Outsourcing Practices in the Turkish Health Care System. Survey Report

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2 Outsourcing Practices in the Turkish Health Care System Survey Report

3 2 Copright Owner: Republic of Turkey, Ministry of Health, Refik Saydam Hygiene Center Presidency, School of Public Health, 2010 All rights are vested in the Republic of Turkey, Ministry of Health, Refik Saydam Hygiene Center Presidency, School of Public Health. No quotations shall be allowed without citing the source. In quotations, the source shall be cited as follows: editor/ author names, School of Public Health, Refik Saydam Hygiene Center Presidency, Ministry of Health, Republic of Turkey, place of publishing, year of publishing. Under the Law Numbered 5846, no partial or full reproductions shall be permitted without the consent of the School of Public Health. ISBN No : Ministry of Publication No : 791 SPH Publication No : Published in : Ark Müşavirlik - Ermat Matbaacılık Hoşdere Cad.200/8 Çankaya/ANKARA Tel: Faks: Print : Ermat Ofset Grafik Reklam Akköprü Mahallesi İstanbul Cad. No: 48/12 ANKARA Tel: COVER DESIGNED BY Hüseyin KOCAKULAK REDACTED BY Erica WEIS PLACE AND DATE OF PUBLISHING Ankara, 2010

4 3 Editor Prof. Dr. Recep AKDAĞ Authors Dr. Salih MOLLAHALİLOĞLU Dr. Hakkı GÜRSÖZ Spec. Hakan Oğuz ARI Dr. Hasan Gökhun ÖNCÜL Technical Advisors Prof. Dr. Şahin KAVUNCUBAŞI Prof. Dr. İsmail AĞIRBAŞ Scientific Board Prof. Dr. Nihat TOSUN Prof. Dr. Adnan ÇİNAL Dr. Yasin ERKOÇ Prof. Dr. Sabahattin AYDIN Prof. Dr. Necdet ÜNÜVAR Revisers Ass. Prof. İrfan ŞENCAN Spec. Dr. Orhan KOÇ

5 4 Outsourcing Practises in the Turkish Health Care System CONTENTS ACKNOWLEDGEMENT... 7 PREFACE... 8 INTRODUCTION and PURPOSE... 8 Objectives... 9 HEALTH REFORMS IN TURKEY IN BRIEF... 9 CONCEPT OF OUTSOURCING Definitions Advantages of Outsourcing Outsourcing Trends In the Turkish Health Care System RESEARCH METHODOLOGY Population and Sample Data Collection Statistical Procedures Cost Minimization Method Cost Analysis Methodology Direct Cost Allocation (First Cost Allocation) Determination of Indirect Costs (Cost Allocation) FINDINGS Participants Characteristics Outsourcing Profile: Services Outsourced by Types Types of Services Outsourced Non Clinical Services Clinical services Reasons for Outsourcing Level of Managerial Satisfaction with Outsourced Services Economic Assessment of Outsourcing Decisions Economic Assessment of Non-Clinical Services Assessment of Clinical Services CONCLUDING REMARKS... 44

6 REFERENCES INTRODUCTION Worldwide the public sector must adapt to the new economic and social structures and relationships that have accompanied globalization in order to respond to the emerging needs of the populations that they serve. Public service processes that are not capable of responding to society s needs and cannot be reconciled with its changing structure need to be reviewed and re-arranged. Hospitals, a public sector enterprise in Turkey, in recent years have transformed into the organizations composed of high technology, specialized personnel and complicated production processes. With a matrixical organizational scheme, hospitals are comprised of a number of professional groups that involve many employees of diverse education background, skills, values, needs, social statuses, and production processes that are functionally interrelated. In the post-1980 period, the phenomenon of outsourcing became an increasingly common practice not only in our country but in many western and developing countries. As the public sector began to adopt this business trend, public facilities in all realms of the public sector started to outsource some services to private sector facilities by tendering and direct contracts, using outside vendors to deliver services they traditionally used to provide on their own. The health sector also adopted this method and many hospitals in Turkey began to outsource some support services from private sector facilities and individuals. Initially, service procurement was used in the health care sector primarily for laundry, cleaning and catering services, which are called hotel business services. However, in conjunction with the reforms implemented under the Health Transformation Program (HTP), the scope of outsourcing has expanded to the provision of clinical services through service procurement procedures. The health sector, in general, and hospitals in particular, may prefer to provide business processes from another organization that specializes in that process for the purpose of upgrading institutional performance when they wish to improve the outcomes of a certain item of service with regards to quality, efficiency and effectiveness. Hospitals growing inclination towards focusing on their core activities and having peripheral activities performed by other specialized non-hospital organizations has led to the emergence of outsourcing. This book will detail the implementation of changes which have already been made by the Ministry of Health and are being adopted under the Health Transformation Program, and will serve as a resource for future studies. The School of Public Health will continue to conduct such surveys in these critical fields and contribute to capacity building efforts by sharing the results of the surveys with the health sector. In this regard, I would like to extend thanks to all people, who invested their time and effort in this study.

