The CFO’s Role in Evaluating Managed Services Programs

By Brian M. Scott, chief financial officer, chief accounting officer and treasurer, AMN Healthcare

August 4, 2011 - A financial manager’s job is not just about crunching the numbers anymore. Healthcare labor constitutes such a large portion of a facility’s annual expense budget—usually around half of the total—that hospital CFOs and other budget-conscious leaders are making sure they are part of the advisory team when it comes to developing workforce plans and signing contract labor agreements.

It has become an economic necessity.

Under increasing pressure to reduce costs and improve efficiency, financial executives are becoming more proactive, taking their seat at the table and helping find a better way to reduce third-party as well as internal costs.

The healthcare labor balancing act

The challenge for every healthcare organization is to deliver top quality patient care in the most efficient and cost-effective way possible. Achieving this goal requires streamlining processes, eliminating waste and ensuring adequate clinical staffing coverage at all times—not too much, and not too little. Too many clinicians will drive up costs; too few clinicians will drive up patient dissatisfaction and the possibility of medical errors, which are even more expensive.

One way to accomplish the proper staffing balance without overtaxing your personnel resources is to contract with a reputable managed services provider (MSP) to handle the administration of your contingent labor, including temporary nurses, physicians, allied health and pharmacy professionals, and support staff. This kind of agreement delivers a number of added efficiencies, including just one point of contact for all your travel contracts and local per diem/registry agreements.

By streamlining and improving the management of your contingent workforce, an MSP provider can help improve your organization’s financial, operational and clinical performance. And the financial manager can assist by determining the fiscal impact of an MSP program, working with department directors to verify cost and savings projections.

The value of HFMA and other independent reviews

One way for a CFO or other leader to determine the value of a managed services program is through an objective, third-party review. Case in point, the Healthcare Financial Management Association (HFMA) recently recognized AMN Healthcare’s Managed Services Program as being a good financial investment through its exclusive HFMA Peer Review program. After a long review process, we were privileged to be the first healthcare staffing and workforce management company recognized by the HFMA program.

What is the benefit of this type of third-party review for potential MSP users?

  • Quality assurance. Upon the announcement of AMN’s successful completion of the review process, HFMA’s president and CEO, Richard Clarke, said, “HFMA’s Peer Review process provides our membership with the assurance that those who have earned the designation have met a rigorous screening process. The Peer Reviewed designation helps members and others identify and evaluate products and services that their organization may need.” Only 60 percent of applications pass the HFMA review process, and AMN is currently the only healthcare staffing company to do so.
  • Evaluations based on facts. The 11-step HFMA review process included current AMN MSP clients and a validation of performance claims. HFMA board members reviewed our managed services program’s effectiveness, quality, usability, price, value, and customer and technical support. This reinforces credibility and can help you base decisions on the facts about services.
  • Savings of time and money. HFMA’s program, and others like it, helps shorten the investigation phase of your facility’s search, which can provide a valuable time savings when seeking a managed services partner. Their reviewers help do the work for you. In this case, HFMA’s process identified AMN’s MSP program as “a high-quality product [that] adds value to HFMA members.”

MSP: 5 factors of financial significance

As part of the due diligence process, a financial advisor’s role might involve a review of the following five areas before choosing a managed services provider:

  1. Past clients. Although every healthcare organization is unique and may require a custom solution, your financial review should consider what kind of savings other clients have received from instituting an MSP program. In addition to the HFMA Peer Review that verified savings among past clients, AMN’s Managed Services program has helped healthcare facilities realize annualized savings on contingent labor of up to 20 percent and achieve a number of efficiency goals, verified by client case studies, such as (1) Reducing Vendor Complexity and (2) Managing Vendors.
  2. Financial stability. Before choosing an MSP partner, you’ll want to be sure that they are financially strong, will be around to fulfill the terms of your agreement and will see to it that all subcontractors are paid on a timely basis. You can predict some of this from present and past performance; be sure to find out how many years a given provider have been in business and how many MSP agreements they have serviced. In addition, you can ask for basic financial reports or referrals for verification.
  3. Efficiency gains. Your managed services provider should have the industry experience and the latest technology solutions to improve your workflow management and eliminate unnecessary costs. This can reduce the utilization of your own staff’s time significantly: for instance, instead of nurse managers ordering temporary nurses over and over again, that task can be handled through one MSP contact, allowing managers to concentrate on other supervisory and patient care tasks.

    And the ripple effect can be felt throughout the entire organization; when you eliminate dealing with dozens of different vendors—all with different contracts and terms—that lowers your labor costs in a variety of departments, including administration/staffing, accounting, finance and legal. Working with your MSP consultant, financial managers can help quantify these savings.

    Additional savings come from achieving the optimal balance of permanent and temporary staff. An experienced provider can show you how to cut down on overtime expenses and unnecessary travel and per diem hours; better staff planning can also avoid the higher rates of last-minute requests for more clinical personnel.
  4. Cost alignment, including standardized rates. Some of the cost savings for an MSP program come from standardizing contract terms with staffing vendors. An experienced managed services provider can negotiate standard pricing and generate one invoice that covers all clinical labor, achieving improved efficiency and reducing average hourly costs. And technology solutions, either proprietary or customized, can enhance your ability to keep track of expenses with on-demand reports. A good provider will also conduct regular audits of staffing vendors to reduce worker’s compensation and professional liability risks related to contract labor.

    Your MSP partner should be able to provide flexible staffing options and workforce planning expertise that help you have the right people working at the right time, instead of fluctuating between being under- or overstaffed. Combining the right technology with experienced account managers, they can help you smooth out the bumps, optimize labor utilization and reduce costs.
  5. Increased quality. One of the best ways that a provider can help your bottom line is by raising the bar when it comes to quality standards, so it is worth checking whether a company has been certified by The Joint Commission or has other industry endorsements. Through standardized requirements, the MSP team can make sure that each subcontractor’s candidates have the necessary experience, clinical skills and specialty training, allowing them to deliver more candidates that meet your managers’ expectations.

    Standardized screening processes—combined with overseeing your contingent staffing orientation, training and Joint Commission requirements—improve the consistency and quality of your contingent labor and can reduce malpractice risk, which alone can offer significant savings. And for continual process improvement, your provider can help monitor performance and make adjustments as needed, through client reports and surveys.

    When it comes to managed services programs, your MSP partner’s focus on high quality, economic value and fiscal responsibility should go hand in hand—as should yours.

Brian Scott has worked in variety of financial leadership roles at AMN Healthcare since 2003 and was appointed chief financial officer in January 2011. He can be reached at brian.scott@amnhealthcare.com.