Risk management in outsourcing of health services
Interview with Suvi Taponen MPA, a Doctoral Researcher at Aalto University School of Business, who also works as a Procurement Consultant. She will defend her thesis entitled ‘Improving the efficiency of public service delivery through outsourcing and management’ in the beginning of 2017, and she has worked previously at Hansel, the Finnish centralised purchasing body. The conversation is focused on the management of outsourced healthcare services, the core of her research.
Hello Suvi. Welcome to the programme.
Oh hello Pedro. Thank you.
Thank you very much for accepting to be interviewed. I really like to get as many interviewees as possible from various backgrounds, so could you describe a little bit what is your background please?
Oh yeah, sure. And thank you for asking me to participate. It’s really a great honour. I’m happy to speak with you. My educational background is in public administration so while I was doing my Masters I studied public management and also public law, and in my Masters thesis I got involved with public procurement. I guess that’s the initial reason why I ended up here where I am at the moment. And after graduating as Pedro you mentioned, I was employed by the Finnish central purchasing body for the government and I worked with Hansel for four years. In the beginning I was an assistant responsible for contract management and after one year I transferred to a sourcing consultant’s role which meant that I was then, I wasn’t working with framework agreements that much anymore, I was consulting individual procurement that the Finnish ministries and other organisations such as the universities that are funded by the government were doing. At the time I mostly worked with IT purchasing but also quite a lot with services. And after two or three years of practising I kind of felt like well I know there’s quite a lot of inefficiencies, the way that the government organisations operated, not only within their procurement functions but also mainly with how they were purchasing and why they ended up purchasing and at what stage of their planning of the year or planning of their service delivery. And that’s how I ended up considering taking up a PhD and well that’s almost an accident. I just dropped a casual email Aalto University School of Business and then I was connected with the right person who is now my supervisor. At that moment I wasn’t to be honest that serious about it, I was, and then, well then actually Professor Katri Kauppi asked me to come over and then we ended up talking and we definitely shared the same ideas and also shared the same ideas about how the public sector should be developed, especially in the Finnish context.
So I started out my PhD as a hobby, as crazy as it sounds. I was, in 2014 I was still working as a full-time consultant for that centralised purchasing body and then I was doing my research on the weekends. I already had the idea of starting off with looking at the make-or-buy decisions but I was really interested in the reasons of why public sector is outsourcing its services and what are the reasons behind it and is it always sensible to do that?
So that was the main motivation for my PhD because in Finland maybe you wouldn’t think that as we have been one of these traditional welfare states but outsourcing public services has been a really popular trend for maybe almost twenty years now. So it was really interesting in that phenomenon that what are the reasons and it felt like, and to be honest it still feels like that the outsourcing decisions are too much based on ideology and political agendas. So that was the main motivation for my whole PhD, directly into that issue, the outsourcing of services in the public sector context.
Did you think at the time it was important to answer that question or look into that question?
Oh yes. Because there were quite a few, of course the papers love to cover, especially the cases when outsourcing goes wrong, and it seemed like there weren’t too many facts presented in relation to analysing the results of outsourcing. So I had this doubt in my mind that maybe outsourcing, yeah,I think I kind of changed my mind, but in the beginning I thought that outsourcing maybe should be used more, that maybe public services should be outsourced more, they were outsourced at the time but then I realised that I need to look into the facts and provide some proof that would support a statement.
That is a very good point because it’s part of the process of doing a PhD is that we always carry with us our preconceptions and say “oh we think we’re going to find x” or this is what you’re going to be arguing at the end. And based on my own experience and also my experience of supervising PhD students, that often is not the case in reality, is that you actually changed your perceptions as you do the PhD, which shows that you’re actually doing a PhD and you’re just not trying to find only the sources that confirm your pre-existing bias?
Mm. Yeah, you’re definitely right. It’s you always have these ideas that you think that you’re going to be able to prove. But I think, yeah, I agree with you definitely that it’s extremely important and an essential part of the PhD process to accept that facts aren’t like you hopefully thought they would be and accept that, you know.
So you decided to do that research into outsourcing. What methods did you deploy in the PhD?
