Global Healthcare IT Outsourcing Market growth fuelled by Cloud Computing till 2018

Global Healthcare IT Outsourcing market is expected to grow at a CAGR of 7.6%, to reach $50.4 billion by 2018 from $35 billion in 2013 according to a report provided by MarketsandMarkets, a global market research and consulting company. US Healthcare companies accounts for the largest share - 72% - of this market and is expected to reach $36 billion by 2018 from $25 billion in 2013. Asia-Pacific and Rest of the World are expected to register CAGRs of 8.1% and 7.8% (2013 to 2018) respectively, followed by North America (7.6%), and Europe (7.2%). Health insurance companies, healthcare services providing companies, healthcare systems and equipment companies are part of this market segment that have to reduce their operational costs, administrative costs, focus on core processes, implement information technology to run processes and also manage risks and develop new product offerings. Particularly information technology has become a core component for running the companies and offer product and services to customers and in some instances IT has become the competitive advantage. There is a huge demand for Healthcare IT professionals both on the medical and the process front and highly skilled professionals like actuaries, medical coders, medical writers, biostatisticians, physiotherapists, nurses, general physicians, ayurvedic and homeopathic practitioners are needed for healthcare IT industry to offer services like medical coding, medical writing, bio-statics, healthcare and data analytics. Some of the healthcare companies have completely outsourced their IT systems and some have outsourced only key applications like electronic medical records, medical transcription, billing services, claims processing, data analytics.

Availability of low cost highly skilled IT professionals, implementation of new technologies, government regulations like Obama Care, ICD 10 coding and integration of different technologies already being used with the new technologies like cloud computing, mobility and analytics have presented a big opportunity for the Indian IT service vendors like TCS, Infosys, Cognizant, Wipro, HCL Tech, etc. Cloud Computing is being widely adopted by healthcare companies across the globe as there are significant cost benefits associated with this technology as the companies need not invest heavily on hardware like servers, datacenters, etc. Cloud computing is highly flexible, can be accessed from everywhere, uninterrupted service and also helps to scale up the operations at a faster pace but there are certain disadvantages like data security and reliability issues like downtime. Despite these disadvantages the need for reduction in costs, operation times and efficient back office management is must for the success of healthcare companies. Healthcare IT outsourcing vertical has been dominated by Cognizant Technology Solutions, but other players in the Indian IT Services industry like TCS, Infosys, Wipro, HCL Tech have built up significant capabilities and acquired the much needed technical expertise and skills through mergers and acquisitions and also captured some big deals in this segment. All the Indian vendors both the ITO and BPO vendors have exclusive focus on the healthcare IT outsourcing segment and have even referred to this segment as a key growth driver for the industry in terms of both revenues and profits.  

Healthcare Outsourcing 2013 – Indian IT Vendors current scenario & Outlook 2020

Cognizant Technology has a far lead in this regard as they moved into healthcare long before and for them Healthcare is the second largest vertical after BFSI. Cognizant is the largest IT services provider in healthcare, earning $1.97 billion from the segment in the year to 31 March 2012, more than three times the $602 million healthcare and life sciences revenue of India’s largest software services provider TCS. Infosys earned $680 million from healthcare, Wipro $615.5 million and HCL $500 million. As on 31 March 2012, healthcare was the second-largest source of revenue, behind only financial services, for Cognizant. It made up 25.2% of the company’s revenue, compared to 11.3% for HCL Technologies Ltd, 5.2% for Tata Consultancy Services Ltd (TCS), 9% for Infosys Ltd and 9.9% for Wipro Ltd. Cognizant ranked sixth in the 2013 ‘Healthcare Informatics 100’ list of healthcare IT services providers by revenue in the US, while Infosys Public Services Inc. a subsidiary of Infosys, ranked 15 and was the only Indian IT services provider to figure in the list.

HCL Technologies has also seen growth in its healthcare revenue, which grew 55.8% in the 12 months to 31 March, and at a compounded annual growth rate of 37.66% in the last three years. The company acquired UK-based SAP consulting company Axon Group Plc., in December 2008, which enabled it to position itself as a system integrator to its life sciences and healthcare clients globally. The company also announced that it will actively engage in new business (accountable care) and technology business models by 2014. The focus areas include healthcare reform and member experience management and testing. Infosys and Wipro are also sharpening their focus on healthcare capabilities. Infosys over the last three years has invested in building several key capabilities in healthcare in the US. Infosys is assisting several clients in multiple opportunity areas: setting up state exchange, onboarding health insurers to public exchanges, end-to-end testing etc. according to Eric Paternoster, chief executive officer and president, Infosys Public Services.