7 6 Outsourcing Practises in the Turkish Health Care System Prof. Dr. Recep AKDAĞ Minister of Health FOREWORD In the health sector, outsourcing practices in Turkey were initially restricted to nonmedical services such as hospital housekeeping, security and catering services. Service procurement in the public sector is designed so that the partial or full liability of providing clinical or non-clinical services could be devolved to private sector whereas service financing has to be undertaken by public sector. Although outsourcing was introduced for small-scale and non-clinical services that were easy to manage and supervise, hospitals have recently started to provide advanced and specialized medical services such as Magnetic Resonance (MR) and Computerized Tomography (CT) from outside sources, as well. Over time, outsourcing practices have been extended to managerial activities such as billing and data registration with the aim of adapting to the evolving business environmental, technologic, and economic changes. As a result of developments in medical science and technology, outsourcing has begun to advance from only being capable of providing non-medical services to the provision of medical services. Diagnostic imaging services and intensive care services are examples of the types of services outsourced by hospitals today. Until , the State Procurement Law on Public Tenders Numbered 2886 (1983) applied to the procurement procedures (supply, work and service) of general budget administration, supplementary budget administration, provincial and district municipalities and other local administration in Turkey. In 2003, this Law was replaced by the Public Procurement Law. Since that time, the organizations affiliated with the Ministry of Health (MoH) have been undertaking procurement processes and procedures in line with the principles and rules of the Public Procurement Law. Ministry of Health hospitals finance service tenders by using revolving funds or general budget revenues. Revolving funds are the most commonly used resources in this context. It is thought that using service procurement practices so as to utilize outside sources will ensure delivery of more efficient, more effective and more qualified services than the services that are already available within a single establishment. This study aims to outline the types of services are that outsourced by means of procurement under the 2003 Public Procurement Law and what the costs of outsourcing are for the Ministry of Health hospitals. In addition, this study also examines the size of the fund used for said procurements, makes a comparison of decisions on whether to issue service tenders in financial terms, and aims to describe how this process influences service costs and how the process contributes to establishments in terms of financing. We believe this book will be a useful resource for both the Ministry of Health and researchers carrying out studies on the Health Reform and actors in the sector. We

8 would like to thank to everybody, who contributed time and effort to this study, and wish them success in future projects. 7 ACKNOWLEDGEMENT Dr. Salih MOLLAHALİLOĞLU Director of the School of Public Health For their contributions to the publishing of this work; we would like to extend thanks to Prof. Dr. Recep AKDAĞ, the Minister of Health; Prof. Dr. Nihat TOSUN, the Undersecretary of the Ministry of Health; to Prof. Dr. Necdet ÜNÜVAR and Spec. Dr. Orhan Fevzi GÜMRÜKÇÜOĞLU, the former Undersecretaries of the Ministry of Health; to Prof. Dr. Sabahattin AYDIN, Prof. Dr. Adnan ÇİNAL, Ass. Prof. Dr. Hakkı YEŞİLYURT, and Dr. Yasin ERKOÇ, the Deputy Undersecretaries; to Ass. Prof. İrfan ŞENCAN, General Director of the Curative Services General Directorate; to Ass. Prof. Dr. İsmail DEMİRTAŞ and Ass. Prof. Dr. Öner ODABAŞ, the former General Directors of the Curative Services General Directorate; to Spec. Dr. Orhan KOÇ, the Deputy General Director of the Curative Services General Directorate; to Ass. Prof. Dr. Mustafa ERTEK, the President of Refik Saydam Hygiene Center Presidency; to Mr. Celalettin TARHAN, the Coordinator of the Project Management and Support Unit; to Mr. Adnan YILDIRIM, the former Coordinator of the Project Management and Support Unit; and to Spec. Dr. Ş. Mustafa AKSOY, the Director of Ankara Provincial Health Directorate; To Dr. Salih MOLLAHALİLOĞLU, Director of the School of Public Health; Dr. Hakkı GÜRSÖZ and Dr. Mustafa KOSDAK, the Deputy Directors of the School of Public Health; and to Ms. Dilek GENÇER ÖZTEKİN, the Secretary General of the School of Public Health; To Prof. Dr. Şahin KAVUNCUBAŞI and Prof. Dr. İsmail AĞIRBAŞ, the executive persons of the survey; And finally, we would like to extend our thanks to the School of Public Health personnel: to Spec. Hakan Oğuz ARI and Dr. Hasan Gökhun ÖNCÜL; to Ms. Atiye Arzu ÇAKIR, the Medical Language Consultant, and to Mr. Hüseyin GÜÇ, the Turkish Language Redacting Consultant of the School of Public Health, both of whom took part in proofreading and redaction stages of the translation work; and to all chief physicians at hospitals, hospital managers, hospital staff and all other persons, who never refrained from making contributions during the conduct of this survey, and we wish them further success in their

