Academic journal article Journal of Financial Management & Analysis

Financial Management Analysis of Outsourcing of the Hospital Services for Cost Containment and Efficiency : Case Study of Sanjay Gandhi Post-Graduate Institute of Medical Sciences, Lucknow, India

Academic journal article Journal of Financial Management & Analysis

Financial Management Analysis of Outsourcing of the Hospital Services for Cost Containment and Efficiency : Case Study of Sanjay Gandhi Post-Graduate Institute of Medical Sciences, Lucknow, India

Article excerpt

Introduction

Advancement in the medical field with the help of sophisticated hi-tech equipment is gradually being observed in the Indian hospitals specially, the tertiary care hospitals which account for about three per cent of the hospitals in India are cost and labour intensive. Most of these hospitals belong to private sector. The sustainability of tertiary hospitals owned by the government has become a prime public sector concern as the government is not in position to cope up with the expenditure due to financial crunch. Under such conditions, the only option left is to generate some revenue (not the profit) and subsidize/ reduce the cost of treatment so as to meet the expenditures. Literally speaking no free treatment with quality can be delivered to any one due to very high cost of treatment like other establishment, therefore the hospitals also require many input/ resources. Tested management techniques are the best solution to be applied in the hospital scenario. In the government hospitals, even though the resources are made available, the output is not efficient due to increases in the absenteeism, indiscipline, theft, pilferage, interrupted supply. Among all resources such as man, money, materials, machine, methodology, etc. the human resource is very important. The most beneficial aspect of the human resource is cost effectiveness1. Therefore outsourcing of the hospital services after proper situational analysis (SWOT) can be peerless example.

Outsourcing

Outsourcing is defined as :

a long term, result oriented relationship with an external service provider for activities traditionally performed within the organization2

It is a redefinition of an organization around its core competencies3 and is a long-term exercise done to concentrate and improve one's core competencies and skills such as patient care, medical education and research and at the same time, leverage external skills and resources to reduce costs and sustain levels of productivity without compromising on quality. It may also be termed as "Facilities Management"4. This management tool is used to counter the problems currently being faced by modern hospital administrators on account of5.

* Rising cost of healthcare over the past decade

* Extrememarket completion forcing hospital administrators to find ways of providing latest technology to its customers despite having limited access to a huge capital investment

* Increasing number of super specialities leading to a large number of activities under the direct charge of hospital administrator, thereby causing lack of micro management.

* Lack of focus on core competencies i.e. patient care, teaching and research, which may also generate revenue for the hospital

* Lackadaisical attitude to work by personnel of government-run hospitals taking recourse to strikes and unionism thus leading to dissatisfaction and delays

* Demand of quality healthcare services by the customers5

The outsourcing in a hospital organization is best suited for kitchen, laundry, medical gases, sanitation, transportation, security, hospital attendant, various equipment for diagnostic purposes such as MRI, CT Scan, Ultrasound, Endoscopy, etc. and maintenance services and Laboratory services. The outsourcing can be done for Man, Machine, Materials and Methodology. It may be a combination of all (comprehensive or partial such as only man, only man & materials, only man and machine or all man, materials & machine). The outsourcing reduces the operational costs by cutting fixed costs due to the economies of scale of the vender, which is passed on to the buyer, while variable cost cannot always be controlled. Cost to the hospital is a fixed monthly cost instead of a huge initial investment with regular maintenance cost6. In addition to these advantages over owned system, it has other advantages such as overcoming labour union problem, indiscipline, absenteeism of the worker and uninterrupted services. …

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