GLOBAL SOURCING
Offshore Outsourcing in the Health
Care Industry
Presentation to Health TechNet
McLean, VA
April 16, 2004
John C. Eichenberger
Shaw Pittman LLP
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
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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
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Why Are They Outsourcing?
 Lower costs and increase return on
investment
 Improve quality
 Obtain access to new technologies and skills
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Overall Trend: Outsourcing is Increasing
Segment
2002 Market 2006 Market
Size
Size
(Worldwide (Worldwide
in $M)
in $M)
2002-2006
Increase
ITO
$114,442
$153,843
8.3%
BPO
$116,215
$174,430
11.5%
Source: IDC
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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”
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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
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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
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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
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GLOBAL SOURCING
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)
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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
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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
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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
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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
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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
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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
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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
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REPRESENTATIVE
SOURCING CLIENTS
Our expertise is truly
global in perspective.
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CONTACT INFORMATION
John C. Eichenberger
Counsel
202.663.8881
John.Eichenberger@shawpittman.com
Shaw Pittman LLP
1255 23rd Street, N.W.
Washington, D.C. 20037
www.shawpittman.com
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