9 8 Outsourcing Practises in the Turkish Health Care System future studies. PREFACE School of Public Health Since 2003, the MoH has been implementing the Health Transformation Program (HTP) to design a health care system, which is human (patient)-centric in principle and practice. Increasing access to health care services, enhancing the efficiency of health care services, improving service quality, empowering patients to select their own providers, strengthening the coordination of health care services, and providing affordable health insurance covering all segments of population are among the main objectives of the HTP. In the Turkish health care system, health reforms have led hospital managers to continuously assess their institutional strategies and structures in order to respond a dynamic, evolving and competitive environment. In this context, outsourcing has become the most common hospital strategy adopted by managers to solve problems related to cost, efficiency and quality of the services provided. When implemented carefully, outsourcing has great potential to offer strategic and economic advantages for hospitals such as reducing costs, increasing flexibility and improving service quality. INTRODUCTION and PURPOSE In the early 2000s, the Ministry of Health (MoH) launched a new program titled the the Health Transformation Program (HTP). This program aims to restructure the organization and function of the Turkish health care system. The purpose of these reforms, as in other countries, is to ensure efficiency in resource allocation and to develop an innovative health care system that is better capable of responding to patient expectations as well as enabling high quality service delivery. Consequently, the Health Transformation Program has created radical changes in the financing, provision and organization of health care services. The Health Transformation Program has also stimulated competition in the health care sector and directed hospital management to further focus on quality and efficiency issues in health care services 1 Upgrading the economic performance of hospitals is of vital importance in a time of intense competition and limited opportunities of revenue generation. In such an environment, hospital managers have to develop new strategies in order to survive and adapt to rapidly changing conditions. Outsourcing has become the preferred strategic option for hospital managers to overcome 1 Van de Ven. 1996, Market-oriented health-care reforms: trends and future options, Social Science and Medicine 43 (5):

10 9 performance problems in recent times. Over the last 10 years, an increasing number of countries have started to make use of outside sources with the aim of improving the performance of their health care systems. 2 Outsourcing, as a value creating management strategy, is increasingly being used by a great many hospitals in both the private and public sectors. Research examining outsourcing practices has concluded that outsourcing creates a positive effect on both the access to and provision of health care services in terms of efficiency and quality. Objectives This study has two primary objectives. The first is to identify the scope of outsourcing practices in various establishments affiliated with the Ministry of Health (hospitals and rehabilitation centers) through field surveys to assess: The types of services provided by outsourcing, The reasons for outsourcing. Satisfaction levels of managers concerning the services outsourced were analyzed. The second objective is to make an assessment of outsourced clinical and non-clinical services from an economic perspective. As outsourcing practices become more common, the costs of the outsourced services will continuously increase as well. Increasing costs of outsourcing force managers to develop a detailed analysis of the options for procurement and production. In this study, the cost minimization method was used as an economic assessment instrument. HEALTH REFORMS IN TURKEY IN BRIEF Beginning in the 1990s, many developed states have undergone a process of restructuring government services in a great many fields including health care services. They have undertaken this process in order to better respond to both domestic factors, such as demographic changes, changes in service delivery patterns, the shift in employment from the manufacturing sector to the service sector, maturation of governmental administrative bodies and changes in household structure, as well as external factors such as globalization and increasing competition. The health care reform experience in Turkey is a part of this international trend aimed at raising efficiency and reducing costs. 3 2 Liu, Xingzhu, Hotchkiss, David R., Bose, Sujata The effectiveness of contracting-out primary health care services in developing countries: a review of the evidence Health Policy and Planning 23: Agartan, T. I., Health Sector Reform in Turkey: Old Policies New Politics Health Sector Reform in Turkey: Old Policies New Politics Paper presented at the annual meeting of The Midwest Political Science Association, Palmer House Hilton, Chicago, Illinois.

11 10 Outsourcing Practises in the Turkish Health Care System The Health Transformation Program (HTP) launched by the Turkish Government in 2003, seeks to tackle all structural deficiencies and problems within the Turkish Health Care System, namely, the universal health insurance program, access to health care services and service quality. 4 The Health Transformation Program (HTP), which has been in the implementation process since 2003, aims to upgrade the performance of the health care system by means of improving governance, efficiency, user and provider satisfaction and longterm fiscal sustainability in health care facilities. The key elements of the HTP are: 1) Restructuring the MoH as a planning and supervising authority, 2) Introducing the Universal Health Insurance (UHI) unifying all citizens under a single coverage system, 3) Expanding the scope of service delivery in health care services in order to provide people with easier access to and utilization of health care services, 4) Equipping health care personnel with enhanced knowledge and skills and improving personnel motivation, 5) Establishing a quality assurance and accreditation system to enable delivery of more effective and qualified health care services, 6) Setting up scientific and educational institutions to support the health care system, 7) Ensuring rational drug use and effective use of medical devices and materials, and 5) Achieving data-based decision-making process by establishing an effective health information system. 5 The following table presents a chronological list of reforms or innovations achieved within the scope of the sub-components of the HTP process, which has been in effect since 2003, and changes undertaken prior to the initiation of HTP. 4 Messrs. Juan Reig and Valverde, Jose General Overview of the Public Health Sector in Turkey in (manuscript) European Parliament. (IP/A/ENVI/NT/ ). Brussels. 5 OECD AND IBRD/THE WORLD BANK OECD Reviews of Health System Turkey.

