Benefits and risks of outsourcing in aged care

Over the next 10 years the Australian aged care industry will see a growing number of seniors from the baby boomers entering aged accommodation.

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Baby Boomers were raised during a period of rapid economic growth and opportunity, and it is estimated that this generation achieved a median net worth of approximately $1,000,000 per person, in comparison to only $800,000 per person for the previous generation.

With greater disposable wealth and higher expectations for service quality and choice than the previous generation they will rapidly reshape aged care service delivery structures by demanding greater consumer centrism.

Recent government policy changes, such as the introduction of Consumer Directed Care (CDC), have enforced greater consumer choice and control which in turn has encouraged providers to tailor their service offerings around meeting consumer expectations.

With the above in mind, providers have in recent years been shifting their focus in offering greater variety and higher quality of services and amenities. This, together with the CDC legislative reform will result in an escalation in demand for variety and flexibility.

However, with increases in service offerings come additional costs and service quality assurance measures.

To mitigate the risks, providers may seek to outsource some services, commonly catering, laundry, cleaning and general maintenance in order to deliver service flexibility.

Benefits of outsourcing include:

  • the use of specialists who are able to leverage off existing skills, innovations and resources;
  • better utilisation of internal resources on the provision of core services;
  • cost and resource efficiencies usually only available to large scale operations;
  • the transfer of some compliance, governance and legal risk to a third party;
  • access to contingencies, such as specialised staff during times of illness, that may not be available to the organisation and will assist in the provision of a more continuous and reliable service; and
  • reduced HR and IR expenses.

However, outsourcing is a strategic business decision that must be adequately planned and executed to ensure that the overall service offering is enhanced without reducing quality and profitability.

Common risks related to outsourcing include:

  • a higher price per unit of output for the outsourced service than the price that could be obtained by employing an in-house staff member to deliver the same service (Note: this is predominantly due to the prices for outsourced services being controlled by market forces);
  • loss of control over quality and internal processes through new systems brought in by the external service deliverer;
  • delineation of the aged care provider’s brand by creating partnerships with providers of services non-exclusive to aged care; and
  • loss of private information and in-house resident confidentiality through handover of information to external providers.

Whilst outsourcing may generate benefits by increasing the quality and flexibility of services and enhance efficiencies for some facilities, each facility is different. As such, the decision to outsource services should be undertaken with careful consideration to the financial and operational risks with mitigation strategies developed in order to overcome its limitations.

In our experience, a successful outsourcing (or insourcing) strategy requires a clear focus on projected cost efficiency and quality. This involves an assessment of the present service and comparison with the financial and qualitative outcomes anticipated from the alternative arrangement.

We often see the grass as being greener on the other side of the fence and can underestimate the quality of the services we currently have.

A common mistake is making over simplistic comparisons of quoted service prices to our current internal costs. While benchmarking is vital, it is important to ensure we are comparing apples with apples.

Most importantly, some of the resourcing of services include fixed and semi variable costs. Outsourcing these activities will not usually result in a direct reduction in all service related costs.

Furthermore, there are costs associated with the management of service contracts and the oversight of performance and quality. The thoughtful projection of these future resource and quality impacts can help to make the decision with confidence.

For more information on the use of outsourced services contact Ansell Strategic – www.ansellstrategic.com.au

 

Sara Agostinelli is a research officer at Ansell Strategic.

2 COMMENTS

  1. The article is nicely presented with a realistic view of both sides. Outsourcing done the right way is expected to deliver an advantage to the facility and make the life of care staff much easier.

  2. How does outsourcing protect the intrinsic value of the current Inhouse arrangement wherein one gets to know and appreciate the same and usually very acceptable person. An example is the regular in-house cleaner who gets to know you and possibly the little extras that you like/ prefer ~ is the ‘ just turned up for the job ‘ person going to give that original commitment? I think not!

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