Significant Growth in Healthcare Outsourcing opportunity for Indian IT Vendors in 2012

At the end of June 2012, the US Supreme court upheld the main elements of the Patient Protection and Affordable Care Act, which President Barack Obama signed into legislation in the year 2010. The law mandates all the American citizens to buy health coverage in 2014 or else pay huge penalties if they fail to buy and the employers should offer healthcare coverage for their full time employees and their dependents or they will face penalties. After this decision more than 30 million uninsured Americans are estimated to buy healthcare insurance because of the reform, and new projects are expected by Indian IT Vendors like data conversion, creation and management of electronic health records, as well as claims processing and insurance sales. Indian IT Vendors can actively vie for the deals worth up to $22 billion (Rs 1.2 lakhcrore) and according to NASSCOM, Healthcare accounts for another 4% of the IT-BPO industry, which is expected to grow slower this year, at 11-14% from 17% last year. According to TPI, a sourcing advisory the new law allocates about $37 billion for creation and management of electronic health records, data conversion, beta testing and change management.

According to Everest Group report titled, “IT Application Outsourcing (AO) in the Healthcare Payer Industry – Annual Report 2012”, the US$20 billion healthcare IT outsourcing (ITO) market nearly doubled its cumulative contract value in 2011 compared to 2009. Processes that are outsourced to Indian IT vendors include Application development and maintenance, testing services, and software package implementation and North America market is the primary market that outsources in healthcare payer segment. India is the preferred delivery location in this segment followed by China, the Philippines and Latin America and more than US$3 billion worth of payer AO contracts are due for renewal between 2013 and 2018. The Everest Group Service Provider Landscape analyzes more than 15 AO service providers, eight of which are mapped on the PEAK Matrix. The Leaders include Accenture, Cognizant and IBM; Major Contenders include CGI, Dell Services, Infosys and TCS; and Emerging Players include Mphasis. Other aspiring service providers in the payer AO space include Fujitsu, HCL, Hexaware and Mahindra Satyam. 

<!--[if !vml]--><!--[endif]-->Cognizant Technology is far ahead of its peers in terms of Healthcare vertical revenues with US$1.74 billion 37% (YoY), followed by Wipro, TCS, Infosys & HCL Tech. Infosys dethroned HCL Tech and it shows that Infosys is seriously targeting more deals in this vertical as evident with 42% YoY growth. Even TCS is also focusing aggressively on healthcare segment and Cognizant is keeping up its growth. Cognizant was the first player who bid aggressively in healthcare vertical and has built significant domain capability in healthcare and domain which makes it difficult for other Indian IT vendors to match it. Table source: “Report Card for the Indian IT Majors: Pecking Order Analysis of the “WITCH” Group”

Healthcare Vertical has become a critical for all the Indian IT vendors due to the ongoing reforms in the US and also the trillion dollars spend that is expected in coming years in United States. Analysts estimate the US’ healthcare market at $2.5 trillion and projected to grow to $4.6 trillion by 2020. For capturing this opportunity Indian IT vendors have to invest in developing and acquiring domain expertise in terms of people, processes and technologies. Analysts also predict that there will be significant rise in the M&A transactions particularly in Healthcare domain as most of the Indian IT vendors do not have necessary domain expertise and skills in healthcare domain and they are aggressively looking at the M&A route to acquire companies that have healthcare domain skills and expertise. Regulatory conditions also force the Indian vendors to set up delivery centers in United States and service the clients locally and also have to recruit local talent for this. Infosys and TCS have announced that they are looking for acquisitions in this segment both in US & Europe.

IT Application Outsourcing (AO) in the Healthcare Payer Industry – Annual Report 2012, published by Everest Group, an advisory and research firm on global services identified five key themes is fuelling IT services demand in the U.S. healthcare payer market: Compliance with regulatory reform, Consumerization, Claims transformation, Convergence of information across healthcare entities, Consolidation and M&A. Healthcare vertical also provides an opportunity for the Indian IT Vendors to also focus on nonlinear revenues that will lead to more revenues and increased margins and profitability. Outsourcing penetration levels is very low in the healthcare Payer Industry and in future this segment is expected to grow rapidly and present a significant opportunity for the Indian IT Vendors to focus and improve their presence. 

Discussion Points:
1.What is the impact of PPACA act on healthcare BPO particularly for Indian Outsourcing vendors?2.What are the strategies adopted by Indian Outsourcing vendors to capture revenues from US healthcare outsourcing due to the changes and reforms in Healthcare?
3.What are the processes in healthcare that can be outsourced to Indian vendors?