Medical Outsourcing

Medical Outsourcing

CNA

Nov.-Dec. 2004

A surgeon sits at a state-of-the art computer station in Bangalore, India, analyzing a three-dimensional image of a U.S. patient’s kidney. He notes some potential trouble spots and sends his findings off by email. The transaction by Wipro Health Sciences, an Indian based company, saves a U.S. hospital 45 percent on the procedure.

A German drug firm, Mucos Pharma GmbH, contracts out the testing of a new treatment for neck and head cancer to Siro Clinpharm of Mombai, India. Siro finds volunteers to test the drug in half the time and expense the German company would encounter in Europe—and without having to first test the drug for safety.

A North Carolina man without health insurance had a life-threatening heart condition requiring a new valve, which would cost him $200,000 in the United States. He flew to New Delhi, where doctors replaced his heart valve with one from a pig for a total cost of $10,000, including roundtrip airfare.

For almost a decade, the U.S. medical industry has been outsourcing records and financial transactions to places like India, Hong Kong, Singapore, Pakistan and the Philippines. But recently outsourcing has spread beyond number crunching and word processing to basic medical services. From biopsy analysis to cardiac surgery, the health business has discovered there is gold in going foreign.

Outsourcing began in the middle-90s with medical transcriptions, a $16 billion industry that is growing at a yearly rate of 15 percent. In the old days, a doctor would write up a report and submit it to an insurance company. Now, just talk into a phone and the report goes off into digital cyberspace, to be downloaded to Europe, Asia or Latin America.

But medical transcriptions were just the toe in the door. “Telemedicine” now covers (reader, take a deep breath); medical billing; accounting; creation of patient information; patient registration; checking insurance coverage and eligibility verification; medical coding; insurance denial/rejection analysis; drug research and testing; analysis of digital lab slide images; creation of digital templates for prosthetics; and biopsy analysis.

So far, “telemedicine” has not figured out how to take your temperature, but a Swiss company called LifeWatch can monitor your vital signs from a fair distance away.

However, “telemedicine is less about cutting technology than it is about the buck. When Health Partners of Minneapolis sends a report to the Philippines, the information technology (IT) programmer works for 1/9 what an IT programmer makes in the U.S. When medical billing specialists Alpha Thought axes a $10 an hour job in Chicago, it ships it to New Delhi, and realizes a 25 percent saving.

Some firms, like Cbay Systems of Annapolis, Md.—the fourth- largest medical transcription company in the United States—send virtually all their work abroad. Cbay outsources 95 percent of its transcriptions to India and is projected to earn $100 million in 2005. Given that an American accountant can earn up to $4,000 a month and his Indian counterpart $400, it isn’t hard to see where that $100 million comes from.

Few politicians have challenged the collateral damage inflicted by outsourcing medical services, although Tennessee recently enacted a bill that gives preference in awarding state contracts to data entry and call-center firms that agree to keep jobs in the U.S. Some 30 other states are considering similar legislation, reflecting growing concerns over medical records and privacy. In California, SB 1451 was approved by the legislature in September but vetoed by Gov. Arnold Schwarzenegger. The bill would have provided privacy protection for patients whose medical records are outsourced.

National legislation has also been introduced. U.S. Rep. Edward J. Markey’s (D-Mass) HR 4366 would require a patient’s approval before any such information could be shipped abroad. There is also a Senate bill (SB 2481) to restrict the U.S. government from offshoring medical records and jobs, but given that most hospitals and all medical firms in the U.S. are private, the bill skirts the real impact of the trend: job loss.

Suresh Menon of HealthScribe, one of India’s largest medical transcription companies, put his finger on the legislation’s weakness: “Most hospitals in the U.S. are under private control and the bill does not seek to debar third party U.S. contractors from outsourcing work to Indian medical transcriptions.”

The legislation certainly hasn’t overly alarmed the Indian market. Anand Mahindra, president of the powerful business lobby, the Confederation of Indian Industry, told the Asia Times that the legislation was “unfortunate” but its impact would be “small” because U.S. federal contracts are a trifling part of the industry.

According to a study by Forrester Research, the U.S. will move some 3.3 million jobs offshore by 2019, jobs that translate into $136 billion in lost wages.

The soothing line from the medical industry is that medicine can’t really be offshored.

“General practitioners and surgeons will have a job forever,” assures TK Kurien, president of Wipro Health Sciences.

John Challenger, CEO of Challenger, Gray & Christmas, a Chicago-based “outplacement” firm, adds, “You can’t go overseas to see a doctor or a nurse or get physical therapy.”

People in the profession disagree.

“We are very concerned about outsourcing to other countries,” says Deborah Burger, an RN and president of the California Nurses Assn. (CNA). Berger argues, “If we don’t do something right now, patient care is going to be compromised. If we wait too long, corporations will control how the medical profession provides care.”

In part that is already underway. Dr. Roy D’Souza in Bangalore, who analyzed those kidney images for Wipro, is a case in point. He also downloads and studies CT scans and MRIs.

So is U.S. trained physician Prathap C. Reddy, whose Apollo Company runs 37 hospitals in India. Apollo offers cardiac surgery for $4,000, a saving of $26,000 over the same procedure in an American hospital. One reason is that a U.S. cardiologist makes $300,000 on the average, while his counterpart in India earns $65,000. More than 5 percent of Apollo’s patients are westerners and the numbers are growing.

When one factors in nurses, technicians, and support staff, medicine on the cheap does more than squeeze a few high-priced U.S. heart surgeons. Savings on hospitalization may be anywhere from 200 percent to 800 percent in places like India, according to Ames Gross and Rachel Weintraub, reporters for Medical Devicelink, the industry’ online publication.

