Outsourcing - What Hospital Boards Should Know

By: Cassels Brock

Provided by World Services Group


Outsourcing - What Hospital Boards Should Know

   Published November 16, 2006 - Ontario, Canada

Many hospitals in Ontario have realized the efficiency and cost benefits of outsourcing administrative and other functions to specialized third-party providers.


Cassels Brock recently hosted a seminar for its clients on the benefits, risks, and best practices of outsourcing. The information was presented by Cassels Brock lawyers with expertise in legal issues relating to outsourcing. As well, two members of the Competition Bureau of Canada spoke about how hospitals are vulnerable to bid-rigging in their outsourcing practices. They also provided practical tips on how to spot bid-rigging and avoid it.


The purpose of this communiqué is to summarize the knowledge shared in the seminar for those who could not attend.
Outsourcing


Outsourcing is the performance by a third party (either an affiliate or unrelated party) of a business activity, function, or process on an ongoing basis that is, or could be, undertaken by the hospital.


The benefits to outsourcing include:

saving money through increased efficiencies and specialization;
freeing up hospital resources, allowing management and staff to focus on hospital priorities; and
reducing inventory and turn-around time.



Outsourcing should not increase risk. Good outsourcing strategies and best practices make it possible to maximize the benefit of outsourcing while maintaining quality and risk management functions under the control of the hospital board.


Service agreements and service level agreements must contain provisions that ensure:

the hospital board maintains control of the management and compliance functions of the outsourced activity;
the agreements comply with all relevant laws and regulations;
privacy and confidentiality are maintained;
flexibility is maintained to allow for future changes and development;
contingency plans are included;
performance standards are outlined and include a mechanism that would address any performance problems without necessarily terminating the contract;
reporting and audit procedures are in place including required inquiries or investigations by the Ministry of Health and Long-Term care or other regulators; and
proper insurance coverage is in place.

Bid-rigging


The Competition Bureau of Canada has identified that hospitals are frequent victims of bid-rigging. At the Cassels Brock seminar, the speakers from the Competition Bureau outlined the types of bids that are particularly vulnerable to bid-rigging. These include:

bids for simple products or services that do not require a complicated tender;
bids in which there are only a small number of competitors (e.g., three or four); and
bids for products or services in an industry where there is not a lot of technical change occurring.



The speakers also made the audience aware of several signs to look for as an indication that bid-rigging may be occurring. Examples were:

noticing a price drop when a new competitor enters the market;
witnessing bidders together, or when a small number of bidders have organized a trade association;
sudden and unexplained price increases occurring across the board; and
signs in the bids themselves.



With respect to this last point, the speakers recalled some instances where examination of the actual bids showed evidence that all the bids originated from a single source.


It is worthwhile examining bids from the last several years to look for these indications. Often, what is not obvious over the years becomes more obvious when things are all brought together at once.


For more information about how your hospital can reap the benefits and manage the risks of outsourcing, or for information on the illegal practice of bid-rigging and how to avoid it, please contact Megan Evans at 416 860 2949 or David Cameron at 416 869 5987.


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This article is not intended to provide legal advice as individual situations will differ and should be discussed with a lawyer.


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