RCA Radio is a podcast bringing you the latest news and insights in regulatory, compliance, and quality assurance. A transcript for “Episode 003: Outsourcing Surveillance Activities” follows. Listen to the episode here and on your favorite listening apps, including Apple Podcasts and Spotify.
Erika Porcelli Hello and welcome to RCA Radio, a podcast covering the latest news and challenges in regulatory compliance and quality assurance facing the pharmaceutical, medical device, and biologics industries. I’m your host, Erika Porcelli. In this episode, we’re discussing outsourcing surveillance activities for both the medical device and pharmaceutical industries. Today I’m joined by Steve Cox. Steve is one of RCA senior consultants and has many years of experience implementing post-market surveillance activities as an internal function as well as utilizing an outsourcing model. Steve, welcome.
Steve Cox: Thank you, Erika.
Erika Porcelli: So today, Steve, I know you and I have had a lot of discussions about outsourcing pharmacovigilance activities and things like that, and I was really hoping that you could maybe give us a historical background as well as an overview of outsourcing for the medical device in pharmaceutical industries.
Steve Cox: Sure. I’d be happy to do that. So we’ll start with the background. Interestingly enough, outsourcing hasn’t been recognized as a business strategy in the business world until about the late 1980s. In the 1990s, outsourcing started with IT and customer service types of support functions like outsourcing, manufacturing, accounting, and those types of things. In the early 2000’s, outsourcing for life science companies began with the outsourcing of call centers, mainly typically for customer complaints in regards to intake, managing the logistics of getting samples back, triaging the information that has been received from a customer or a patient, and then going about doing a pharmacovigilance or device vigilance tasks. So starting the process of thinking about, is this a reportable event or not?
In the mid 2000’s, we’ve had an evolution where business has started looking at it more about as a development of a strategic partnership, and we’ll talk more about that later because that’s the phase that we’re in and that actually is the phase that we’ll talk about as part of the RCA strategy. To give you a sense of how the size of this activity, global outsourcing accounts for about $85 billion of US and primarily the big hitters are IT support and contract manufacturing, but call centers make up about 12% of the activity. In the last decade, there have been about 2.4 million jobs outsourced. So it’s obviously a big impact to the labor market in the United States or other countries.
“So why are specific functions targeted for outsourcing? Typically, these functions are ones that have high transaction activities, where there is a hierarchy inside of the process workflow where you could differentiate between high complexity, low complexity, high risk, low risk, types of activities.”
In terms of what functions inside the company or the primary focus of outsourcing and this strategy that we’ll talk about later, it really is about complaint management, medical information, pharmacovigilance and device vigilance, but there are other functions that could be beneficial to them to use this strategy. Things like technical support, clinical trial support and customer service. So why are specific functions targeted for outsourcing? Typically, these functions are ones that have high transaction activities, where there is a hierarchy inside of the process workflow where you could differentiate between high complexity, low complexity, high risk, low risk, types of activities. The focus is to outsource portions of the workflow that are typically high volume, low complexity, that are repetitive and are typically lower risks to an outsourced third party.
In general, this activity takes about two to three years to go live from… with a dedicated staff as you go through the various phases of preparing yourself to begin the go-live process to take the first call. The steps that we go through are typically due diligence and we’ll talk more about that later. Planning, getting contracts between the two parties, doing process mapping and having a knowledge transfer between the two companies, and really working on process optimization to reflect the new arrangement and how you’re going to run your business. Development of a governance process, establishing the controls that you need for that, how to manage that third party now doing a very critical function. Training infrastructure and infrastructure is a very important thing. It is call, it is the phones, it is the internet, it is many things that you have to consider. And then obviously, planning for the go-live and then communicating that fact that you’re going live and switching your business model. Typically, it takes about four years from the first time you begin to really reach a point of being any stable environment in terms of basic outsourcing.
Erika Porcelli: Thank you. Thank you. I think for me personally, this has been a bit of a learning curve and you and I started speaking, I guess, about six or eight months ago and it’s interesting all of the different things that go into this activity. There are different ways to go about this, folks managing it internally or outsourcing it, but why would companies outsource this activity versus moving some of the operations to offshoring or even expanding on their internal function in the US?