Sangita Singh, senior vice-president and head, healthcare and life sciences, Wipro said Company strategy is to focus on select few customers to co-create solutions that can drive patient-centricity and reduce costs. There is, therefore, a huge thrust on domain-specific solutions, combined with Wipro’s strongholds of infrastructure services, BPO (business process outsourcing) and custom apps. Indian outsourcing companies have mostly focused on presence in the health insurance sector but not in the provider (hospital) market. There has been a significant slowdown in health insurance sector which forces Indian vendors to look at healthcare provider market where they have not been able to make a dent in the provider market, which is growing rapidly. The established players make $50- 60 million from each large EMR implementations in the provider segment. Healthcare outsourcing in India is growing at about 31% and is expected to reach USD 280 billion by 2020 and the global healthcare BPO market is growing at a CAGR of over 21%. Healthcare BPO offers tremendous opportunity to companies in India, according to Talent Neuron blog post. 

Major Healthcare related acquisitions by Indian IT/BPO Vendors

US Healthcare Reform (Obamacare) – Big opportunity for Indian IT Outsourcing vendors in Healthcare Outsourcing

The US healthcare outsourcing market is currently estimated to be about $20 billion, according to outsourcing advisory firm Everest Group. Indian IT Vendors are targeting major chunk of this business worth billions of dollars in the next few years as US Healthcare Services Providers have to upgrade their systems, software and other infrastructure by January 1, 2014, when President Barack Obama’s landmark legislation Patient Protection and Affordable Care Act, popularly known as Obamacare will come into effect, which would result in United States spending $2.5 trillion. Obamacare seeks to extend insurance to country’s poor, which would extend insurance cover to 32 million Americans and also targets to reduce healthcare costs significantly and one way of reducing costs is outsourcing to countries like India and which will open up projects for Indian IT service providers that will help them in keeping up the revenue, margin and industry growth rates. Healthcare providers in North America which also happens to be the world’s biggest software services market are forced to upgrade existing medical systems by deploying newer software applications and they are outsourcing projects to Indian vendors such as Wipro, Cognizant Technology Solutions Corp., HCL Technologies Ltd, etc.

Work that can be outsourced to Indian IT/BPO Vendors include the maintenance and care of health records, conversion to ICD-10 coding, effective collection, management and use of information within healthcare systems, providing innovative healthcare technologies and applications that will help in delivering effective, efficient and low cost healthcare to the people. Indian Vendors have been providing medical coding and transcription services to US Healthcare providers for some time but the billing generated through medical coding is far less than the billing generated by Health care IT Systems projects. US Healthcare reforms will drive revenue growth for the Indian IT vendors in the coming future may be for next 10 years as the traditional strong vertical of Banking, Financial Services and Insurance vertical which contributes 50% of the revenues for the Indian IT Vendors is facing rough times since past few years and expected to face tough and volatile economic conditions for the next few years.

But the question arises whether Indian IT Outsourcing vendors have the necessary resources in terms of skilled professionals, domain experts, technologies and capabilities to service the US Healthcare providers. As highlighted by Jimit Arora, vice president at Everest Group Indian IT Vendors face a major challenges as they lack understanding of the domain solutions and are not familiar with medical terminology that will have  an impact on the ability to translate that into technological solutions and product offerings. But Indian IT Vendors are overcoming this challenge by acquiring the small medium players in the healthcare segment that offer niche product offerings and possess the necessary skills for the Healthcare outsourcing. All the major Indian IT Vendors TCS, Infosys, Wipro, HCL Tech have been eyeing acquisitions in this space since past three years and BPO vendors like Genpact have acquired companies in Healthcare space like Jawood.  But overall the fact is that there is a significant revenue opportunity worth billions for IT companies because of Obamacare and Indian IT/BPO providers are likely to get 40-50 per cent of this revenue.

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.