12 11 Table 1. Timeline of the Health Sector Reforms in Turkey, The Basic Plan study was conducted. Existing and future goals of the health care system were analyzed. Concepts such as purchaser-provider split, domestic market, family physicians and universal health insurance were used for the first time. Green Card System was introduced. People with income below a defined poverty level were provided with free-ofcharge inpatient health care services. The National Health Policy Document was developed. The Document analyzed the existing situation, identified problems and proposed strategies for the future. Actively employed and retired government employees began to utilize private hospitals. Legal arrangements regarding patient rights were adopted and hospitals started to set up patient rights units Contract-based employment was introduced for health care personnel in rural and less developed regions. Communication Centers (SABİM) were opened for better communication with the public. As a part of the patients rights reforms, authorized bodies were created for the public where they could seek and advocate their rights. Vaccination days were organized under the scope of the national immunization campaign against measles. Ambulance services were offered free-of-charge for the first time. Mechanisms were developed and implemented to guarantee that hospitals would treat patients even if they were unable to afford payment for the hospital charges. Total Quality Management (TQM) was put into effect in the Ministry of Health (MoH). Performance-based payments were piloted in 10 MoH hospitals.

13 12 Outsourcing Practises in the Turkish Health Care System Free iron supplements were made available to pregnant women across the country. The Expanded Program on Immunization (EPI) was launched. Under this Program, vaccination schedules were established (including vaccines for rubella and meningitis), the Conscious Mothers and Healthy Infants Project was designed and implemented, the number of baby-friendly hospitals was increased, the Iron-Like Turkey Project was started, the Rickets Prevention Program was introduced, and Community Health Centers were established. Conditional cash transfers were introduced. 6 % of the population (pregnant women and children), who were most strongly impacted by lack of medical care, were granted monetary aid in cash for the first time on condition that they had recommended medical checks regularly Major changes were made to the pharmaceutical policy, including changes to pricing and the VAT. An international reference price system was introduced. As a result, dramatic price cuts were made in pharmaceuticals and the government saved 1 billion USD thanks to the change in the pricing policy. The VAT was reduced from 18 % to 8 % on pharmaceuticals. Patients were given the right to choose a physician in order to boost competition among service providers in public sector. Also, the Ministry of Health hospitals implemented the right to choose a physician for the first time. A Reimbursement Commission was established by a circular issued by the Ministry of Finance to oversee reimbursement decisions. The Individual Performance-Based Payment System was put into effect in the Ministry of Health-affiliated health care facilities.

14 Green Card coverage was expanded to include outpatient treatment and prescribing expenses. Although no copayment was required in the beginning, a copayment amounting to 20 % was introduced due to an increase observed in pharmaceutical expenditures. All public hospitals, except for the Ministry of Defense and university hospitals, were put under the control of the Ministry of Health. Devolution of the former Social Insurance Institution (SII) hospitals to the Ministry of Health effectuated purchaser-provider split. Occupational Health High schools, which were previously affiliated with the Ministry of Health, were transferred to the Ministry of Education. One more major step was taken to free the Ministry of Health from its non-core assignments. The regulation on licensing of pharmaceuticals was passed in the Turkish Grand National Assembly. Institutional criteria and quality criteria were incorporated into the Performance-Based Supplementary Payment System implemented in the Ministry of Health facilities. The SII-affiliated pharmacies were closed and their beneficiaries were permitted to access to private facilities. Family medicine was first piloted in Düzce province. The compulsory public service for physicians, which was discontinued in 2003, was re-implemented in order to balance distribution of physicians especially in rural areas and deprived regions. The Law on Unification of the Social Security Agencies Numbered 5502 came into effect. Global budgeting was introduced and implemented for the Ministry of Health hospitals. Family medicine was implemented in Eskişehir province. A monitoring system was developed for pharmaceutical expenditures in the Social Security Institution (SSI) and MEDULA system was activated for the SSI. The Law on Public-Private Partnership for Health (PPPH) was passed in the Parliament. Family medicine was put into effect in Edirne, Denizli, Adıyaman and Gümüşhane provinces. Measles, mumps and rubella vaccines were included in the routine immunization program.

15 14 Outsourcing Practises in the Turkish Health Care System All citizens, even if they were not covered by social security scheme, were granted the right to utilize all primary health care services without any charges The New Health Implementation Directive (HID) was adopted and led to the following: i) The obligation of referral for transfer from the MoH hospitals to university hospitals was cancelled for the SII and Bağ-Kur beneficiaries, ii) Patients with chronic diseases were permitted to renew their prescriptions in pharmacies without prior consent of physician, iii) Fixed payment was introduced for CPT and ICD 10-based outpatient and inpatient procedures in all of the MoH hospitals, university hospitals and private hospitals that contracted with the SSI. iv) The hospitals having contracts with the SSI were directed to provide free-of-charge pharmaceuticals and medical supplies (as covered by the insurance) for inpatients and penalties were applied for violations of this rule. v) All of the MoH, university and private hospitals were required to submit medical utilization requests via the MEDULA system. Ambulance services were more better equipped and improved access was achieved in difficult-to-reach areas in winter. Family medicine was introduced in Elazığ, Isparta, Samsun and İzmir provinces. In order to improve access to health care services for people living in difficult-to-reach areas, especially in winter, the ambulatory health services network was strengthened by the purchase of new vehicles: 75 snow ambulances, 4 marine ambulances and 6 air ambulances. The new Ministry of Health Regulation on Private Outpatient Treatment and Diagnosis Centers was adopted, the provision of Need Licensing was added and the new licensing procedures were accepted by the Ministry of Health Amendments to the Laws on the Social Insurance and Universal Health Insurance were passed in the TGNA and signed by the President. UHI (Universal Health Insurance) came into effect. The Green Card program was incorporated into the UHI. Green Card beneficiaries were provided with the same rights as other health insurees had. Pentavalent vaccines were included in the routine immunization program. The Law on Prevention and Control of the Damages of Tobacco Products, which prohibited smoking in open and closed public areas, was adopted.