Steve Cox: That’s a good question because offshoring and building up your organization is typically something that they think about first. But the reason companies really outsource is because in many cases they don’t have organizations or functions in low-cost regions and that’s really an important factor when you think about outsourcing to think about the cost benefits. They are also typically having difficulty recruiting personnel for key skill sets needed for the execution of the process, whether that be nurses, pharmacists, med techs, doctors, because of the market demand or the competitiveness for those resources. They’re outsourcing functional activities because the skills are outside of their core competencies and whether it be not having state-of-the-art call centers or just in general not having the infrastructure needed to really keep up with the additional demand. And they’re also really trying to typically leverage the high-cost talent they have and improve their internal focus as they go through this. So those are the reasons why they go more to an outsource environment because if they don’t have a third party to take many of those demands, they don’t really have the deflected to… They don’t have to manage that part of the process.
“They’re outsourcing functional activities because the skills are outside of their core competencies. … They’re also really trying to typically leverage the high-cost talent they have and improve their internal focus as they go through this.”
Erika Porcelli: What would you say the value proposition is that contributes to companies choosing to outsource some of these key functions?
Steve Cox: Well, there are about five or six key ones that I’ll cover. The first of all is overall lower functional costs for critical resources and infrastructure and the investments you have to make to the infrastructure to keep up with the demands of regulators and your customers and your competitors. The other part that people face as they try to think about the value proposition is business growth or regulatory compliance is being constrained and it really starts driving a lack of availability of key resources and skills, because many of the regulators and customers have ramped up their expectations in terms of product safety, so there is going to be a lot more activity to deal with. But there’s also a lot of new data sources that we haven’t had in the past as social media becomes a player in this game of how people provide information to us about how to product issues.
In addition, it really does focus on the leveraging of your high-cost resources and moving to a less complex work and moving the less complex work elsewhere, so that your high costs resources can really, really focus on the key decision-making that has to happen. In addition, there is a key point about leveraging core competencies and really part of this process that you have to go through as you outsource is really introspective look at yourself and saying, “What am I really good at and what am I not really good at and can I get someone else to do some of these core competencies I’m not good at so that I can continue to grow and really move more towards the benchmark-able thought process?”
“Part of this process … is really introspective look[ing] at yourself and saying, ‘What am I really good at and what am I not really good at and can I get someone else to do some of these core competencies I’m not good at so that I can continue to grow and really move more towards the benchmarkable thought process?'”
In many cases now, with all the spring above establishment of startup companies or virtual companies, many companies are really using outsourcing to actually begin their initial function of having product surveillance done by other people so that they don’t have to manage that part as being a virtual company. In many cases, the last part is you can really improve your bench-marking or your meeting regulatory expectations by really outsourcing to someone that is a subject matter expert in things that you’re not good at, but you can also gain a lot of benefits in terms of improved cycle time and really being recognized as a best-in-class differentiator, which typically is felt by the customers who are interacting with your call centers. And the last part of it is as global pharma companies and global medical device companies continue to expand their regional support or regional reach, you really have to think about, how do I have to extend my regional support of those products into those regions so I get a much faster response time and on top of product issues that they really are experiencing.
Erika Porcelli: Based on the experience that you have, and I know you’ve worked on this with a few different companies, what would you say are the benefits to moving to this type of model?
Steve Cox: It’s interesting that I’m going to answer this in a way that most people probably wouldn’t think as far as the thing that’s most important that I found, is really not cost. Cost is a clear factor. But one of the most important things you get out of outsourcing is really leveraging your high-cost resources and their focus and really having them look at high value, high-risk work and really moving the transactional low complexity work activity to others to do. And it really is about making my process as the most robust it can be by allowing my real talent to refocus. Cost reduction obviously is always a key benefit and it really is about using low cost, lower-cost region, some of the third world countries, and the difference in between the high-cost resources you have. In many cases, there’s a 10x differential between the costs of, say, a nurse in the United States that you use to manage your call center versus a nurse in the Philippines as an example.
“Cost is a clear factor. But one of the most important things you get out of outsourcing is really leveraging your high-cost resources and their focus and really having them look at high value, high-risk work and really moving the transactional low complexity work activity to others to do.”
Another key part of it is, as I’ve mentioned before, is really improving the focus of the parent company on your core competencies. And really you have to do a really tough introspective look at yourself in regards to, what am I really good at and what brings value to the customer, and what can I go ask someone else to do that is more of an expert at this role. Another key point is really improving the efficiency by using a third party. In many cases, when you engaged, for example, a third party that runs call centers for many other companies, they have a lot of expertise in terms of infrastructure associated with doing the work that you would not typically as a parent company have. And so what you really do is really start accessing that best in class competencies that you don’t have yourself.