So is our loss India’s gain? Not exactly.

Medical transcription jobs—80 percent of which comes from the United States— have indeed poured into India, which just passed the Philippines as the No. 1 recipient of such offshoring. But such jobs have little impact on the one-third of India’s poor who live on less than $1 a day, or the two-thirds of the population that lives in rural areas. Indeed, offshoring can make things decidedly worse for the locals. The Andhra Pradesh state government, for instance, is siphoning off desperately needed water from farmers in order to provide it to the Vannenburg Intelligence Technology Park’s 20-acre campus. Much of the water is used for landscaping the Park’s lush lawns and flora. The government has also raised electricity rates for hard-pressed consumers, while at the same time giving IT firms a 25 percent break on their bills.

There are also safety and environmental concerns about offshoring. Increasingly, U.S. medical firms are moving major parts of their operations abroad. Respironics, Inc., of Murrysville, Pa., is shifting its research and development, manufacturing, drug discovery and testing and health care services to China, the Philippines, and Hong Kong, according to Medical Devicelink.

Labor and materials are cheaper abroad, but environmental laws are also much weaker. Waste management may be the local river, with all the consequences that implies for local residents.

The combination of offshore savings, coupled with the Bush administration’s massive corporate tax cuts has allowed Health Maintenance Organizations (HMOs) to move from marginally lucrative in 1998 to immensely profitable today. In the last nine months of 2003, HMO profits jumped 73.3 percent, and the industry’s net worth climbed 70 percent, from $23 billion to $39 billion. Profits are projected to rise another 16 percent in 2004.

Drug companies have also elbowed their way to the tax trough. Bristol Myers-Squibb, Merck, and Pfizer successfully lobbied for a tax “holiday” provision in the recent $137 billion tax reduction bill: $100 billion in foreign drug sale profits will be taxed at a rate of 5.25 percent, instead of 35 percent. The “holiday” is supposed to be temporary, but tax “holidays” have a habit of turning into endless summers. As Martin Sullivan of Tax Notes told the Financial Times, the windfall may keep industry happy for awhile, but “as they build up profits again, it’s more than likely there’ll be another amnesty because they’ll start lobbying again.”

Instead of creating jobs, the cash the companies saved on taxes and reaped from price hikes allowed them to finance a major reorganization of how they did business. Instead of adding to their domestic workforce, they created an army of “labor saving devices” which has raised profits, but kept the unemployment rolls high. They also went foreign, using some of their newly reaped capital to finance offshore production, from building actual factories, to financing high-speed information networks.

This is why the U.S. is presently in the unprecedented situation of seeing its median household income fall 3.4 percent, at the same time, productivity is rising 12 percent. While this is a long-term trend, it sharply accelerated in recent years. According to the Economic Policy Institute, “In the 2000-03 period income shifted extremely rapidly and extensively from labor compensation to capital income.”

Part of this shift has been from the acceleration of outsourcing to low wage, non-union locations. In early October, the Business Roundtable hosted 150 corporate leaders at a $1,400-a-head conference on how to speed up the process of sending U.S. jobs abroad. The conference, according to the Asia Times, urged the Bush administration “not to be swayed by the public furor over the loss of American jobs overseas and not to espouse policies that would prevent American firms from getting jobs done cost-effectively, including outsourcing and subcontracting to countries like India and Russia.”

The medical industry is flush with cash, and cash provides clout when it comes to influencing legislation and lobbying. Most people assume the big players in politics are economic giants like oil and gas, defense and agribusiness. But according to the Center for Responsive Politics, the medical industry poured $91.5 million into the 2004 elections. Only banks, lawyers and real estate interests handed out more in an effort to influence legislation and tax policy. Almost two-thirds of those monies goes to Republicans.

The current trends suggest that medical outsourcing will accelerate over the next decade, and CNA’s Burger warns that while the medical industry may lag behind other industries in introducing new methods and technologies, there is growing concern among medical professionals about outsourcing. “We are not immune to the potential drain of jobs in our profession,” she says.

Some of that drain is not so “potential.”

The huge drug multinational, GlaxoSmithKline, recently announced it was moving one-third of its clinical trials offshore to countries like India and Poland as a cost-cutting measure. A pharmaceutical industry source told The Guardian that clinical trials can cost one-tenth of those in the west, and that GlaxoSmithKline was also moving its research to India. It has opened a research facility in Singapore as well.

Unless the hemorrhage is stanched, the medical profession could shrink dramatically. Along with that contraction will go well paying jobs, many of which have medical plans linked to them.

Over the past three years, 68 percent of the industries that have been losing jobs tend to provide health coverage to employees. By contrast, 55 percent of the job growth is in industries that do not provide health care, according to a recent Economic Policy Institute study. All but five small states are experiencing this trend.

It would be a stretch to put the growing crisis of health care coverage on the back of outsourcing, but given the projection that some 3.3 million relatively well-paying jobs will go foreign in the next 15 years—and that estimate may be conservative—it is certainly part of the problem.

One of offshoring’s central selling points is that it will lower health costs. But Burger of CNA is deeply skeptical that “telemedicine” will reduce costs or improve medicine. “Sometimes we go along with these new technologies and gizmos because they are supposed to save money,” she says, “but nothing in medicine had gotten any cheaper. In fact, costs and profits are way up.”

Burger argues that offshoring and cybermedicine are about cutting human providers out of the process, and increasing profits, not lowering the cost of health care. “When you actually work with human beings,” she warns, “you can’t cut corners.”