Health systems may be warming to offshoring, a mainstay practice for insurers

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The last thing Angela Denny expected when Ministry Health Care’s 15 hospitals took on their parent system’s name, Ascension Health, was that she and her billing department colleagues in Wisconsin would soon be laid off and their jobs sent to India.

After all, Ascension, just like Ministry, was founded by nuns before it grew into a 150-hospital, $25 billion health system.

“I was actually shocked,” Denny said. She was among more than 500 of Ministry’s Wisconsin employees affected when the revenue cycle company Ascension partly owns, R1 RCM, shifted some operations to India in 2018, federal data show. “Especially coming from Ascension. Their mission and value as a Catholic organization is, ‘Take care of people. Take care of your own.’ ”

Hospitals, health insurers and other healthcare companies have laid off thousands in recent years in favor of having their billing, information technology and other back-office work done for less money in countries like India or the Philippines. Some say the practice also makes them more efficient and gives them the advantage of 24/7 operations.

But it comes at a great cost to employees and their families, to the communities that lose local jobs—often from their biggest employer—and sometimes even to the companies themselves if workers grow dissatisfied with their offshore colleagues or their outsourcing contracts backfire.

Health insurers, drugmakers and medical device manufacturers are seasoned pros when it comes to offshoring. Healthcare providers, on the other hand, have historically been more reluctant. There’s some evidence, however, that the ever-increasing pressure to cut costs has them warming up to the practice.

For Denny and her colleagues, losing their jobs was “heartbreaking.” Some had worked in the Appleton office for decades and were within a year or two of retirement. Denny said the experience will make her think twice about working for a hospital again.

“There is still that fear of the next position I take, how long is it going to take for them to realize that there are cost savings overseas?” Denny said.

It’s difficult to quantify how many U.S. healthcare jobs have been lost to offshoring. The federal government doesn’t track the practice, and companies would prefer to keep it under wraps. They often hinge employees’ severance payment on the condition they don’t discuss what happened. Businesses that offshore have created a “perverse incentive” that dissuades academics and policymakers from studying the issue, said Ron Hira, an associate professor of political science at Howard University.

Hira has tried unsuccessfully to convince Congress and government agencies to study the practice. He said there’s information on American companies importing products like iPhones from other countries, but much less is known about those companies having services performed overseas.

“I think it’s a real failure of all the policy institutions and all the government institutions that we don’t have a sense of scope and scale of what’s going on,” he said, “because no one in government is measuring it.”

It makes sense that healthcare providers would be slow to try offshoring. It’s best suited for transactional tasks like billing, accounting, solving computer problems and transcribing.

Most patient-care functions can’t be offshored and, even for those that can, there’s a major patient privacy hurdle to cross first. One clinical function that has made slight headway in transitioning overseas is radiology, though there’s no comprehensive data to show how many U.S. jobs have been affected.

“The closer you get to clinical services, the harder it is,” said Tim Gary, CEO of consultancy Crux Strategies, Nashville.

Not only that, there’s the public relations aspect to consider. Most hospitals are not-for-profit and tend to be among the biggest employers in their communities. They’d prefer to avoid the optics of providing free mole checks while firing workers so their jobs can be done in the Philippines.

“If you’re in Norman, Okla., that may not be attractive for middle America to hear that the hospital sent all this work out there,” said Neil Olderman, a partner with the law firm Faegre Drinker Biddle & Reath and president of its consulting company that helps hospitals outsource.

About 54,500 healthcare employees became eligible for federal financial assistance and job training because they lost their jobs or saw reduced pay or hours when their company shifted production to or increased imports from a foreign country from 2010 through January 2020.

It’s far from a full picture, as experts say most people who are eligible for the Labor Department’s Trade Adjustment Assistance program don’t apply, but the data provide a valuable window into the practice.

Only about 4% of those employees—just under 2,400 people—worked for health systems or medical clinics. But nearly half of those layoffs or pay cuts happened between 2018 and 2019 alone, suggesting there’s been an uptick.