In many cases, you can increase the overall process speed and that may seem intuitive or be counter-intuitive to many people in thinking, well, I’ve added another handshake or another link in the chain, but what you really get is the benefit of that person’s expertise and really their focus on taking non-value added work out of what they’re doing and how they do process improvement, which you typically as a product manufacturer don’t have time to do. And then there’s always the ability to perform additional work that you as a primary manufacturer may not have had time to resource. For example, and I’ll speak from personal experience. We never could do incremental quality checks of the workout come from our call center and the transcription of the information. When we outsource, we get the ability to have additional resources at a very low cost to do that work and it significantly improved the quality of the output that we had as a company.
“When we outsource, we get the ability to have additional resources at a very low cost to do that work and it significantly improved the quality of the output that we had as a company.”
Erika Porcelli: Yes. I think you bring up a really good point with all of the benefits and I think the one that has resonated with me the most is the first one that you made about moving to an outsourcing model, allowing the company to focus on their core competencies and utilizing those resources in a way that is more cost-effective for the company overall. So I thought that was interesting and wanted to comment on that. So as you’ve mentioned, there are many benefits, but in your mind, what are some of the negatives that companies should consider as they begin the evaluation process?
Steve Cox: So as always, there’s about equal number of cons as there is pros when you do this, especially when you’re outsourcing such a critical function that has a lot of regulatory implications, but it can really prove to be very beneficial. But I’ll go through the cons. One of the big things that a company that’s thinking about doing this, it has to consider is the loss of direct control of the business process and decision making on critical functions, which naturally will increase risk if not done properly. A company really has to figure out, how much risk am I willing to take and how much control am I willing to give away? That topic by itself really has to start with leadership, most of the function, but also the senior leaders. What do they feel comfortable with?
Outsourcing also creates a lot of pressure on the robustness of the supplier management controls. Drafting, maintaining, enforcing technical agreements, contracts, paying for performance. It is really important because the structure that you create through your supplier management controls becomes one of the key defense mechanisms you have when outsource company wants to talk to or regulator about the controls that they have, and the contracts and the governance process becomes extremely important. As always, when you deal with these types of giving away control, you always have the potential for a negative impact on the process outcome and the service and the perception of your customers. That’s why I’m a big advocate of co-managing the process because then you keep more direct control over that and really have immediate feedback when something might not be working properly.
Another big consideration is job loss internal to the company and the perceptions that that leaves with the remaining employees that downsizing is possible. Am I the next one in line? Do I have to worry about my job? Management has to spend a lot of time assuring the employees that outsourcing is a benefit and creating some stability in their minds about their job. There also is a need for the outsourcing company to develop new skills. Some people may think that as a con, but learning to manage remote operations typically your low-cost region will be at least 13 hours off of what your working time is. How do you manage that remote resource effectively? How do you influence people that you don’t have direct control over, but they have control over your key process? Establishing governance, the ability to really build a partnering relationship with a third party, not just a typical supplier relationship where you issue purchase orders and they fulfill those orders. This is about the company’s business and someone else’s influence on the key outcomes from that business.
“Establishing governance, the ability to really build a partnering relationship with a third party, not just a typical supplier relationship where you issue purchase orders and they fulfill those orders. This is about the company’s business and someone else’s influence on the key outcomes from that business.”
Another key point is, especially relevant today, is really about the loss of intellectual property. The fact that you are giving this third party a big insight into your business that they could use inappropriately if they wanted to, or you could also have a loss of HIPAA data, especially for patient information, and this has to be well thought out in terms of how do I protect my key information, whether it be intellectual property or the patient information I’m getting from my customers and patients. And finally, developing the ability to really explain the relationship and controls to regulators. One of the cons is really, do I feel comfortable in explaining a third party relationship to a regulator? How am I going to convey to them strength in the controls and management of that relationship that I’ve created with this key information that is so fundamental to how I run my business and my customers?
Erika Porcelli: Yes. I think just kind of hearing you outline both the pros and cons in the way that you have, it sounds like this is really a significant consideration that the company needs go through as they evaluate the process.
Steve Cox: Absolutely.
Erika Porcelli: What is the change paradigm that companies will face when they go through an undertaking like outsourcing?
Steve Cox: So there’s a number of rather transforming activities you have to go through and the first one is really about the effort of process mapping at the level necessary to undertake, really highlighting key hand-offs and critical decisions that actually occur in the workflow and really being transparent and understanding what really happens in your process. Many companies really don’t engineer their process to this level and when you have a third party that you’re going to ask to do the work, you really have to spend a lot more time engineering your process and thinking through, what are the critical decisions and am I willing to give that critical decision away or am I going to retain it. Also, if you really get a high-class outsourcer, you really get involved in really re-engineering or doing process optimization based upon the feedback from that service supplier.
