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                            Volume 37               Issue 1                                                                                                                                 Article 5 
                            January 2012 
                            Human ResourHuman Resource Outsource Outsourcing in Health cing in Health CarCare: Stre: Strategic, Cost, ategic, Cost, and and 
                            TTechnical Considerechnical Considerations ations 
                            Mark P. Brown 
                            Bradley University 
                            Ross L. Fink 
                            Bradley University 
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                            Recommended Citation Recommended Citation 
                            Brown, Mark P. and Fink, Ross L. (2012) "Human Resource Outsourcing in Health Care: Strategic, Cost, 
                            and Technical Considerations," Southern Business Review: Vol. 37 : Iss. 1 , Article 5. 
                            Available at: https://digitalcommons.georgiasouthern.edu/sbr/vol37/iss1/5 
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                                                 Practitioner’s Dialogue
                          Human Resource Outsourcing in
                          Health Care: Strategic, Cost, and
                                   Technical Considerations
                                             Mark P. Brown and Ross L. Fink
                    In an era of declining         health care field. Although        both the technical
                reimbursement and                  hospitals have commonly            sophistication of the
                heightened competitive             outsourced certain                 interrelated activities
                challenges, effective health       practices, such as benefits        performed in health care
                care organizations recognize       management, few hospitals          organizations, and the
                the need to avail themselves       have outsourced their              degree of autonomy
                of all possible opportunities      human resource                     accorded the professionals
                to succeed (Fottler &              management (HRM)                   who perform these activities
                Malvey, 2010; Lefton, 2008).       practices as extensively as        (Buchan, 1999). The
                One potential opportunity          other industries.  This            challenge that confronts
                health care managers               article will specifically          health care managers is
                should carefully consider is       examine HRM practices that         providing effective leader-
                the outsourcing of their           are appropriate for the            ship in an environment of
                human resource manage-             health care industry, and          such complexity.
                ment activities. Human             discuss the trade-offs of              One method to confront
                resource outsourcing, while        outsourcing these practices        this complexity is to
                a common practice in               from a strategic, cost, and        minimize its impact so
                industries outside of health       technical expertise                managers can focus their
                care (e.g., Greer, Young-          perspective.                       efforts on areas of greater
                blood, & Gray, 1999), has                                             importance to organizational
                been overlooked in the             Strategic Reasons for              success. Consistent with
                                                   Hospitals HRM                      this, some health care
                                                   Outsourcing                        managers may chose to
                  Mark P. Brown, PhD., is              To begin the examina-          outsource HRM to focus on
                  associate professor of           tion, this article will            other areas that are of
                  management, Department           concentrate on strategic           greater importance to
                  of Business Management           reasons for outsourcing.           organizational success.
                  and Administration, Bradley      From a managerial                  Presumably, if health care
                  University, Peoria, IL  61625.   perspective, health care           managers can find a
                                                   organizations are among the        competent organization to
                  Ross L. Fink, Ph.D., is          most complex of modern             outsource HRM activities to,
                  professor of operations          organizations (Duncan,             they can devote the time
                  management, Department           Ginter, & Swayne, 1995;            previously spent on HRM to
                  of Business Management           MacEachern, 1962). Their           areas of greater importance
                  and Administration, Bradley      complexity is a function of        in the context of their
                  University, Peoria, IL  61625.                                      hospital’s overall mission. 
                 Southern Business Review                   Winter 2012                                         51
                   Strategic explanations       practices is that outsourcing     practices, cost savings is a
               for HRM outsourcing              increases health care             frequently cited reason for
               particularly make sense          mangers opportunities to          initially considering HRM
               given the largely                focus on core organizational      outsourcing (Greer et al.,
               transactional nature of          activities that are critical to   1999). Examples seem to
               many HRM practices (Noe,         their organizations success.      support this cost saving
               Hollenbeck, Gerhart, &                                             logic as some organizations
               Wright. 2009).  The vast         Cost Benefits of                  have observed double digit
               majority of HRM activities       Human Resource                    percentage decreases in
               involve non-strategic            Outsourcing                       HRM costs as a result of
               administrative activities            Beyond the strategic          HRM outsourcing.
               such as monitoring               benefits of human resource           Health care organiza-
               employee compliance with         management outsourcing,           tions that elect to outsource
               occupational training            health care organizations         HRM practices have
               requirements, preparing          may also chose to outsource       numerous consulting and
               employee payroll, and            for the purpose of cost           HRM management firms
               enrolling employees in           savings. Hospitals’ HRM           from which to select. The
               benefits programs. These         departments are not profit        challenge for hospitals is
               administrative HRM               centers, and therefore,           finding outsourcing
               activities, while important,     represent prime targets for       companies prepared to deal
               offer managers little            cost savings.  This is            with the unique challenges
               opportunity to make              particularly the case in          of managing HRM activities
               meaningful performance           hospitals where HR                in hospitals. Hospitals’ HRM
               improvements beyond              departments employ                needs are unique because
               assuring that HRM activities     specialized personnel to deal     for their size hospitals are
               are being performed              with the various                  typically more labor
               correctly. For example, in       trained/licensed                  intensive than similarly-
               terms of payroll                 professionals employed by         sized organizations in other
               administration issues, a         the hospital (e.g., nurse         industries (American
               hospital’s performance is        recruiter, nurse trainer, etc.)   Hospital Association, 1993).