16 15 Family medicine was introduced in Rize, Trabzon, Tunceli, Uşak and Bursa provinces Copayment was introduced for physician and dentist consultations in outpatient health care services. The 22 % threshold, which was used to determine the most inexpensive medicine of the same active principle that could be prescribed for the same indication, was changed to 15 % while paying for the costs of equivalent medicines. Health premium payments of government employees and their dependents were devolved to the SSI The Law on Full-Time Practice of University and Health Personnel and Amendments to Some Laws Numbered 5497 was adopted, which paved the way for full-time practice in legal terms. In order to build the necessary infrastructure, the implementation target of this program will be in a year s time at universities and in six month s time in other facilities. CONCEPT OF OUTSOURCING Definitions Although outsourcing has become a popular concept in business management literature, a proper and comprehensive definition has not yet been developed. The term outsourcing simply refers to contracting with an outside vendor to provide a service normally provided internally by the organization itself. In other words, outsourcing can be defined as transferring services or operating functions that are traditionally performed internally to a third-party service provider and controlling the sourcing through con tract and partnership management 6. Outsourcing is a method by which the managing responsibility is transferred to an external organ or corporation in order to expand the core activities of the hospital in fields complementary to its main activities. 7 As more organizations and institutions turn to outsourcing as a means of reducing cost and improving quality, it becomes increasingly critical that managers recog- 6 Roberts, Velma Managing Strategic Outsourcing in the Health care Industry Journal of Health care Management. 46: Racheli Magnezi, Rachel S. Dankner, Ron Kedeme, Haim Reuveni 2006 Outsourcing primary medical care in Israeli defense forces: Decision-makers versus clients perspectives Health Policy 78: 1 7.

17 16 Outsourcing Practises in the Turkish Health Care System nize which services are best outsourced and when to employ the practice. Experts agree that turning to outsourcing to achieve short-term savings is not an adequate reason to opt for outsourcing services. Rather, the decision should be based on what services are among the organization s core competencies and what services are not 8. The term core competency, first introduced by Prahalad and Hamel, means that the collective learning in the organization, especially how to coordinate diverse production skills and integrate multiple streams of technologies 9. A core competency is a set of essential knowledge, abilities or expertise in a specific subject area. A health care facility, for instance, might be more specialized in organ transplantation than others. Due to this focus, organ transplantation is this health care facility s constitutes core competence. Core competence has three main characteristics: It makes significant contribution to perceived customer benefits of the end product (or service). 2. It is difficult for competitors to imitate. 3. It provides potential access to wide variety of markets for the organization. Advantages of Outsourcing The main objective of all outsourcing practices is that outsourcing allows a health care organization to concentrate on its core processes and its customers which results in greater efficiency and quality of services. The basic advantages of outsourcing can be listed as follows: Improving efficiency: One of the most cited purposes of outsourcing is cost reduction. Health care facilities should evaluate the outsourcing option to determine whether current operating costs can be reduced. The decision to outsource depends on cost comparisons: Cost of Outsourcing > Insource Production Decision: Do not outsource Cost of Outsourcing < Insource Production Decision: Do outsource 8 Shaffer Franklin A Outsourcing: A Managerial Competency for the 21st Century Nursing Administration Quarterly. 25(1): Prahalad, C. K., Hamel, G The Core competence of the Corporation Harward Business Review 68(3): ibid.

18 Many studies show that outsourcing has a great potential to create cost savings. The main reason for cost saving is that outsourcing helps health care facilities to realize economics of scale. On the other hand, health care facilities usually perform many other activities that are different from their core competences (clinical services). By outsourcing such non-core services, health care facilities can more effectively manage their scarce resources for core services. As a result, health care facilities can reduce their both indirect costs (including overhead expenses) and capital costs (investment). Enhancing Service Quality: Clearly, the single most important consideration in evaluating an outsourcing arrangement is the quality of the contracted hospital service. The quality of outsourced services should be either better than or at least the same as the quality of in-house services. 11. Generating Competitive Advantage: The basic advantage of outsour cing is that by saving health care manager s time, it allows them to concentrate on the core activities and functions (competences) of their organizations, namely clinical services, rather than non-clinical services. Enhanced flexibility in responding to demand fluctuations, cost reduction (savings), strong vendor-customer relationships and risk sharing are important factors in achieving a sustainable competitive advantage. Reducing Risks: In the health sector, medical and technological changes come into effect frequently and rapidly. New and expensive technologies and treatment models are constantly being developed. For example, investment in medical equipment (e.g. MRI, CT) requires huge capital expenses. Variations in demand or under-demand create risks. Therefore, outsourcing enables health care facilities to reduce or share financial risks by using vendors. Structural and Managerial Flexibility: Outsourcing increases the structural flexi bility of health care facilities. By outsourcing, managers can design a flatter but more respon sive organiza tional structure, eliminate unnecessary and time consuming formalities, which allow them to react more quickly to the changing competitive envi ronment and to easily access the resources and expertise needed for the smooth delivery of health care services. Service Continuity: According to the Health Transformation Program, service continuity means responding to all needs of a patient at a single hospital instead of unnecessarily directing patient to a secondary and tertiary hospitals. Through outsourcing, health care facilities can manage to provide specialized services requiring bigger capital investments and highly trained personnel Triulzi, Darrell J Advantages of Outsourcing the Transfusion Service Transfusion. Sciences. 18( 4):