“There’s a number of rather transforming activities you have to go through and the first one is really about the effort of process mapping at the level necessary to undertake, really highlighting key handoffs and critical decisions that actually occur in the workflow and really being transparent and understanding what really happens in your process.”
In many cases, lots of them have black belts that actually focus in on processes because they’re really interested in the efficiency that they do the work at and also the quality of their work they do to limit their liability. Another key change is really about, how do you manage this cultural change that you’re going to lead the company through and it has to be really owned by the company and functional leadership, and accepting the fact that I’m going to outsource and give away that control. Having gone through this, at least once or twice, it’s really interesting how the resistance to change even inside your internal company and the perception of outsourcing influences people’s thinking, in many cases, in very irrational ways. So you have to be prepared for the resistance that will come. Supplier management is obviously a key paradigm. It has to be extremely robust process to manage this, especially contractually and managing the relationship and having business reviews with your new partner is really critical and many people do not really, as I’ve said before, they really think of outsource or the supplier as a send them a purchase order, they deliver something back. This requires a lot more hands-on management of the relationship.
Giving away control is a hard mental model to get through, that it’s okay to give someone else who’s better at something than I am and really feeling that comfortable with giving away control. So again, managing the relationship with the supplier at a very more micro level than normal with a supplier really will give you the confidence that it’s okay to give away control. And then really establishing the appropriate oversight control over the third party, including having management reviews with this third party and really creating a partnership focused governance process where you have senior leaders on both sides really engaged and committed to making the relationship work.
Erika Porcelli: So based on your experience, how important is it to find the right partner?
Steve Cox: I would say that if it’s not the number one, it probably is a number two critical step and it goes far beyond normal supplier selection and qualification. The way I would compare it to is really about the due diligence effort that is put forward when you’re talking about acquiring another company. That is a level of effort to really identify a competent and progressive partner that has necessary infrastructures, the skills, the competencies, the processes, the track record in the life science industry to know that you’re engaging someone that you can trust. And I don’t want to over reinforce this, but I guess putting again in perspective, due diligence for acquisitions is really the way I look at this.
“[There] is a level of effort to really identify a competent and progressive partner that has necessary infrastructures, the skills, the competencies, the processes, the track record in the life science industry to know that you’re engaging someone that you can trust.”
Erika Porcelli: Yes, I think it is really important. I mean, I think in most cases finding the right partner is important, but I think in this one, it requires a little bit extra focus and attention based on what you’ve described. So one area that we have not touched on is the regulatory and notified body’s view and acceptance of outsourcing. Do you have any thoughts that you could share in this area?
Steve Cox: Yes. It’s interesting having lived in a position where I was managing outsource process, you have to develop a proactive strategy of how you’re going to manage subsequent audits and clearly define the communication of how you’re going to explain to a regulator or a notified body about the due diligence you’ve gone through. How have you qualified the supplier? What’s the governance and controls that you’re really applying to make sure you maintain appropriate control over this and really focusing in on things like cycle times, accuracy, process improvement, talking about oversight and governance, metrics, the quality assurance of the outcome. How are you monitoring that? It’s interesting because I actually think that in many cases, the notified bodies have been more aggressive in my experience than regulators have been in regards to pushing on this, because it’s really about, especially for in a device world, where the ISO regulation is more process-focused, so they’re really focusing on the process.
Steve Cox: The other part of the regulatory equation is really about notifying and getting approval from the regulator as part of your certification with your notified body that you are switching to a different model. You’re changing your business and they typically require at least three months notification prior to you being allowed to do that and you really need to seek their approval and acknowledgment that you do it, but as a result of that, you can expect it to be a highlighted item during the next regulatory inspection.
“The other part of the regulatory equation is really about notifying and getting approval from the regulator as part of your certification with your notified body that you are switching to a different model. You’re changing your business and they typically require at least three months notification prior…”
Erika Porcelli: So Steve, I know we’re coming up on the end of our time and I really want to thank you for taking the time to provide us with your insight this morning.
Steve Cox: It’s my pleasure.
Erika Porcelli: To learn more about outsourcing your surveillance activities, please visit our website at www.rcainc.com. There we do have a case study that we’ve recently published as well as an overview of the services that RCA can provide. Thank you to our listeners for tuning into this episode of RCA Radio and be sure to subscribe to be the first to know when we upload a new episode. Thank you, everybody.