Three Essays on Contracting Out Local Health Services: Determinants and Outcomes

Driven by New Public Management and Government Reinvention principles, contracting out for many types of public services, including health care has become commonplace, particularly at the local level where fiscally constrained municipalities and counties have sought ways to keep up with increasing service demands in the face of declining resources. This dissertation, comprised of five chapters including three essays, elucidates the determinants and outcomes of contracting out local public health services through the practices in local health departments (LHDs). This study concentrates on several research questions: (1) Why would local public health agencies choose the alternative of outsourcing rather than in-house delivery? (2) What factors influence the buy-or-not-buy option? (3) What factors account for the buy-more-or-less alternative? (4) What service characteristic affect the make-or-buy decision? (5) How do the contracting activities affect local health outcomes at the community level? This study addresses these questions through a multi-method study examining relationship between possible factors and the make-or-buy decision, as well as correlation between outsourcing activities and specific health issues. Chapter 1 first introduces definition, historical development, benefits as well as challenges of contracting out/outsourcing. Then it focuses on contracting out public health services in local health departments and proposes research questions. This chapter also briefly describes some prevailing schools of thought in government contracting literature. Chapter 2 (essay 1) explores the environmental, nonprofits, and management determinants of the outsourcing decision through two-factor model. The results present two-stage decision making. The buy-or-not-buy decision is influenced by institutional and fiscal pressures and management factors. The buy-more-or-less decision is affected by political pressure and the density of nonprofits. Chapter 3 (essay 2) examines how two transaction cost dimensions, asset specificity and service measurability, impact the outsourcing decision through multinomial logistic regression model. The results indicate that local health departments increase in-house production when asset specificity and service measurability move from low to moderate levels, and then reduce complete internal production when transaction costs reach very high levels. Chapter 4 (essay 3) investigates the health outcomes of contracting activities among local health departments (LHDs). This analysis identifies four specific health issues—frequent mental distress, sexually transmitted infections, teen births, and adult smoking. The findings suggest that contracting out health services with lower asset specificity and easier service measurability, or lower transaction costs, are more likely to generate better health outcomes. Chapter 5 concludes that this study of contracting out is important because it has both theoretical and practical implications for local health departments. As the findings throughout this dissertation suggest, multiple theories prescribe important roles of institutional, nonprofit, management, and transaction cost factors in predicting the make-or-buy decision in LHDs. This study also provides empirical evidence that outsourcing can improve certain public health outcomes. The findings from this dissertation can help to shape what we know about outsourcing in the public sector and advance the practices in public health agencies in the future.