Category Archives: Healthcare

Should the US Insource It’s Nutrition and Health Care from India?

I loathe saying it, but I think the US should import India’s bright entrepreneurs and their organizations to manage it’s healthcare and nutritional programs.

In the US, 31% (or 1 out of 3) of people are obese (which is defined as 30 pounds or more above a healthy weight range) and 65% of people (or 2 out of 3) are either overweight (at least 10 pounds above a healthy weight range) or obese. Current projections put obesity at 40% (or 2 out of 5) within 5 years. And these statistics are almost as bad for children as they are for adults! (And you can’t blame TV and lack of physical activity. Nutrition and diet has a greater effect on weight than exercise, which has a greater effect on overall health and stamina. The problem is that the average American consumes too much sugar. The Bitter Truth is that variants of bad sugar are in everything these days.)

Part of the problem is the US school lunch program, and its insufficient funding, which leads to purchases of cheaper, junk foods (including processed chicken nuggets, etc.) in place of more expensive, healthier foods. And while the Improving Nutrition for America’s Children Act seems like a good start, you just know that most of the additional funding will get eaten up in administration costs. (And even if this doesn’t happen, I have to agree with Gordon Jenkins that the funding being allocated just isn’t enough.)

Then there’s the state of healthcare in the US, which is dismal if you don’t have pricey private insurance, and still over priced if you do. In fact, despite the fact that the USA leads in GDP, and should lead in healthcare innovation, the World Health Organization has it’s health care system ranked at 37! To put this in perspective, Costa Rica is 36, Saudi Arabia is 26, and Oman is 8 — which are not countries your average American would think of as ranking high in health care.

In comparison, India has the 1,000 bed Narayana Hrudayalaya Hospital with a team of 40+ cardiologists who perform about 600 operations a week for an average charge of $2,000 — at a success rate that rivals the best American hospitals. By employing Henry Ford’s management principles to create a combination of economies of scale and specialization, Devi Shetty has developed a system that can drastically reduce the cost of surgery. If the principles were applied to other areas of medicine, imagine the efficiencies, cost savings, and success rates that could be achieved. (After all, now that hospitals are starting to use before-and-after surgical checklists, success rates are soaring and infection rates plummeting.)

And while that’s impressive, what Akshaya Patra is managing to do is even more stunning! For a mere $28 each, they are managing to provide over 1.2 Million children in school with a healthy lunch (which might be the only complete meal they get that day) every day for the entire school year. By leveraging appropriate technology in cooking and delivery, local markets, and designing for scalability, the public/private/NGO partnership is achieving economies of scale that have not been achieved before — and proving that a healthy student is a successful student. The increased quality of the lunches provided have led to increased enrolment, better health, and improved performance (that is 13.8% better, on average, for boys and 34.2% better, on average, for girls).

Compared to India’s success, the US looks like a third world country. Maybe the US should be insourcing from India.

Share This on Linked In

Uh-oh … Looks like Chinese tire manufacturers are going to take a hit for health reform

Share This on Linked In

Editor’s Note: Today’s post is from Dick Locke, Sourcing Innovation’s resident expert on International Sourcing and Procurement. (His previous guest posts are still archived.)

In U.S. Adds Punitive Tariffs on Chinese Tires, Edmund L. Andrews states that:

The tariff, which will start at 35 percent this month, is a victory for the United Steelworkers union, a crucial ally in President Obama’s health care overhaul.

and that

the decision signals the first time that the United States has invoked a special safeguard provision that was part of its agreement to support China’s entry into the World Trade Organization in 2001. Under that safeguard provision, American companies or workers harmed by imports from China can ask the government for protection simply by demonstrating that American producers have suffered a “market disruption” or a “surge” in imports from China.

It also looks like the Times has an editing problem. It’s not a punishment at all, unless you regard a penalty for mere success as punishment. The tariff isn’t connected to any misdeed by a Chinese company.

And the connection to health reform is rather tenuous. The union would continue to support reform even without this tariff.

At least this step is better thought out than former President Bush’s tariff on Chinese steel. That wasn’t connected to any misdeed either. Because the tariff applied to the steel only, and not to products containing the steel, it made it more efficient to build steel-containing products outside of the US. I don’t think this one will hurt the US car industry like the previous tariff hurt US steel fabricators.

It’s an unfortunate trend though. Rather than take the time to build a case against Chinese tire manufacturers on the normal grounds (dumping, safety violations, pollution) they took the lazy way out. There’s no way for the Chinese companies to defend themselves. The only response can be retaliation.

Dick Locke, Global Procurement Group.

