Global Healthcare BPO Market dominated by India, double digit growth till 2018

The Global Healthcare Business Process Outsourcing market is expected to continue its double digit growth for five more years as the healthcare companies that include payer, provider and pharmaceutical outsourcing companies have to adopt BPO to reduce costs, focus on improving the core offerings rather than focus on business processes that are support functions and by outsourcing these noncore business processes they can take advantage of skills and expertise of low cost professionals and also innovation provided by BPO service providers. According to a report provided by MarketsandMarkets, a global market research and consulting company, the global healthcare BPO market is estimated to be $92.3 billion in 2013 and is expected to grow at a CAGR of 10.8% from 2013 to 2018, to reach $188.8 billion by 2018. The payer outsourcing segment is categorized into claims processing, HR services, member services/customer care, and finance and accounts segments. The provider outsourcing segment consists of medical billing, medical coding, medical transcription, and finance and accounts segments. The pharmaceutical outsourcing segment consists of clinical research organizations (CROs), contract manufacturing organizations (CMOs), and non-clinical services segments. Indian healthcare BPO providers targeting the provider and payer market aggressively.

United States Healthcare industry is the largest player in this segment and US Healthcare companies outsource significant portion of their business processes to countries like India (largest Healthcare BPO services provider), Philippines and Latin American countries. Obamamcare, HIPPA compliance and ICD 10 coding are the major regulatory changes that are driving the huge Healthcare BPO market globally and Healthcare BPO service providers in India are expected to dominate and acquire most of the contracts from US Healthcare companies. Claims processing, transcription services and medical coding are some of the core business processes that are outsourced and demand for these services is expected to increase significantly in the near future. Indian Healthcare BPO service providers are well equipped, low cost providers with all the infrastructure facilities needed and prepared for the rising demand in this segment and are aggressively bidding for these contracts although the Philippines based healthcare BPO providers are also looking to compete with Indian players, they lack the skills and expertise that is mandatorily required for the healthcare sector like doctors, nurses, medical coders, transcriptionists, etc.

Pharmaceutical outsourcing is also expected to continue its growth as the pharmaceutical companies are struggling with raising costs in manufacturing, R&D, intense competition in the industry and government regulations is forcing the companies to cut prices of drugs. Not only the manufacturing of drugs is being outsourced but also R&D is also being outsourced to countries like India. Contract manufacturing, contract research and with patents expiring generic drug manufacturing is a big business in India. Pharmaceutical companies across the globe are being forced to innovate new drugs constantly to survive in the market. Low cost, talent base in terms of specific skills and expertise, available of infrastructure and government support are key to India’s success in global Healthcare BPO market.

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.