               not affected so long as its      Although it might seem HR         Moreover, hospitals are also
               payroll is distributed in a      activities related to these       distinctive because of their
               correct, legal, and timely       licensed professionals would      unique missions (i.e., saving
               manner. Thus, because            reside in the specific areas      human lives) and the highly
               health care managers have        in which they are employed        skilled staffs they employ
               little opportunity to            (e.g., intensive care unit,       (Brown et al., 2003). Indeed,
               meaningfully contribute to       surgical unit, pediatric unit,    each of these factors
               their hospitals performance      etc.), hospitals employ so        contributes to hospitals
               by detailed management of        many professionals for so         having unique HRM needs.
               HRM activities, such as          many different areas that it      Unfortunately, HRM
               payroll administration, their    is often more effective and       outsourcing firms can only
               time is better spent focusing    efficient to centralize HR        offer cost effective
               on activities in which their     activities related to these       outsourcing solutions when
               efforts can make a               professional in the HR            they can provide their
               meaningful contribution to       department rather than            services in large quantities
               organizational performance       specific clinical depart-         (Greer et al., 1999). Thus,
               (Brown, Sturman, &               ments.                            the degree to which health
               Simmering, 2003).                    Among those non-health        care organizations can enjoy
               Accordingly, one reason          care organizations that have      these scale-based benefits of
               hospitals may elect to           outsourced their HRM              HRM outsourcing is largely
               outsource their HRM                                                related to the degree the
                52                                       Winter 2012                  Southern Business Review
              HRM needs of health care        understanding of effective     firm can develop a level of
              organization are similar to     means of compensation,         HRM expertise beyond that
              those of other industries.      staffing, and training         justifiable by individual
              For example, in areas such      employees. Moreover, HRM       firms since they can spread
              as pension or compensation      has also become challenging    the costs of such expertise
              administration, hospitals       due to the increasingly        across a whole host of
              should readily be able to       litigious nature of the issues clients (Greer et al., 1999).
              avail themselves of cost        that surround HRM.             Moreover, a single
              related outsourcing benefits    Technical expertise has also   organization may have only
              since hospitals’ needs in       become more important as       limited need for such HRM
              these areas are largely         organizations recognize that   expertise, and maintaining
              similar to those of other       effectively managing their     such expertise likely
              organizations; however, in      HRM resources is as, or        represents a poor utilization
              areas such as the design of     even more, important than      of resources (Greer et al.,
              compensation systems,           effectively managing their     1999). Thus, issues of
              hospitals are less likely to    other competitive resources.   capacity utilization may lead
              enjoy such HRM                  The name used to describe      some firms to outsource
              outsourcing benefits            these actives has changed      their HRM practices to
              because they have unique        since the 1980’s to reflect    external firms who by virtue
              characteristics that differ     this increasing                of their focus may be able to
              significantly from those of     sophistication. Traditionally, maintain a level of
              organizations in other          HR departments were            sophistication and expertise
              industries.  This makes off     known simply as personnel      far above that of single firm.
              the shelf solutions that are    departments reflecting their   A good example of this is
              practical in other industries   primary purpose to staff       legal representation in
              impractical in the health       positions and fill vacancies   terms of labor and
              care industry.                  when necessary. A shift in     employment issues.
                                              title from personnel           Although many firms have
              Technical Expertise             department to HR is            in-house general counsel,
              Reasons for                     tantamount recognition not     most firms chose to
              Outsourcing                     only of the greater            outsource their specialized
                  A third reason hospitals    importance of the HR           labor and employment law
              may outsource their HRM         function, but also that it     work to attorneys that
              practices is that outsourcing   involves more than just the    specialize in these areas.
              allows hospitals to avail       staffing issues that were      Typically, most hospitals do
              themselves of HRM               traditionally inferred under   not have labor and
              expertise they do not           the personnel title.           employment law needs
              possess in house (Greer et         Due to the increasing       necessary to justify staffing
              al., 1999). Aptly described     technical complexity and       a full-time position with a
              as a booming field, HRM has     strategic importance           technically competent labor
              experienced significant         associated with HRM, many      and employment lawyer.
              increases in technical          hospitals view these alone     Thus, to avail themselves of
              sophistication and strategic    as compelling reasons to       these services, they hire
              importance since the            outsource some HRM             outside counsel that
              1980’s.                         practices. These hospitals     specialize in this area.
                  Technically, HRM has        believe it is more effective to
              become more sophisticated       hire outside HR expertise      HRM Outsourcing
              for a host of reasons           than to maintain such          Opportunities
              including advances in the       expertise internally.  This       As this article has
                                              makes sense as consulting      explored the potential
               Southern Business Review               Winter 2012                                   53