Mm, yeah. My PhD it’s an article-based PhD so it means that actually within one PhD thesis I have done four individual pieces of research. So they’re all individual research projects with different kind of methods and they kind of go through the outsourcing phase. So I started off with make-or-buy decisions as I mentioned and that’s a qualitative case study with a comparative perspective. So what I did, I had eight cases in total, four of them were from the public sector side and four of them were from the private sector, and well looking back now being a bit critical I noticed that maybe I should have included a bit more organisations but the small number is explained by the fact that as I wanted to compare the make-or-buy decision processes, like what triggered the process and what kind of criteria was used, I recognised that I need to have service deliveries that are actually identical in both sectors and those kind of services weren’t that easy to identify. And then in the end I went with occupational healthcare, translation services, leasing services, so that’s funding and also taking care of all the IT equipment and then customer services. So I was only able to get those kind of cases in Finland and four of those services.
So then what I did, I collected interview data from each case organisation and also used some written material I was able to get from some of the organisations which for instance described their decision making processes, if they had a model for that and so on. That was the first paper.
So that was the first paper that you did, so you did a qualitative case study…
…and took a comparative perspective? Well I mean as you’ve highlighted it’s important to make sure that you can actually compare and be sure that you’re comparing apples to apples and not apples to oranges because otherwise you’re screwing up the data. So that was the first one you did. What did you do after this qualitative case study?
Yeah. Well actually I used that same data for the second paper or second article of my PhD as well. So at the same time when I was collecting this data I also asked the interviewers in the organisations about the transition phase because in all of these cases, eight cases, the result was to outsource all of the service delivery or outsource a part of that. So then also in the interviews I discussed with them about management of the transition phase and also contract management. So then the second article of my PhD which is actually also my first publication that is about to come up, it’s already available online which is really exciting, so yeah. So this second article was also a comparative study between the public and private sector but the perspective of the comparison was a bit different, as in the first paper the comparison is about identifying best practices from both sectors and, well we’ve been resubmitting the paper quite a few times, in some versions we are actually offering the recommendations for both public and private organisations but in the second paper it’s all about public service management.
So then in that paper the perspective is to use the private sector’s data to identify best practices that public sector organisations could absorb and implement. And I think looking back now that was a bit more, or is a bit more successful perspective as I recognise that in many of these ideas that I’m looking into, especially the make-or-buy decision, it’s really largely and already covered in the private sector’s specific research context. So the article is really, there’s practically nothing new if you put that in the private sector context but then if you especially try to make contribution to the public sector side, then it might provide more novel contributions.
On that note, I mean one of the things I find important to always take into account when you’re looking at private sector practice and how it could be transferred into public sector is how do you account and how do you control for the differences in terms of decision making and especially in terms of incentives between the two kind of organisations?
Yeah. Especially in the public service management paper we recognise the fact that it’s an issue that private sector organisations that are able to incentivise, provide incentive, monetary incentive, so promise more salary, higher salary if a person delivers better outcomes, but at least in Finland the contracts that the public sector employees have and what the unions have negotiated on behalf of the employees and also the employers is that they are not able to offer a similar kind of contract to their employees and incentivise achieving their outcomes for the service delivery.. And actually in some cases this has led to outsourcing services to private sector so the flexibility that they have in their contracts with their employees, so definitely you’re onto something when you bring that up.
Okay. So that was the second paper. Can you talk briefly about the next two please?
Yeah, sure. So then moving onto the third paper and it’s actually, yeah, that was a good thing that you brought up the specifics of the public sector organisations and how can you, how you cannot actually compare them entirely, the private sector, this was really highlighted in the third paper of my thesis which is about the risks of outsourcing a health service function.
So just to provide a brief background about that, in Finland it has been a huge trend to outsource. Some of the municipalities that at the moment still are responsible for delivering healthcare, they have actually outsourced all the services that they are responsible for providing to private organisations. So there has been a big trend of this total outsourcing in relation to healthcare. So my third paper I have, it’s a single case study from a medium sized city in Finland which has, the city has twelve outpatient clinics in which it provides primary healthcare and the city had already outsourced two of these outpatient clinics. And then actually from a private health service provider I got the information that now they are thinking about outsourcing more of these outpatient clinics.
