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COST BENEFIT ANALYSIS:
Establishing an In-House Hotline vs. Contracting It Out

(From an address by Steven Forman, CPA
before the American Compliance Institute)

A hotline should be an integral part of any compliance program. It is often presented as the employees avenue of last resort in reporting problems, violations of law or issues of concern. However, given the fact that it is the one mechanism through which employees can report anonymously, it does serve as an anchor for the compliance program. In its guidance to hospitals, the Office of Inspector General, Department of Health and Human Services, states, "The OIG encourages the use of hotlines (including anonymous hotlines), e-mails, written memoranda, newsletters and other forms of information to maintain these open lines of communication&Employees should be permitted to report matters on an anonymous basis."

Every effective compliance program needs a mechanism whereby employees are empowered to report serious problems outside supervisory channels. The question is do you run it in-house or out-source the service? In answering the question I like to think in terms of Deion Sanders of the Dallas CowboysI could go both ways. But consider the following:

• On average, the number of hotline calls annually will approximate 1-2% of the employee population. Divide that number by twelve for the estimated calls per month. Those calls will not be distributed evenly over the month.
  
• Someone must be available to take a call during all hours of the hotline operation. The problem is you cannot predict when the phone will ring. However, rest assured that the most important hotline call will be received when the operator is not there.
  
• It takes time to gain necessary rapport with callers before full debriefing can take place. Hotline operators must project patience, empathy and caring. Unfortunately callers may not get right to the point and identify their problem or issue. They carry "emotional baggage" which can get in the way of determining the facts. Employees calling in are often nervous and unsure that they really want to be making the call. And most are genuinely fearful of the ramifications of their call. This is true even after assurances by their company of non-retaliation and anonymity.
  
• Trained hotline operators should be able to channel a majority of the callers back into the more traditional problem resolution channels of the organization, i.e. chain of command, human resources department, risk management, legal, etc.before the call ends. Hotline operators need to be current regarding regulatory issues. They need to be trained and re-trained extensively.
  
• Hotline operators require privacy and they should have their own space where it is quiet. A hotline call can take 2 minutes or 2 hoursyou never know until you are in the middle of one. The operator cannot be interrupted in the middle of the call and certainly should not end the call until the caller is finished.

At a minimum, a company answering its own hotline will require at least 1.5 staff-years just to staff the phones. After all, the operator will sometimes go to lunch, the restroom and on vacation (where there are no phones). Assuming one staff-year costs $30,000, labor alone will total approximately $45,000. Divide the expected number of calls in a year into that number to approximate the cost per call. On top of that you must add the cost of the telephone line, the cost of the space and the cost of training and re-training operators.

For example, a company with 2,000 employees may expect 20 to 40 calls per year or a rough average of one call per week. The estimated cost per call would run about $1500 to $2250---The larger the employee base, the less the cost per call.

Comparing the estimated cost of operating an internal hotline with the cost to engage companies that specialize in outsourcing the service clearly demonstrates that outsourcing this service is usually considerably less expensive than operating one in-house.

Besides cost, there are some other considerations in deciding whether or not to outsource the function:

• In-house operators may be more familiar with company policies, procedures and regulations. However, be careful here. To a large extent it depends on how effectively and frequently such policies, etc. are communicated.
  
• In-house operators know the company better and are more familiar with company resource personnel. They may be able to channel employees back into the organization more effectively and react better to emergencies.
  
• Hotline companies have personnel who are experienced and trained in answering hotline calls. That is all they dothey are specialists and may be better prepared to cull-out hidden problems or issues.
  
• Staff may be more comfortable talking with someone "on the outside." They recognize there is very little likelihood they will be recognized.
  
• In-house staff can devote time and resources to solving problems rather than fielding calls. We estimate that for every hour the operator is on the phone, taking a call, three hours are required to resolve the call.
  
• Reputable companies serving the health care industry can recognize issues of sensitive regulatory or enforcement significance.
  
• Many companies provide trending and tracking information that can be used for periodic reporting on the hotline operations to executive leadership.

The great majority of companies with 5,000 employees or fewer do not find operating an internal hotline as being cost effective. Many arrive at this decision after they have tried to perform that service internally. Most companies with 5,000 to 10,000 employees opt for contracting the service out. For companies in excess of 10,000 employees, the scale tilts toward maintaining the function in-house.

Regardless of whether you run the function in-house or out-source it, make sure you are resolving the problems that are identified. Nothing will undermine the compliance program more quickly than for the organization to ignore the problems that are brought to its attention.

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