“We’re seeing more interest on the provider side than we have in the past,” said Trish Birch, healthcare practice leader and senior vice president with Cognizant, one of the largest outsourcing vendors. It’s not only driven by the need for cost reduction, but also the push toward automation and technology, she said.

About 16,400 of the 54,500 employees worked for pharmaceutical companies. About 15,000 worked for medical device manufacturers, and 12,300 worked for vendors such as pharmacy benefit managers and electronic health record providers. About 8,400 worked for health insurers.

Trade Adjustment Assistance program data show a patchy reliance on the practice among healthcare providers, with most reporting just one or two large rounds of layoffs. Insurers, pharmaceutical companies and devicemakers, by contrast, have culled many more domestic workers and started doing it much earlier.

The healthcare industry’s reliance on offshoring is more transient and based on personal circumstance compared with other industries that use the practice more widely, Olderman said. Demand tends to fluctuate every three to five years, he said.

“It grows slower and steadier than any other kind of service scale you could imagine,” Olderman said. “It’s stagnant in normal periods. It’s elevated in financially tight times. But it never jumps and stays there.”

Tenet Healthcare Corp. was unusually forthcoming in its January announcement that it was offshoring a significant portion of its business functions, including payroll, accounting and legal, to a new business office in Manila. At the time, Tenet’s CEO said up to 500 people worked in the office.

The Labor Department deemed 1,067 employees from St. Louis-based Ascension eligible for Trade Adjustment Assistance, or TAA, from 2010 through January 2020—the most of any health system in the data. Most of the employees worked in revenue cycle and medical transcription in Indiana, Kansas and Wisconsin and were laid off from 2017 to 2019 when work shifted to India. Not-for-profit Ascension posted $1.2 billion in excess revenue over expenses in its fiscal 2019.

Ascension officials directed questions about the outsourcing-related layoffs to R1. In response to concerns from former employees about the system as an employer, officials pointed to a recent internal email CEO Joe Impicchiche sent to employees in which he stated a “commitment to no layoffs and a variety of pay protection programs” related to the COVID-19 pandemic.

Ascension and an investment firm acquired a $200 million stake in R1 in 2016, and the investment group now effectively owns 59.8% of the company. Two former Ascension senior officers, Anthony Speranzo, (former chief financial officer) and Anthony Tersigni (former CEO), both sit on R1’s board and are affiliated with an Ascension investment unit.

The data show 266 employees from Catholic Health Initiatives, which merged with Dignity Health in early 2019 to form CommonSpirit Health, became eligible for TAA in 2013. The employees, mostly located in a Denver suburb, worked in information technology. The work is now being done in India. CommonSpirit also declined to comment.

More than 200 supply chain, accounting and talent acquisition employees from Providence Health & Services became eligible for TAA in 2019 when the work shifted to India and the Philippines, the data show. Most of the employees worked in Oregon and Washington state.

At the time, Providence St. Joseph announced it was cutting roughly 700 jobs under an initiative designed to streamline administrative services. That work is now done both overseas and domestically, spokeswoman Melissa Tizon wrote in an email.

In a separate move, Providence in January opened an engineering office in India expected to employ 200 people by year-end. B.J. Moore, the system’s chief information officer, said those aren’t offshored jobs but new hires. Not only does the India office allow the health system to supplement engineering talent, which is tight in the U.S., the system has engineers who can solve problems around the clock.

“The India team works on a problem at night, and it’s solved in the morning,” Moore said.

The biggest reason to offshore is obvious: cost savings.

Companies can pay employees in India and the Philippines a lot less than their U.S. peers to do the same work. The wage differential varies based on a number of factors. Venky Ananth, senior vice president and head of healthcare for Infosys, a publicly traded outsourcing company based in Bangalore, India, estimates the difference is up to 40%.

But the savings don’t come right away. They will be dampened, at least in the beginning, by startup costs, including getting the technology infrastructure set up and contracts ironed out.

In Ananth’s mind, offshoring’s biggest draw is that it lets a company access talent from anywhere in the world. Plus, it’s much easier to shift staffing levels up or down depending on need.