In the third paper I combined, well it’s not a, I shouldn’t call it a survey but what I did I interviewed their whole project team that was preparing the invitation to tender and the suggestion from the City Council how the outsourcing should go about. At first I sent them a questionnaire and they all listed what kind of risks they see involved in this outsourcing idea that they were planning on and they gave values to these risks, two kind of values on the Likert scale, 1 to 5, how likely is the risk to realise and how bad are the outcomes, or what’s the impact of the outcomes if the risk realised? And after the interviewees had filled these blanks then I did interviews with all of them. And in the interviews we discussed the risks that they have identified and then we also talked about the state of risk management at the moment within the city and they also shared some experiences that they had from the previous outsourced outpatient clinics that they had. And actually my idea was to do a bit of a longitudinal study but what happened I was able to publish that paper in relation to the IPPC7 conference last summer. So it ended up being a bit, the scope wasn’t as wide as I figured in the beginning but it’s actually quite nice that then I had all the, as you have a limited amount of characters for the publications I was able to actually focus on what are the risks in the outsourcing consideration phase and how the contracting authority should mitigate these risks during the quantitative tendering procedure.
And now as my thesis is under pre-examination I’m actually continuing this research. So I went back a year after the interviews with the city and its employees and asked how the risks had developed within the year and what was the result of the tendering process, and now I’m actually, it is pretty exciting just Tuesday this week I also did interviews with the selected supplier so they are now also sharing with me the perspective on risks that they had while they were preparing the tender and now, and when the service is actually already running so from the transition phase.
And is it working well?
Yes. The results are good but actually doing the tendering process they, we identified that there’s a political risk involved as I mentioned that the final outsourcing decision is made by the City Council in Finland in the local government level. So what it means that the civil servants they’re preparing the suggestion and what they suggested was that they should outsource two outpatient clinics but what the City Council ended up deciding is that they only outsource one. And now looking back the civil servants still were, there were a bit heated discussions when they looked back to the decision because they really thought that the politicians were, there is an election coming up next year, yeah, so they were really frustrated with the fact that they felt like the election had more impact on the decision that the facts that they provided so…
That’s a great example of the differences between dealing with private sector and public sector?
Yes, definitely. So they’re really happy with the one now, the outcome of the outsourcing in terms of the one outpatient clinic, but the problems that were driving outsourcing and triggered the consideration they still exist within the outpatient clinics because obviously the politicians didn’t actually have the means to improve the state of the service delivery internally.
Okay. And what about the final publication, the final article?
Oh yeah, the final article I actually did with, that wasn’t, all of these I did while I was working at the Aalto University School of Business but last spring I spent at King’s College Policy Institute in London. So my final article is in the UK context and in the context of National Health Services, so NHS, and that’s about looking at the purchaser provider relations after outsourcing has been done, so it’s looking at contract management. And it’s, we had the, yeah, I did that with Saba Hinrichs-Krapels from at King’s College and what we looked at was how to cooperatively develop care, the outcomes of care, then you have outsource delivery, and that was also a qualitative case study. We had, in England there are these Clinical Commissioning Groups that are responsible for purchasing care and I think there are more than two hundred of those, so from the two hundred we were able to get twelve organisations that gave us interviews and in addition to interviewing the representatives of the Clinical Commissioning Groups we also got a few interviews of these strategic organisations that work nationally to improve care.
And the process of case selection in this, my final paper was actually quite interesting. It wasn’t as easy as it was before, as in actually not too many people are working with public sector in Finland and of course there is quite a lot of research going on but not that much research as in the UK context and especially the NHS, I think they’re a bit sick with researchers and all these organisations collecting data to improve their operations to be honest. So as in Finland contacting case organisations basically were like just giving them a call, introducing myself and after that they were happy to welcome me to give the interviews, it wasn’t as straightforward in the UK context. So we did quite a few rounds of emails and we struggled a bit getting case organisations but then we decided that okay, maybe we should consider only to one service, use one service as an example and then maybe we are better able to identify potential case organisations more efficiently and then also we realised that it will make identifying, achieving the goals of our research of identifying the means for cooperative development easier.