19 18 Outsourcing Practises in the Turkish Health Care System Box 1. Benefits of Outsourcing 1. Reduces overhead expenses, frees up resources 2. Minimizes capital expenditures 3. Eliminates investments in fixed infrastructure 4. Offloads non-core functions 5. Redirects energy and personnel into the core business 6. Frees the executive team from problems of daily routine processes 7. Focuses scarce resources on mission-oriented projects 8. Ensures access to specialized skills 9. Saves on manpower and training costs 10. Controls operating costs 11.Makes the Economics of scale available by enhancing efficiency 12. Improves speed and service 13. Eliminates peak staffing problems 14. Provides the best quality services, products and people 15.Is reliable and innovative 16. Provides value-added services 17. Increases customer satisfaction 18. Establishes long-term, strategic relationships with world-class service providers to gain a competitive edge 19. Enhances tactical and strategic advantages 20. Enables strategic thinking, process reengineering and managing relationships with trade partners 21. Benefits from the provider s expertise in solving problems for a variety of clients with similar requirements. Outsourcing Trends In the Turkish Health Care System In Turkey, outsourcing is a relatively new business strategy for many health care facilities, especially hospitals and rehabilitation centers. In the early 1990s, large hospitals began to outsource noncore services such as dietary, housekeeping, and security. Although outsourcing was primarily used to obtain noncore services at first, it has been extended to both administrative services (e.g. payroll, billing and data entry, information technology, public relations) and core (clinical) services such as radiology, CT, MR, and other laboratory services. Today, outsourcing is being used by nearly all health care facilities of different sizes. Health care facilities have accepted that outsourcing is a proactive and cost-effective option for obtaining needed services. Table 2 shows outsourcing trends at the MoH hospitals in the last decade.

20 19 Table 2: Outsourcing Trends in the MoH hospitals by Years Percent of Hospitals Outsourcing at least One Service Years ,8 % 88 % 93,3 % Sample Size Figure 1. Outsourcing Trend in Turkey (2001 to 2008) As shown in the Table 2 and Figure 1, outsourcing is a rapidly growing industry in health care. This study showed that the percentage of all hospitals outsourcing at least one hospital function has increased by 22,5 % from 2001 to Studies also show that the content of outsourced services are changing; health care facilities are expanding outsourcing beyond their noncore functions to core (clinical) functions. Small and medium-sized hospitals, especially, outsource different kinds of diagnostic services, such as imaging services, biochemistry and microbiology laboratory services, nursing services and medical services. It might be expected that frequency and types of outsourced services will continue to grow due to technological, administrative and financial pressures. 12 Ergin, S, Sahin I Contracting Out As Intermediary Outsourcing: A Study of The Ministry of Health of Turkey Hospital Managers Evaluation. Hacettepe Journal of Health Administration 13 Yilmaz, Outsourcing in hospital services in Turkey and its evaluation from the perspectives of the managers who acquire these services. Unpublished PhD Dissertation. Trabzon Karadeniz Technical University

21 20 Outsourcing Practises in the Turkish Health Care System RESEARCH METHODOLOGY Population and Sample The study population consisted of all MoH hospitals with a bed capacity of 20 or higher in the country (N = 725). The study sample was comprised of hospitals and health care facilities operating in both urban and rural areas of Turkey. 534 out of 725 hospitals participated in this survey, representing 75 % response rate. Data Collection The questionnaire method was employed for data collection. Questionnaires from previous national and international studies were reviewed and the questions were tailored for the current status and domestic conditions of Turkey. The questionnaire, which was comprised of three parts, was sent to hospital managers for completion. The first part of the questionnaire consisted of ten questions regarding hospital characteristics. The second part asked questions addressing the types of services being outsourced by hospitals and level of satisfaction with such outsourced services. The last part of questionnaire, with a five point Likert-type scale ranging from quite unimportant to quite important and asked questions about reasons for outsourcing. Prior to the implementation of the questionnaire, the questionnaire was tested in a pilot study conducted at seven hospitals located in Ankara and necessary revisions were made based on the pilot study results. Statistical Procedures Descriptive statistics were used for data analyses. Frequencies with mean scores and standard deviations (SD) were calculated. Cross tabulations were performed to see and examine differences by groups. Cost Minimization Method Economic assessment is a field of study, which was developed to provide a framework in order to help health managers with decision-making among various options. 14 The methods of economic assessment can be used to evaluate the trade-off between costs, and outcomes and benefits. There are four basic methods of economic assessment as listed below: Cost-effectiveness analysis, Cost-utility analysis, Cost-benefit analysis, Cost minimization analysis. 14 Robert J. Brent 2003 Cost-Benefit Analysis and Health Care Evaluations. Cornwall. Edward Elgar Publishing, Inc.p,4.