The Cost of Big Business

Share This on Linked In

Editor’s Note: This post is from regular contributor Norman Katz, Sourcing Innovation’s resident expert on supply chain fraud and supply chain risk. Catch up on his column in the archive.

“There’s a kind of mentality in this sector that [settlements] are the cost of doing business and we can cheat.”

The above is a quote by Bill Vaughn, an analyst at Consumers Union, the nonprofit publisher of Consumer Reports in response to the news that Pfizer had been fined a U.S. record $2.3B. (Yup, that’s a “B” not an “M”.) Apparently Pfizer was caught illegally promoting its pharmaceuticals by heaping all sorts of gifts such as golf outings, massages, and resort stays upon doctors.

This wasn’t the first time Pfizer had been caught – they are a repeat offender having had to settle such allegations by the federal government four times in the past 10 years. Ouch. This is going to need more than just a topical ointment to solve.

I have written before about what is so sad about these kinds of fraud cases and this case is so massively big that some the consequences and characteristics bear repeating:

  1. The $2.3B penalty is about 4.8% of Pfizer’s 2008 total revenue of about $48B. The penalty seems materially significant and could cause stock prices to fall affecting investor’s earnings.
    • This would appear to violate Sarbanes-Oxley COSO compliance framework aspects such as the Control Environment (also known as the “tone at the top”), Internal Controls and Risk Management.
    • Can we expect a change of corporate management and a refund of performance bonuses?
  2. The products involved in the illegal promotions included Viagra, Zoloft and Lipitor.
    • Is the prescription of unnecessary pharmaceuticals one reason why our healthcare system is so expensive and in crisis?
    • What are the health impacts to a person when pharmaceuticals are prescribed that they really didn’t need?
  3. What ethics examples are being set for current generations of employees and those up-and-coming sales representatives, doctors, and business executives?

But before we build a gallows for one, let’s consider the doctors who accepted these trips and gifts. Okay so Pfizer should not have offered but by the same token the doctors should not have accepted. If business ethics are not taught in medical school or promoted by the American Medical Association they darn well should be.

Taking this another step further it’s one thing for the doctors to accept gifts but it’s another thing for them to act on them. (Um … gee … that actually sounds a little bit like fraud itself!) If doctors (a) were persuaded to and actually did prescribe medicines without cause to patients who didn’t really need them, or (b) were persuaded to and actually did prescribe one company’s brand over another without regard to which brand was actually the better remedy, then the doctors themselves are also at fault here.

To me there are aspects of this case that parallel the disturbingly thought-provoking movie District 9. What affected me most in that movie is that I think the brutal and ego-centric representation of the human race and the various government, military, and gang players was dead-on accurate, and that unnerves me. I felt sorry for the victimized aliens who were more the “good guys” than the humans.

Mr. Vaughn’s observation describes the steamy underbelly of some healthcare companies & healthcare providers. This is analogous to when police officers are caught selling drugs from the evidence room or abusing their authority for their own benefit especially when it conflicts with protecting and serving the law-abiding public, or when politicians abuse their power for their own self-interests.

This case is about nothing more than greed sustained by a lack of integrity and a failure of fortitude to do the right thing. The people who could put a stop to fraud like this seem too reluctant to do so in lieu of favouring their own self-interests, so I’m hoping for an alien invasion by a more ethical species than ours.

Norman Katz, Katzscan

Claro’s Crystal Customs

Our last post re-introduced you to Claro and their successful sourcing practice. Today’s post is going to cover the other parts of their consulting practice and their particular areas of specialty.

Claro now has four primary areas of specialization:

  • Sourcing & Procurement
    From Spend Analysis through Contract Management to Procure-to-Pay, Claro has capabilities across the sourcing and procurement spectrum and their partnership with Ketera allows them to not only utilize modern e-Sourcing tools on a client’s behalf, but leave them behind as well. (Of course, a client should do its own analysis of marketing leading and best-of-breed sourcing and procurement solutions, including Ariba, BIQ, Emptoris, Enporion, and Iasta, among others, before blindly choosing the Ketera solution, because, even though Ketera might be the right fit, it might not.)
  • Insurance and Claims Management
    First party and third party claims management on behalf of insurance companies and organizations that need to make a large number of insurance related claims
  • Healthcare
    Revenue Cycle Management, DRG/Clinical Documentation Support, Healthcare Process Improvement, Self-Pay Management, Drug Discount Programs, and other healthcare services. Claro has worked with over 450 hospitals across the US both individually and in health systems of up to 25 hospitals. They’ve also worked with large academic medical centers.
  • Bankruptcy
    Claro has just started a new bankruptcy practice out of their New York office to help those clients that are being hit hardest by a market that has given us the double whammy of stagflation.

