What Organizations in the Health Care Industry Are Outsourcing Most
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Transcript of What Organizations in the Health Care Industry Are Outsourcing Most
G L O B A L S O U R C I N G
Offshore Outsourcing in the Health
Care Industry
Presentation to Health TechNetMcLean, VA
April 16, 2004
John C. EichenbergerShaw Pittman LLP
G L O B A L S O U R C I N G- 2 -
What Organizations in the Health Care Industry Are Outsourcing Most
Information Technology Operations (ITO) Mainframe and Midrange (Data Center) Operations Applications Development/Maintenance Desktop Support Networks (LAN and WAN) Web Hosting
Manufacturing
G L O B A L S O U R C I N G- 3 -
What Organizations in the Health Care Industry Are Outsourcing Most (Continued)
Business Processes (BPO)
Payroll Claims Processing and Billing Human Resource Operations Procurement Facilities Management Finance & Accounting (F&A)
Medical Services Medical Records Transcription Radiology Reading/Diagnosis
G L O B A L S O U R C I N G- 4 -
Why Are They Outsourcing?
Lower costs and increase return on investment
Improve quality
Obtain access to new technologies and skills
G L O B A L S O U R C I N G- 5 -
Overall Trend: Outsourcing is Increasing
11.5%$174,430$116,215BPO
8.3%$153,843$114,442ITO
2002-2006 Increase
2006 Market Size
(Worldwide in $M)
2002 Market Size
(Worldwide in $M)
Segment
Source: IDC
G L O B A L S O U R C I N G- 6 -
Outsourcing Trend: Offshore/Near Shore Outsourcing is Increasing
Where Many Offshore Providers are Located India – the major player China - the next major player Eastern Europe Philippines Canada Latin America
Why this Trend? Cost savings can be enormous - 30-60% Advances in telecommunications and infrastructure Access to highly skilled professionals Desire by customers to “Follow the Sun”
G L O B A L S O U R C I N G- 7 -
Risks of Offshore Outsourcing
With These Benefits Come Certain Risks Disruption of Offshore Operations
• Geopolitical conflicts
• Inadequate local infrastructure
Loss of Confidentiality/Unauthorized Disclosures Regulatory and Legal Risks Financial Risks
• Exchange rate, inflation and currency fluctuations
• Financial failure of provider
Jurisdiction and Enforcement Risks
G L O B A L S O U R C I N G- 8 -
The Good News
Strategies can be used to reduce these risks to a level acceptable to your organization
These strategies can be applied through or in connection with The Contracting Process The Contract On-Going Contract Management Your Internal Operations
G L O B A L S O U R C I N G- 9 -
Some Critical Risk Mitigation Strategies
Disruption of Offshore Operations
Confirm adequacy of offshore network and telecommunications redundancy
Confirm adequacy of offshore provider’s disaster recovery plans and facilities, including geographically disbursed recovery sites
Develop contingency plans for resumption of services following any disruption
Maintain robust work product and knowledge transfer processes from offshore facilities to U.S. facilities
G L O B A L S O U R C I N G- 10 -
Some Critical Risk Mitigation Strategies (Continued)
Loss of Confidentiality/Unauthorized Disclosures Utilize nondisclosure agreement for negotiations Contractually allocate responsibility for compliance with all applicable
data protection and privacy laws and regulations Contractually and operationally protect your confidential information Contractually prohibit provider from subcontracting the work without
your prior written consent Keep confidential information on your premises - if feasible Disclose confidential information on need-to-know basis only Confirm adequacy of provider’s data protection and security
safeguards
Require specific treatment of confidential information (e.g., dedicated
offshore staff; secured work areas)
G L O B A L S O U R C I N G- 11 -
Some Critical Risk Mitigation Strategies (Continued)
Regulatory and Legal Risks Conduct robust due diligence prior to contracting in order to to
confirm provider’s compliance with all applicable laws and regulations Understand how your use of the offshore arrangement may affect
your regulated customers and business partners, your patients, etc. Contractually require provider to comply with all with all applicable
laws and regulations Require provider’s contractual consent to applicable regulatory audits
Require - and exercise - broad audit rights
G L O B A L S O U R C I N G- 12 -
Some Critical Risk Mitigation Strategies (Continued)
Financial Risks If possible, maintain contracts with two unrelated offshore
providers so that one is always available for use Obtain
• guarantee (of payment and performance) of U.S.-based parent entity, or
• letter of credit from U.S. bank, or
• guarantee of non-U.S. based parent entity Contractually require that all payments to you are in USD Contractually allocate responsibility for all categories of
taxes
G L O B A L S O U R C I N G- 13 -
Some Critical Risk Mitigation Strategies (Continued)
Jurisdiction and Enforcement Risks Require that the contract be governed by U.S. law and disputes be
heard in U.S. venue If possible, contract with offshore provider’s U.S. – based entity Have provider appoint U.S. person as agent for service Include informal dispute resolution and escalation mechanisms in the
contract Consider requiring arbitration if the provider’s country is a signatory to
Convention on Recognition and Enforcement of Foreign Arbitral Awards
Confirm your ability to enforce U.S. judgments in courts of provider’s
country
G L O B A L S O U R C I N G- 14 -
Conclusion
Using the services of offshore providers can provide organizations in the health care industry with significant benefits
There are risks in offshore outsourcing Some are present in any outsourcing arrangement Some are unique to offshore outsourcing
Strategies can be used to reduce those risks to a level acceptable to your organization
G L O B A L S O U R C I N G- 15 -
Shaw Pittman’s Experience and Qualifications
Shaw Pittman’s Experience Over 450 transactions across a premier client base 15 years experience in outsourcing - since the birth of these
arrangements More than $350 billion in completed transactions
Over 125 professionals in our Technology Practice
Our attorneys are the largest group of senior lawyers in the world with substantial outsourcing experience
We have offices in Washington DC, Virginia, New York, London, Los Angeles and Taipei
G L O B A L S O U R C I N G- 16 -
Shaw Pittman’s Outsourcing Clients in the Health Care Industry
Hospitals and Medical Institutions Georgetown University Medical Center Johns Hopkins Health System Corporation Children’s Hospital of Los Angeles Northwestern University Memorial Hospital Howard Hughes Medical Institute
Blue Cross Blue Shield Plans Empire Blue Cross Blue Shield (WellChoice) Blue Cross Blue Shield of Massachusetts Blue Cross Blue Shield of Rhode Island Blue Shield of California NASCO
G L O B A L S O U R C I N G- 17 -
Shaw Pittman’s Outsourcing Clients in the Health Care Industry (Continued)
Other Health Insurance Companies
Group Health Insurance Tufts Health Plan Oxford Health Plan
Pharmaceutical Companies AstraZeneca Aventis Eli Lilly & Company Hoffman Laroche
Other Quest Diagnostics
G L O B A L S O U R C I N G- 18 -
REPRESENTATIVESOURCING CLIENTS
Our expertise is truly global in perspective.
G L O B A L S O U R C I N G- 19 -
CONTACT INFORMATION
John C. EichenbergerCounsel
202.663.8881
Shaw Pittman LLP1255 23rd Street, N.W.
Washington, D.C. 20037www.shawpittman.com