US Healthcare BPO 2011 till 2015 – Growth Opportunity for Indian IT Vendors

US Healthcare market is estimated to reach US$ 4.6 trillion by 2020 from 2011 spend of US$ 2.5 trillion and this provides an outsourcing opportunity of close to US$ 22.5 billion by 2015 from the 2011 level of US$ 14.5 billion according to research firm Nelson Hall/Technology Holdings. US Healthcare BPO market consists of Payer segment (healthcare insurance companies) and provider segment (hospitals) and the global healthcare industry particularly US Healthcare Industry is undergoing major changes in the past two years due to regulatory reforms, government policies and technology developments. Obama Care which is The Patient Protection and Affordable Care Act that was signed into a Law in March 2010 is expected to expand insurance access further to more than 30 million US citizens. But the short term opportunity that beckons Indian IT Vendors is the ICD- 10 (International Classification of Diseases, 10th edition) transition from the existing ICD-9 system of disease classification and transition has to be completed by October 2013. US Healthcare companies are already late for this transition as this classification was framed in 1993 and countries like Australia, UK, Germany, etc have adopted earlier. Also the new regulations forces the players in the industry to comply with rigorous, expensive auditing and reporting requirements, HIPAA standards, complex rules for Medicare and Medicaid, and IT standards but the most important priority right now is the ICD-10 transition.

Source: NelsonHall & Technology Holdings

Claims processing, which constitutes significant cost (60% of total cost) and is the most outsources function in the Payer BPO industry, followed by member and provider management and Wellness. But growth lies in the Payment integrity segment (CAGR 21%) as companies are focused on reducing Frauds, Waste and Abuses as costs need to be contained for surviving in the industry. Health Information Exchange (CAGR 19%) and clinical decision support services (CAGR 21%) will also see significant growth in near future. Provider segment is dominated by post intervention services but the there is significant growth opportunity in Medical Coding (CAGR 17%) as transition to ICD-10 is must by October 2013. Pre intervention services that include insurance verification, patient scheduling, etc and support services like revenue collection and cycle management also have significant growth potential in near future. There lies one billion dollar opportunity for the Indian IT & BPO vendors in US healthcare segment in near future. US Healthcare companies have traditionally been slow in adopting outsourcing and with ICD-10 transition and other regulatory and policy changes, raising costs, margin pressures, higher claims disbursement costs  have forced them to consider outsourcing a priority as Vendors  will help them in containing costs.

Traditionally US have been the largest market and most of Indian IT Vendors get more than 50% of the revenues from this region. Until recently BFSI is the dominant revenue generating vertical for top Indian IT Vendors and with US economic slowdown and European Debt crisis having significant affect on Banks and Financial Institutions globally, Indian IT Vendors have seen fall in growth. US Healthcare provides a significant opportunity for Indian IT Vendors as the Global Software and Outsourcing firms are expecting deals worth US$ 10-16 billion in this space due to various regulatory policies and healthcare reforms by the US government and Indian IT vendors are expected to bag half of these opportunities by 2015 particularly in care management, ICD-10 transition, electronic healthcare records, etc for healthcare and insurance companies. Indian IT vendors can help US Healthcare companies in terms of implementing technology, upgrade systems and software, lower administrative costs as such work can be outsourced to low cost destinations like India, and Indian Vendors have undertaken outsourced work in areas of claims, billing and other service areas. Multi-shore delivery model is necessary, onshore presence is a must due to the regulatory requirements for sensitive patient data and to further strengthen their offerings in the Healthcare segment, Indian IT vendors are further strengthening their onshore presence, recruiting local resources in US and also looking to acquire small and niche players in the healthcare segment so that they can acquire technologies, skilled professionals and clients.

The ICD-10 transition is a complex process as transition from ICD-9 will increase the coding volume significantly from 24,000 codes to more than 1, 55,000 codes and there is a shortage of medical coders in US by more than 30% and there is not much time for training and developing medical coders as the deadline of October 2013 is closing in. Indian IT and BPO vendors can grab this opportunity and can easily recruit young, talented life sciences and healthcare graduates, doctors, nursing staff and train them in medical terminology and knowledge who can then service the healthcare clients in the ICD-10 transition and other healthcare BPO functions. India has the scale in terms of large pool of healthcare and life sciences professionals who can be recruited easily at a comparatively lower cost and easy to train and US healthcare companies can definitely rely on Indian IT & BPO vendors to achieve the 2013 target for ICD-10 transition. Cognizant Technology Solutions is the largest player and it got 27% of total revenues from healthcare vertical and is rated in Top 10 Healthcare service providers globally and it has invested in this vertical significantly for years. TCS (5.3%) and Infosys (5.5%) has a very small presence in Life science and healthcare verticals get around 5% of total revenues and are focusing on increasing revenues from this vertical by way of acquisitions of small and niche  players in healthcare segment. Wipro gets 10% and HCL Technologies gets 9% of total revenues from Healthcare and they are also focusing on significantly improving revenues from Healthcare vertical. Overall there is a significant growth opportunity for the Indian Vendors in Healthcare vertical and they too are aggressively looking to capture the opportunity.