Their background gives them particular strength in insurance and healthcare. For example, they recently helped one of the largest insurance providers in the country optimize their benefit plans to save themselves, and their clients, millions of dollars. They’re also one of the few consultancies that has leave-behind software for hospitals that helps those hospitals improve their service offerings while capturing more insurance payments.

Furthermore, in healthcare, they can help a hospital save money and increase revenue by helping them improve their DRG/Clinical Documentation. In the US, there are now approximately 700 Diagnosis-Related Groups and the proper classification of a diagnosis is critical as the benefit paid to a hospital for a given illness is often fixed based on the original DRG classification. Misclassifying a complex pneumonia as a simple pneumonia can cost a hospital hundreds, if not thousands, of dollars. Claro’s expert group, which includes medical doctors, can help a hospital improve it’s processes to insure that the diagnosis is correctly captured every time and that the hospital is able to claim all of the insurance premiums that it is due.

When you combine their insurance expertise with their healthcare process expertise and their sourcing expertise, one quickly sees that they often do their best work in hospitals and health care systems as they can improve efficiency, save money, and increase insurance billings in a single project. They’re definitely one of the few small jewel consulting firms to look at if you’re a health care provider.

Claro’s Crown Jewels

Last year, I blogged about how you could achieve Clarity with Claro in your sourcing projects. Since then, Claro has been named one of Seven Small Jewels for 2008 by Consulting Magazine. I was in Chicago recently, so I decided to catch up with Bart Richards, who is now a Managing Director of the Sourcing Group.

Over the past year, their sourcing practice has been growing by leaps and bounds as more and more companies are trying to find savings opportunities in an inflationary market where cost pressures on all sides are causing financial hardships across the board. The good news is that they have been successful as there are still savings to be found when the right categories are addressed, but the better news is that they understand that, in today’s market, cost avoidance is king as simply holding prices static can provide you a significant advantage over a competitor who sees their costs rise 10% to 30%.

The truth of the matter is that if your organization is still focussed on cost savings, and you are focussed only on strategically sourcing those categories you know you can save on, you’re actually losing money. How can this be? Let’s pretend that you source steel and services (or petroleum and travel, or energy and telecom, etc.). Let’s also say that you spend 10 Million on each category and that it is your expectation that you can only save on services. If put all of your effort into strategically sourcing services, you could probably save 20%. But steel prices have more than doubled over the past year. If you simply delegated steel to an e-Auction, you’re likely to find your steel prices increase 90%. Although that would be good compared to the market, that would be very bad if focussing all of your efforts on this category could have resulted in a price increase of only 60%. By focussing on savings, you saved 2M on savings only to lose 3M on steel — for a net result of a 1M loss. Not very smart. Today, it’s more important to focus on those categories that have substantially increased in price since your last sourcing event, or that are rapidly rising in price, than it is to focus on the few remaining categories that might yield savings. Because if you don’t, you find that you save a dime only to lose a dollar.

This is also why it’s critical that an organization’s sourcing performance metrics, as well as incentives and bonus plans, revolve around cost avoidance and not cost savings. After all, as I have said before, there’s no such thing as savings, because if you really can save money, it simply means that you shouldn’t have been paying that much in the first place, and that you are paying a price that should have been avoided! Now, I know it is more work to define avoidance metrics than it is to define savings metrics, but the payoff is worth more than the price. Furthermore, there are a number of on-line resources, such as the article archives and blog entries provided by Next Level Purchasing and the wiki paper on the e-Sourcing Wiki, that you can use to guide your efforts, standard pricing indexes that you can use to precisely define average raw material price increases since your last sourcing event, and a number of consultants (including the doctor) who can help you define the right metrics as well as the right sourcing sourcing program.

With this knowledge, Claro has been successful both at finding savings for their clients in categories such as services, travel, and benefit plans as well as controlling cost increases and keeping them to a level that is usually significantly less than market average by focussing on those categories that the client can buy in bulk, hedge against, or lock in longer-term preferential agreements. They’re still saving an average of 10%+ in a number of categories for their average client, but more importantly, they’re reducing expected cost increases in key categories by 10% to 20% or more, which provides for better overall cost containment across an organization than simply focusses on the low hanging fruit.

A number of examples of their success stories can be found in the numerous case studies on their web-site, and if you want to know whether or not they have sourced a particular category recently, and what sort of results you could expect, you can contact them for more information and additional case studies relevant to your situation at any time. They’re more than happy to take your call, or your e-mail, and Bart Richards can be reached at brichards <at> theclarogroup <dot> com.

Our next post on Claro will talk about the other services Claro offers as well as some of their particular areas of expertise.