Unattainable Cost-Efficiency:Interpreting Outsourcing Decisions - The Case of Italian NHS

The aim of this paper is threefold. First, using the case of hospital inpatient services, we present a framework where the outsourcing option is continuous and divided into the non-mutually exclusive forms of public outsourcing (i.e. contracting-out to a public provider) and private outsourcing (i.e. contracting-out to a private provider). These two options identify a variety of possible configurations of service delivery. In fact, too often outsourcing has been viewed as a dichotomous choice. Instead, we provide evidence that it can be continuous and bi-dimensional (increasing or decreasing outsourcing / increasing or decreasing the presence of private providers). Second, we argue that both public and private outsourcing have similar curvilinear independent effects on cost-containment (with different magnitude of the quadratic terms) but mixing the two (intermediate configurations) is costly. Third, we justify the observed existence and persistence of mixed configurations. The latter form is more costly but we justify its presence among public service organizations because of the specificity of the sector (e.g., institutional and political scrutiny) and its historical traditions coupled with change-associated costs and smooth deviations from a status-quo, and ambiguous perceived effectiveness of different outsourcing decisions. As a consequence, public and private outsourcing in principle could appear as effective strategies for improving costs-containment but reality constraints hinder such efficient configurations which remain de facto unattainable.