“With the fast-paced economy we’re living in, especially with technology, you’re in a constant battle to get the right talent,” he said. “It’s not as easy as you would imagine, especially if you want to operate at scale.”

It increasingly makes sense for healthcare companies to automate transactional tasks like coding, revenue cycle and accounting as much as possible—which typically represents the largest category of their workforce, said Gurpreet Singh, health services leader in the U.S. for PwC. To do that, companies might hire a contractor to run the so-called robotics process automation. That vendor could have the work performed overseas to cut costs.

Experts say the conversation about offshoring happening today is much different from it was five years ago. It used to be the practice was solely about capitalizing on lower labor costs. Now, advances in technology have made it so that some of the work that would formerly have been offshored doesn’t need to be done by a person at all. Instead, companies can automate tasks using artificial intelligence. People are still needed to oversee those operations, however.

“A blend of human and machine function will do better than I will,” said Dr. Kaveh Safavi, senior managing director of global health for Accenture.

There has been a lot of hype about offshoring clinical functions like robotic surgery and intensive care, but Safavi said that’s not happening in a meaningful way.

“Care delivery has had the least amount and is going to be the slowest,” he said. “The ability to do things away from the patient needs to be curated much more carefully to ensure it can be done safely.”

Some companies mistake offshoring or outsourcing as engines that someone else operates “soup to nuts,” but it’s not like that at all, said Faegre Drinker’s Olderman. There’s a lot of people management involved, he said.

Companies should carefully review contracts with offshoring vendors to ensure they’re not surprised with hidden surcharges. It’s not uncommon for companies to get hit with technology, report or volume charges, Olderman said. The contract should have caps on what a company can be charged that accounts for currency exchange rates.

“It’s one of the sad stories about how things can go wrong and reason enough for people to be gun-shy,” he said.

Companies ought to map out their quality improvement expectations ahead of time and create specific timeliness or performance metrics they expect to hit over the course of an agreement. Companies should have the ability to see data so they can monitor whether those are being met.

“In the end, it comes down to being honest, overcommunicating, no hidden ball,” Olderman said, “and without putting predictions out there that limit you in a way that’s not likely to stand the test of time.”

Denny, the former Ministry Health Care employee, said she and her colleagues felt they were left in the dark about the fate of their jobs for some time. At first, when Ascension transitioned to Chicago-based R1 RCM for its revenue cycle services, she and her colleagues in Appleton, Wis., were told the vast majority of them would work the same jobs, just rebadged as R1 employees.

But instead of offer letters from R1, they were pulled into a room and told they were being laid off. Some of Denny’s colleagues cried and left the room. She said the news took a huge emotional toll on the group.

“I understand business, and I understand why people do the things they do, but personally I feel they weren’t transparent,” Denny said.

After buying hospitals and medical groups in Wisconsin, Ascension worked to centralize operations. Ascension acquired Ministry in 2013 and rolled out its name and branding across Ministry’s facilities in 2017. Ascension said hospitals named for saints would continue to incorporate those names “reflecting Ascension’s identity as a Catholic health ministry.”

The Ministry layoffs took place the following year, when Ascension said it was standardizing its revenue cycle systemwide under its 10-year agreement to use R1 exclusively. R1 declined to comment.

When health systems outsource revenue cycle operations, employees often initially work in the same locations and positions; they’re just paid by the vendor instead of the health system. Eventually, though, vendors may offshore those tasks to cut costs.

It’s common for companies to blame offshoring on their vendors—often U.S.-based companies like R1—but the clients in such relationships always have control over whether or not their jobs are sent overseas, Olderman said. They could include that in the contract, or simply choose not to work with vendors that offshore, he said.

“They make it seem like it’s the decision of their partner to have those functions done overseas,” Olderman said. “ ‘It’s not us outsourcing the job overseas.’ ”

For 15 years, Rebecca Bianco worked as a claims resolution specialist—the same job as Denny—at a small-town hospital in Woodruff, Wis., about three hours north of Denny’s office. Like Denny, Bianco figured she’d retire there. In fact, Bianco and her husband had just bought a house near the hospital using her 401k to help with the down payment.