22 Economic evaluation models are based on the analysis of the relationship between inputs, which are usually different one from another, and their consequences. These analyses aim to identify the most efficient intervention, i.e. that which makes best use of scarce available resources. If health care interventions which are evaluated by economic assessment have the same qualitative and quantitative consequences, then economic analysis can concentrate on inputs, and disregard consequences. 15 Because the aim of the cost minimization method is to compare cost differences among alternatives, it requires detailed cost analysis. Cost Analysis Methodology Assuring and improving economic performance of health care facilities is vital in today s world of reducing profit margins and strong competition. To survive in this competitive environment, hospital managers need to be empowered with information that enables them to quickly respond to changing and challenging situations. One essential component of this information is to know which services are profitable and which are creating efficiency problems. Hospital managers also need to know their costs by service types to allow them to set prices, to control costs, and to develop hospital budgets. Several methods of cost allocation are used in health care facilities. These are: Direct apportionment, Step-down apportionment, and Double apportionment 16 Step-down apportionment involves a two-time allocation and takes into account the disadvantage of direct apportionment. It involves a one-time allocation of all costs from the cost centers of departments that do not generate revenue to other cost centers of departments that do not generate revenue before a one-time allocation of all costs to cost centers of departments that do generate revenue 17. Step Down Costing Method was illustrated in Figure Jefferson, Tom.; Demicheli, Vittorio.; Mugford, Miranda Elementary Economic Evaluation in Health Care. London. BMJ Books, p Nowicki, Michael,2008. The financial management of hospitals and health care organizations Chicago, Health Administration Press, pp Novicki, a.g.e s. 164

23 22 Outsourcing Practises in the Turkish Health Care System Figure 2. Stages of the Step-Down Apportionment Determination of Cost Centers In the step down costing methodology, the first step is to identify cost centers. Cost centers are generally classified as: 1. Non revenue centers 2. Overhead centers 3. Revenue centers Non revenue centers are nonclinical support areas that provide nonmedical services to all personnel and departments. They serve the management and operational needs of the facility. Overhead centers comprise administrative departments that serve the management and operational needs of the hospital. These departments perform accounting, billing, and other managerial and administrative services. Revenue centers also called profit centers produce services and procedures provided to patients. They are the final collection point for costs relating to the patient s treatment. At hospitals, revenue centers are the departments offering the final services of the hospital and are the source of all revenues that the hospital collects from patients directly and from insurance companies.

24 Determination of Costs At the second stage of step down costing, direct costs of whole departments (cost centers) are determined. Direct costs are those that relate to a department s operations and can be linked to specific departments. Types of costs are briefly explained as follows: a. Direct personnel costs (wages and salaries, revolving fund premiums) b. Indirect personnel costs (pharmacist and treatment staff expenses) c. Drug costs d. Medical supply costs e. General operating costs (electricity, water, heating expenses) f. Hospital building depreciation g. Fixed asset depreciation h. Outsourced goods and services 23 Direct Cost Allocation (First Cost Allocation) The cost items listed above are assigned to non revenue, overhead, and revenue centers by the way called direct distribution. Costs accumulated in the cost centers are called direct costs. Determination of Indirect Costs (Cost Allocation) Typically, the support and overhead costs of the health care organization, such as those provided by administrators, facilities management personnel, financial staffs, and housekeeping and maintenance personnel, must be allocated to those departments that generate revenues for the health care organization (generally patient services departments). 18 Costs accumulated at the non revenue centers are first allocated to overhead and revenue centers. Total costs of overhead centers include direct costs and indirect costs. These costs of the overhead centers are then allocated to the revenue centers. To allocate cost, suitable cost drivers (criteria) should be selected. Generally used cost allocation criteria are given in the Table Gapenski, Louis C Health care finance : An Introduction to Accounting and Financial Management. Chicago: Health Administration Press, p. 159

25 24 Outsourcing Practises in the Turkish Health Care System Table 3. Allocation Criteria Non Revenue Centers Food service Laundry Technical service Heating center Pharmacy Morgue Call center Transportation Dressmaker s shop Archive Patient reception Housekeeping Allocation Criteria Number of meals served Number of personnel or patient days Fixed asset allocation Area Pharmaceutical costs Number of dead patients Number of personnel Expert opinion Number of personnel Number of inpatients Number of inpatients Area FINDINGS Participants Characteristics The statistical distribution of participant hospital staff characteristics by title, age, gender and professional seniority is presented in the Table 4. As shown in the Table 4, a large majority of respondents were hospital administrators (63,7) -under the direction of chief of staff (head physician)- whose primary responsibility is to handle administrative, technical and financial functions of hospitals. Most respondents were male (90,4%), and 68,5 % of managers were years of age. Table 4. Responding Managers Characteristics (N= 534) Managers Characteristics Title Groups n % Head physician ,3 Hospital Administrator ,7 Total Gender Male ,4 Female 50 9,6 Total

