WESTBROOK — It has been difficult to find the politically feasible route to a more effective U.S. health care system. There is agreement, however, that quality care must become cheaper to deliver.

We all want insurers and medical providers to charge us less. But they must make a profit. So they need to gain efficiencies; their costs of doing business must decline.

Having managed a company that delivers savings to care providers, I have seen them adopt less expensive approaches to routine operations. To do their part to control the cost of care, they continuously improve in this respect.

I wonder how many medical insurance companies are doing the same. Do most businesses that profit from health care dollars share this philosophy?

Health care providers’ costs and insurance deals determine what they charge. Hospitals, clinics, practices and labs must buy products and services that enable them to do their jobs for consumers.

Consider an X-ray machine in a hypothetical Maine doctor’s office. As is customary in such medical practices, this facility charges every patient for each use of such a unit in part to cover the cost of its investment in this equipment.

How did the practice procure this machine? Suppose it was purchased directly from a manufacturer.

This company fabricated all parts and assembled them into the finished product. Then, the manufacturer used its own sales staff in its California headquarters to promote the unit. These employees determined that the Maine practice was a good prospect for the sale of the machine and hit the road to pitch them.

Did this theoretical manufacturer produce and promote this unit in the most cost-effective manner possible? Perhaps it might have bought some parts for the machine from other companies instead of fabricating them on its own. It could have sold the unit to a northeastern distributor, which could have resold it to a New Hampshire leasing firm, which could have rented it to the practice.

You might think that the addition of all these “middlemen” would increase the price of the machine. Actually, such “outsourcing” could have expanded the market for the unit and, because of the go-betweens’ efficiencies, controlled the manufacturer’s costs.

Savings could have been passed along in the form of a lower price to the practice, which could have reduced its X-ray charge to patients.

Granted, this is an extreme, hypothetical example. But it illustrates the power of outsourcing. What would happen if any manufacturer’s executives were suddenly pressed to cut prices for all their machines?

They would think twice about all the business activities they undertook in making them and reassess which ones enable them to profit.

They would look to reduce labor, their largest cost. They would be pressed to maintain current staff levels only for true core competencies (tasks they perform most efficiently) and contract more with outside services for other essential functions.

Having enabled medical providers to outsource their linen and laundry operations, I have seen them undertake this process in their businesses. They have become focused on finding outside experts to perform tasks and services less expensively (and usually more effectively) than their businesses can on their own.

Hospitals, for example, often outsource non-patient-care support functions. Modern Healthcare magazine surveys providers every year about this subject. This year’s poll found that contracting for bill-collecting has recently spiked.

As indicated in the survey, many hospitals realize significant savings by outsourcing multiple functions, including laundry, housekeeping, custodial services, and food service. Some institutions use outside purchasing agents. Still others have found contractors who staff their emergency room operations. Their suppliers can learn from their example.

Are these businesses leaving “no stone unturned” to control their costs? Are they focused on reducing waste?

We know that Congress is looking for every opportunity to control Medicare and Medicaid expenses while maintaining quality care. Some solutions are apparent. To keep Medicare from entering into expensive contracts for medical equipment, for example, sentiment on Capitol Hill has grown for increased use of competitive bidding.

In the same vein, the government can help health care suppliers explore outsourcing and waste reduction frontiers.

What functions might insurers contract for? Can manufacturers of pharmaceuticals and other supplies make better use of this concept?

Congress isn’t likely to ever stop talking about health care – so this should be part of their discussion. If there were ever a job worth paying a think tank to deliberate, this is it.



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