Then, in early 2018, she and her colleagues were pulled into a room and told they were being laid off. Bianco, in her mid-50s at the time, took the news hard. She started having panic attacks and is still on medication for the anxiety she says was initially brought on by the layoff.

“We had settled here and I figured I would retire there, and what am I going to do now?” she said.

Bianco and many of her colleagues lived in Minocqua, a small northern Wisconsin tourist town near Woodruff. Most have since moved away.

“I think it affected our little town of Minocqua,” she said. “When Ascension took over, they really outsourced a lot of jobs. They cost a lot in this community. Whole families are gone now.”

So far, no Ascension St. Francis Hospital employees who are members of the Wisconsin Federation of Nurses and Health Professionals have lost their jobs due to offshoring. But Jamie Lucas, director of the Milwaukee union, said he finds the health system’s practice of offshoring troubling.

“It really demonstrated to us that we needed to brace for their business model rather than their care-delivery model,” he said. “It doesn’t feel like it’s about what’s best for our patients and the community.”

Offshoring relationships don’t always work out as planned. After not-for-profit BJC HealthCare laid off Adam Guerich and his colleagues from their customer support technician jobs in November 2018, Guerich agreed to stick around for roughly five months to ensure the transition went smoothly.

Guerich’s job—based out of an office in St. Louis, where BJC is headquartered—involved helping BJC employees with information technology, including account access during onboarding, offboarding and role changes. In total, Guerich estimates BJC laid off at least 125 employees around that time, although it’s unclear how many of those were sent overseas. BJC declined to comment.

Before the change, Guerich and his team prided themselves on their ability to get through a high volume of help desk requests. Afterward, when the work was offshored to India, Guerich said employees “hated it.” Guerich said people struggled with the language barrier, and he didn’t think the employees in India had received enough training.

The offshored employees would in many cases escalate problems they couldn’t solve to Guerich’s small remaining team. The question queue reached 1,000 at one point, with some requests months overdue, he said.

“We were just totally overwhelmed with work,” Guerich said.

Guerich, who now works for a national supply company, said he doesn’t know whether BJC still offshores that work.

The TAA data show nearly 30 billing and transcription employees at Grays Harbor Community Hospital, in Aberdeen, Wash., became eligible for assistance in 2018 when the hospital offshored jobs to India. John Warring, shop steward with United Food and Commercial Workers Local 21 and a microbiologist at the hospital, estimates closer to 75 people were laid off around that time. The hospital declined to comment.

Lucy Vest had worked in a variety of positions at Grays Harbor for 44 years before she was laid off from her billing department job in January 2018. The news came on her 66th birthday, just after she and her coworkers had celebrated with a hot dog lunch.

“I think it was the way they did it that people were quite upset with,” Vest said. “Because after this meeting they said, ‘By your desks upstairs there are a couple of boxes. Take your personal items, and you’ll be escorted out of the building.’ ”

Vest retired after that, but most of her colleagues weren’t ready to do so. Some were in their 30s.

In a small, one-hospital town like Aberdeen, whose economy has sunk along with the decline of the timber industry, well-paying jobs with benefits are hard to come by, Warring said.

“They basically were escorted out the door and told not to come back,” he said. “It was pretty heartbreaking for some of those employees who had been there for years and years. It was pretty traumatic for everybody.”

Another potential ripple effect of offshoring: Employees who survive the layoffs might lose trust in their employer, fearing their jobs will be next.

After the Arizona Digestive Center in Scottsdale laid off employees in 2018 so the work could be done in India, Joyia Savoca Losow said she quit her job in the practice’s billing department. The center didn’t respond to a request for comment.

“If they don’t have loyalty toward their workers, then I didn’t think that was going to last,” she said.

Guerich felt the same way after losing his job at BJC.

“We were angry that they would do that to us,” he said. “Because we were their faithful employees. But everybody is replaceable. Always remember that, right?”

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