India Outsourcing Industry 2011 – Focus on Healthcare vertical for Growth

Healthcare has become focus vertical for majority of the Indian IT Vendors. Most of the IT/BPO companies like Cognizant Technology, WNS, TCS, Firstsource Solutions, Genpact, Mahindra Satyam, Pacific BPO, CBay Systems, etc already cater to global healthcare industry. Infosys is looking at Healthcare vertical as one of the critical vertical for future revenue growth. Indian IT vendors have been slow in tapping this vertical as major focus earlier was on BFSI and Manufacturing. Indian IT vendors are making use of technology as a platform and offer their service offerings.

US is major market

US healthcare reform announced by President Obama provides a huge opportunity for Indian IT vendors and the policy focuses on controlling healthcare costs and provides universal coverage. The US healthcare bill, valued at US$ 940 billion, will provide healthcare coverage to 32 million Americans over the next 10 years. Currently US healthcare is estimated at $2.5 trillion, which is projected to grow to $4.6 trillion by 2020. Major opportunity for Indian Outsourcing vendors lies in revenue cycle management, electronic medical/health records (EMR/EHR), billing & coding and medical transcription. According to ValueNotes, EMR/EHR is a $20 billion IT outsourcing opportunity. Revenue cycle management (RCM) is a $50 billion market in the US.

Medical transcription business is estimated to be worth $25 billion annually and growing at around 15%. According to CBay Systems the size of the US medical transcription (MT) industry is estimated to be approx. US$17 billion for the year 2011 and is expected to reach US$21.2 billion by 2014. 67% was in-house while the remaining 33% was outsourced. CBay also expects the MT industry in India is expected to touch US$1 billion in 2014 from US$ 435 million in 2009. According to ValueNotes, the MT boom phase is over. Speech recognition technology, being used by most healthcare providers has resulted in shrinking the requirement of a medical transcriptionist’s skills to 10-15% of its original requirement. Medical transcription started in India 15 years ago and India is one of the primary locations and there are number of companies providing end to end medical outsourcing services in India.

Rising Indian Domestic Healthcare Sector

According to a report titled, “India’s New Opportunities- 2020” prepared by the All India Management Association, Boston Consulting Group and the Confederation of Indian Industries (CII), the Indian healthcare sector is poised to reach US$ 280 billion by the year 2020, thereby contributing an expected Gross Domestic Product (GDP) spend of 8 per cent by 2012 from 5.5 per cent in 2009. A US$ 36 billion industry in 2009 and growing at 15 per cent compound annual growth rate (CAGR), the Indian healthcare industry will reach the market value of US$ 280 billion by 2022. Indian IT vendors have to look for growth opportunities domestically as the US and European Markets are struggling to overcome the economic slowdown and European Debt crisis. The domestic opportunity may not offer huge profit margins as healthcare in India is mostly government owned but the rising private participation and Public and Private Partnership model is a good sign. State governments across the country have announced specific healthcare schemes sponsored by them for citizens and these schemes need to be monitored and properly implemented.

Indian Top IT Vendor focus on Healthcare Vertical

TCS has started looking at the healthcare vertical since 2009 and has seen annual revenues of US$ 395million in the vertical in 2010. TCS’ Q1 2011 Healthcare and Life Sciences revenue was at US$ 119 million. TCS has been gaining traction in this vertical.

Infosys does not report the healthcare revenues separately which highlights the fact that the company does not have much exposure in this vertical. To overcome this, company is looking for acquisitions in this vertical in US and Europe. Market rumors indicate the company is looking to acquire the Thomson Reuters Health Care vertical business in US.

Wipro healthcare vertical revenues for 2010 were US$429 million. Wipro is looking at healthcare as momentum vertical for growth and is planning to expanding its relationship with seven existing healthcare clients and looking to add at least two new clients on a quarterly basis.

Cognizant is the undisputable leader in healthcare market with more than US$ 1.17 billion in revenues. Cognizant owns IMS Health, which has a strong base in the healthcare practice. Cognizant provides solutions to 27 of the top 30 pharmaceutical companies; nine out of the top 10 biotech companies; nine out of the top 10 US health plans and 12 of the top 20 medical devices companies.

HCL technologies annual revenues from healthcare vertical in 2010 were US$252 million. Healthcare Informatics’ magazine has ranked the ‘Healthcare Practice’ division of HCL Technologies as the 39th largest healthcare company by revenue in the US in 2011.

Smaller players in the market like Firstsource, Genpact etc and pure play MT players like CBay, Pacific BPO also are focusing on Healthcare BPO market. These players have realized that the growth lies in the other than MT market i.e. Revenue cycle management, electronic medical/health records, and coding. These players are also competing with the bigger players in the market for the revenue share.

Healthcare vertical – Growth Driver

Indian IT vendors have to look for growth opportunities in healthcare as the US and European Markets are struggling to overcome the economic slowdown and European Debt crisis and the growth drivers till now BFSI & manufacturing verticals are slowing down due to the slowdown and debt crisis. Apart from the US healthcare policy, healthcare spend is also expected to increase in UK and India which also presents a growth opportunity. Mergers & Acquisitions are expected in this vertical as many big players in the Indian IT industry like Infosys are looking to acquire for jumpstarting revenues in this vertical. Other players like TCS, Wipro and HCL are focusing to increase their presence in this vertical and planning to add more clients in the coming quarters.

The ICD 10 conversion change by October 2013 is expected to impact the medical coding industry and is likely to spur a great demand for outsourcing and most of it may come to India. Technology helps in providing integrated solutions for the client’s healthcare needs, decrease healthcare costs, and improve efficiencies and Indian IT vendors with long experience in using such technology platforms are in a good position to provide the necessary services to the healthcare industry.