing decisions of medical equipment is provided in Appendix B.
6.1. Theoretical Implications
This thesis is among the first to provide in-depth empirical insights about underlying processes influencing outsourcing decisions in healthcare. This study adds to literature by highlighting that the actual outcomes of outsourcing are difficult – if not impossible – to determine due to the low quality and availability of data. Accordingly, outsourcing decisions are often based on the subjective preferences of decision makers. This subjectivity impairs a healthcare organization’s ability to establish concrete and reliable expected outcomes of outsourcing. This insight can explain why to date, most studies found contradicting or disappointing outcomes of outsourcing decisions.
integration was found to be important to reduce management’s perceived risk of outsourcing, evoking more positive attitudes towards outsourcing.
6.2. Managerial Implications
Next to the theoretical implications, this study also makes several practical implications that can be helpful for managers. To avoid subjectivity in outsourcing decisions and improve the reliability of the decision as much as possible, a healthcare organization could first establish criteria about what must be included in the consideration of outsourcing. These criteria can create a wide understanding about what will and what will not be included in the consideration of outsourcing. This minimizes the chance that the expected outcomes are misleading as everyone is familiar with the boundaries of the data the outsourcing decision has been based on.
Part of increasing the reliability of the expected outcomes is the inclusion of employees from multiple levels and functions of the organization. Managers and healthcare staff could discuss the implications of outsourcing at multiple levels of the organization. Moreover, management could consult healthcare staff about the requirements a supplier must be able to meet. This is important as it will support the primary function of healthcare organizations: providing a high quality of care.
Subsequently, will no longer be capped by their budgets, positively influencing the quality of care and employee well-being.
Lastly, instead of what is currently believed, this study shows that demand surrounding medical equipment is rather stable as most of the equipment is used for long-term care. Therefore, the increased flexibility resulting from outsourcing may not be of paramount importance when considering outsourcing. However, for short-term care (e.g. the revalidation and recovery department) the flexibility could be of influence as short-term care has to deal with more variability in demand.
6.3. Limitations and Future Research
The unique case the researcher was able to study has been an important strength of this research. It does not happen often that extensive access to very specific, sometimes classified data and documents is provided by both a supplying and a buying company to carry out academic research. This is especially rare in healthcare organizations as a lot of data is related to client needs and thus confidential. In addition, the large number of employees who were willing to talk to the researcher to share their opinions were of great value. However, this study also has some limitations.
In addition, a future research opportunity could be to include the perspective of the hospital. It was found that 89% of the total equipment at consideration is used in long-term care whereas only 1% of the equipment is used in short-term care and 10% in home-care. Therefore, it was decided to mainly focus on long-term care and to not include the hospital’s perspective. Even though this thesis provides extensive knowledge about outsourcing decisions in long-term care, these obtained insights may differ for the hospital. The departments of a hospital are located in closer proximity to each other which can influence the way in which they handle equipment. Therefore, the perspective of the hospital could provide additional valuable insights for future research.
This study identifies several factors that currently limit the quality of outsourcing decisions at healthcare organizations. The main reasons are the low availability of data and low integration between different levels of the organization. To improve the reliability of outsourcing decisions and the (expected) outcomes, an opportunity for future researchers is to build on to this thesis by studying how these complexities can be overcome.
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