In the beginning I was only able to get two interviews and based on those we identified that cancer care is a really topical thing in the UK, topical in the sense that there has been a national programme of improving the care for cancer, there are huge variations in the quality of care…
That is true, yes.
Yeah. So that drives improvement of the care. So a lot of the Clinical Commissioning Groups were focusing on cancer care at the moment. And then I mentioned that there are these strategic networks that focus on three care areas, one of which is cancer care, so by contacting those organisations we were able to get a list of potential interviews, interviewees and organisations and actually I think one of the people working in these strategic networks actually requested them to participate in the research for us and that really helped. And then in the end I think I did maybe sixteen interviews which was enough to get, to be able to draw conclusions. But definitely was a tricky process which demanded a lot of persistence and patience to get all the interviews.
And in terms of findings, what can you tell us in terms of your main findings from all your research then over the last few years?
Yeah. It was definitely a big challenge when I was finalising my PhD to draw all of this together. I thought it would be a bit easier. But I think the main finding if I start from the beginning is that in terms of outsourcing triggers definitely private organisations they’re proactive. They kind of analysis the service delivery all the time continuously, well not every day of course but at least every quarter or twice a year. But what public sector organisations they typically outsourced when they have problems that have already realised in their service delivery, so they don’t really do it proactively. Of course there are some exceptions but the typical cases that the service availability is so poor or the service quality is so poor that they absolutely need to do something.
Why is that? Why is private sector much more proactive whereas public sector tends to be more reactive? Did you find anything, any justifications or explanations for that fact?
I think, well now speaking in the Finnish context, I think in Finland we actually, our public sector has been quite wealthy for quite a few years so they haven’t been until now, the scarcity of public funds has been a reality for quite a few years but before there was quite a lot of tax money to use for the operations and for the service delivery. So there wasn’t this demand of organising operations really cost efficienciently or that effectively in terms of quality. But then I think within the last ten years there has been less and less money to use for the service delivery and that has created a demand to deliver care with better impact with lower costs, as in if you think about private organisations they wouldn’t exist if they are not financially sustainable and cost efficient so…
So that brings us back to the question about incentives then, how the incentives play differently between public sector and private sector leading to different outcomes and strategies?
Yeah. So basically from the first paper we established that considering outsourcing makes sense if the service demand varies a lot. So then of course it’s hard to figure out how many employees you should employ in-house so it’s easier to outsource a service, but the demand varies so out to a supplier who provides that service to several clients. So that was one of the main findings that in that situation you should consider outsourcing. And then we also mapped the process of how you should go about the consideration.
Okay. So I think we’re getting close to the end of our interview. What do you think you’re going to be doing next? What are your next steps in terms of research that you’d like to turn your attention to?
Oh yeah. Well in the last two articles of my PhD I focused on healthcare, so I think that’s the main focus area. And then one of the reasons is also that Finland is currently in the political process of reforming the delivery of healthcare, so based on the piece of research I did in the UK I also identified the organisational structure and analysed that and contributed to the political process a bit by providing a report. So I think that’s something I’m going to continue working with.
I’m also now employed as a Consultant so I’m already returning to practice but I am hoping to continue the line of research with health services that I’m doing. So as I mentioned I have some more data on this risk paper so I’m going to continue developing models on public sector risk management, especially in the context of health service outsourcing. And then, well let’s see how, I’m not quite sure after a few years how I’m able to combine practice and research but hopefully well because I enjoy them both, so yeah. I’m a firm believer that a hybrid career is possible but let’s see.
Yeah. I find it interesting because one of the things I miss being full-time in academia is actually working in practical problems and solving practical problems, so it’s no surprise that when I actually do research most of my research tends to have a practical focus or a practical emphasis because it’s just me being pulled back to my origins as a lawyer and not someone that has made all his career in academia. So Suvi, thank you very much for taking the time to be with us today.