Outsourcing Sterile Processing
By Gerry Gribbon
As hospital executives continue to focus more on core competencies, certain functional areas find themselves being shopped around to outsourcing providers. One area getting a lot of attention is the Sterile Processing Department. Rarely regarded as a core competency or strength, hospitals are exploring consolidation and outsourcing as a way of increasing quality and reducing costs associated with instrument reprocessing. But before making a decision to outsource, hospital executives need to answer some important organizational questions.
Comfort with Outsourcing
One of the most important first steps for any organization considering outsourcing is to determine the internal comfort level around this strategy. Organizations that have made a conscious decision to focus on core competencies and have gone through the process of defining those areas tend to be more open to exploring outsourcing for those areas that are not considered strengths. Furthermore, they also tend to be happier with the results of outsourcing a function when they acknowledge and truly believe that the expertise outside the organization will provide increases in quality and cost management.
The word "outsourcing" means different things to different customers. In some instances, the hospital simply may be looking for an on-site manager to run the Sterile Processing Department on a day-to-day basis, also referred to as contract management. This can also include providing department staff as well. At the highest end of the spectrum is outsourcing the entire function, including responsibility for capital assets. This task can be done on-site as well as centralizing one function at an off-site facility serving multiple hospitals. Identifying your range of options to best meet your business objectives is an important step.
Understanding Internal Costs/Issues
Before considering outsourcing Sterile Processing, you must understand the economics and business issues of running the department internally. Is the primary desire to outsource based on improving quality or reducing cost? Do you have qualified leadership internally? What are the annual capital expenses related to the department? What level of standardization exists? What are the labor implications? Are tray inventory levels adequate today? Do you have a mechanism to track/ manage assets? What are your costs broken down by surgical procedure, by trays processed? The answers to these questions are important first steps to exploring outsourcing this functional area.
Let's focus on the off-site outsourcing of Sterile Processing as we review the feasibility approach. The first step in conducting a feasibility analysis is to validate the internal costs of the organization. One way to do this is to evaluate and to compare costs on a per-tray basis. This evaluation allows for an internal vs. external comparison that everyone can understand.
Internally, an analysis of costs must include reviewing expenses related to sterilization equipment, supplies, and surgical instruments. These expenses include both capital as well as operating expenses. As with most hospital areas, labor will represent the largest single operating expense. It is important to evaluate labor costs by recognizing any tasks performed by staff that are related to areas other than Sterile Processing.
Finally, most hospitals have an overhead allocation for items such as rent, utilities, maintenance, housekeeping, support, etc. To compare existing internal costs to an external model, it is essential to understand the overhead implications in evaluating internal costs.
Next, the feasibility study should provide a model and related costs for an external outsourcing center. This study should include facility design, capitalization, equipment requirements, instrument inventories and par levels, and supplies. Labor requirements are determined by designing and understanding tray volume throughput in the external facility. In addition, understanding, designing, and costing transportation logistics is a key element in exploring the feasibility of these centers.
Finally, any financing costs associated with capital requirements must be included. Once completed, a feasibility study should be able to show a hospital a comparison of internal costs vs. the opportunities associated with outsourcing. It should also show the return-on-investment to the organization, over time, for moving to an outsourced model.
The interest in consolidating and outsourcing Sterile Processing is expected to grow dramatically. In fact, some estimates show the number of hospitals outsourcing Sterile Processing will triple over the next several years. Those that navigate the analysis of this option and fully understand the opportunity outsourcing provides will be well positioned for success.
Gerry Gribbon is executive director, Business Development, for Johnson & Johnson Health Care Systems, Inc. and the McFaul & Lyons Group. The organization conducts operational assessments and outsourcing feasibility studies for Sterile Processing solutions for healthcare organizations.
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