Offshore Outsourcing Presentation to Health TechNet 04.16.04
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Transcript Offshore Outsourcing Presentation to Health TechNet 04.16.04
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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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
[email protected]
Shaw Pittman LLP
1255 23rd Street, N.W.
Washington, D.C. 20037
www.shawpittman.com
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