26 25 Table 4. Responding Managers Characteristics (N= 534) Cont Up to 30 Years 29 5, Years 76 14,5 Age Years , Years , Years 77 14,7 Attendance at Management Training 51 and Above 88 16,8 Total Trained ,2 Non-trained ,8 Total Associated Degree 33 10,9 Bachelor s Degree ,3 Type of Training Master s Degree 25 8,3 Doctorate Degree 61 20,1 Certificate 49 16,2 Other 13 4,3 Total Up to 1 Year Years ,2 Seniority 6-10 Years 93 17, Years 41 7, Years 27 5,1 21 and Over 39 7,3 Total Less than 1 year 30 6,1 Length of /Seniority in Service 1-5 years , years 74 14, years 92 18, years 57 11,5 21 years and above ,3 Total

27 26 Outsourcing Practises in the Turkish Health Care System Outsourcing Profile: Services outsourced by types A vast majority of respondents indicated that the MoH hospitals (93 %) outsourced at least one service in 2008 (Table 5). As mentioned above, the percentage of all hospitals that outsource at least one service increased by 22.5 % from 2001 to From 2000 to present, the Turkish health care system has been going through a radical change. The Social Security Institution has been continuously directing hospitals to take control over service costs. While the Ministry of Health has been encouraging competition in the health sector on one hand, the Social Security Institution has been introducing rigid price restrictions on the other hand. These developments force the Ministry of Health hospitals to seek new strategies to contain costs, to improve quality, and to survive in a turbulent and competitive health care environment. Table 5. Distribution of Hospitals by Outsourcing Preference Preferring Outsourcing N % Outsourced ,3 Not Outsourced 36 6,7 Total ,0 In the MoH hospitals, outsourcing practices can be grouped in two models as Type A and Type B (see the Figure 3). In the Type A arrangement, vendors, using their staff and resources, produce necessary services within hospitals. Most services, noncore in nature, are outsourced by hospitals according to the Type A arrangement. In the Type B arrangement, in contrast, vendors give service in their own service locations instead of hospitals. As shown in Figure 3, for the core services, hospitals prefers both Type A and Type B arrangements to different degrees, based on the size of the hospitals. However, it might be argued that, as hospital size increases, Type A arrangement would become more common in the MoH hospitals. In hospitals of all sizes, support and administrative services are usually provided by the Type A arrangement.

28 27 Figure 3. Service Provision Relations in Outsourcing Types of Services Outsourced Non Clinical Services Distribution of support and administrative services outsourced in the MoH hospitals is presented in the Table 6. As shown in the Table 6, outsourcing has become a commonly used business strategy for almost all of the MoH hospitals.

29 28 Outsourcing Practises in the Turkish Health Care System Table 6. Distribution of Outsourced Nonclinical Services by Types (N=498) Types of Support Services n % Housekeeping ,0 Automation ,8 Security ,7 Catering ,1 Secretary ,4 Insect Control ,6 Technical service ,3 Laundry ,7 Medical equipment repair and maintenance ,9 Landscaping services ,7 Billing ,9 Cafeteria services 97 19,5 Tailor s department 47 9,4 Personnel transportation 39 7,8 Parking services 36 7,2 Hemodialysis patient transportation 34 6,8 Ambulance 39 7,8 Patient consultancy 16 3,2 Heating 5 1,0 Sterilization 5 1,0 Others 7 1,4 Total 3168

30 Figure 4. Outsourced Clinical Services by Types (N=498) 29

31 30 Outsourcing Practises in the Turkish Health Care System Clinical services The MoH hospitals outsource not only non-core services, but also core services. Distribution of outsourced core (health and medical) services by types is presented in the Table 7. Table 7. Distribution of Clinical Services by Types (N=498) TYPES OF SERVICES n % Magnetic resonance (MR) ,7 Computerized tomography (BT) ,7 Biochemistry laboratory services ,7 Microbiology laboratory services 84 16,9 Radiology 82 16,5 Nuclear Medicine 60 12,0 Pharmacy 44 8,8 Nursing 39 7,8 Medical staff (physician) services 27 5,4 Bone densitometry 10 2,0 Mammography 9 1,8 Ultrasound 6 1,2 Dentistry services 5 0,94 Pathology 5 0,94 Doppler 3 0,56 Hemodialysis 3 0,56 Other 21 3,93 Total 857

32 31 Figure 5. Distribution of Clinical Services by Types (N=498) MoH hospitals used outsourcing primarily as a means of providing diagnostic services. These services, such as magnetic resonance, computerized tomography, nuclear medicine require great amount capital investment. Clinical or core services are generally outsourced according to the Type B arrangement especially in small and medium sized hospitals. Hospitals refer patients to the vendors; then vendors send test results to the hospitals. But, in large hospitals, outsourced core services are provided by vendors within hospital. Due to budgetary restrictions, small and medium size hospitals encounter difficulties in financing investments to provide these services. Another factor leading hospitals to outsource such services is a matter of economics of scale. Demand for services provided by small and medium sized hospitals is not enough to reach break-even point where total income is equal to total cost. Therefore outsourcing has recently become the most cost-effective option for small and medium sized hospitals.