Assessing Outsourcing Strategy on quality and performance of US Long-term Healthcare

Outsourcing is a strategy of focusing on core capabilities within an organization while creating a network of external experts in support skills. The US healthcare industry utilizes outsourcing to cope with reimbursement... [ view full abstract ]

Outsourcing is a strategy of focusing on core capabilities within an organization while creating a network of external experts in support skills. The US healthcare industry utilizes outsourcing to cope with reimbursement reductions from the 1997 Balanced Budget Act and managed care regulations. Specifically, US healthcare executives face the challenge of reducing costs while maintaining quality patient care in an environment of continuous change and turbulence. As such, outsourcing has become one of the strategic tools healthcare organizations use to control costs without affecting patient care. This study uses transaction cost economic theory to argue that contractual relationships among and within firms arise from efficiency-seeking actions; likewise, organizations incur costs as a result of planning, implementing, and enforcing exchanges with other organizations. With respect to external supplier exchange relationships, transaction costs can include costs associated with contract negotiations, monitoring adherence to contractual terms, providing financial incentives or penalties, and losses resulting from supplier noncompliance. This research maintains that a well-developed outsourcing strategy can reduce operational costs and improve the quality of long-term care facilities. The results also show that healthcare facilities can increase financial performance by building trust and relationships with outsourcing vendors.