Healthy returns

This should make your heart beat faster. The American healthcare industry alone is estimated at $1.3 trillion, with its BPO component worth $350 billion, says G Sankaranarayanan

The global healthcare industry is one of the huge markets Indian BPO firms can bet on in the years to come. The size of the global healthcare industry is $4 trillion, 25 percent of which constitutes the non-clinical and administrative business that is ready for outsourcing. Can the Indian healthcare BPO industry, very much an infant at $40 million in revenues, grow in size with enough speed to become the world’s healthcare back-office?

Leaders of the IT and healthcare industry tried to answer this billion-dollar question at Connect 2003, the four-day ICT exhibition-cum-seminar organised by CII and the Tamil Nadu government last month.

Speakers acknowledged that the BPO industry is currently dependent more on the healthcare payer market (insurance companies)—the ‘low-hanging fruit.’ The lucrative BPO business lies in the clinical processes of the healthcare provider segment (hospitals) and in the pharmaceutical industry. These areas offer long-term revenue visibility.

Dr Alok Roy, managing director, Family Health Plan, said that the Indian BPO industry should focus on the major healthcare markets—the US, Europe and Japan (in that order). The industry, which has been offering solutions for the payers’ market (enrolment, premium billing, claims processing, etc), should also get into long-term partnerships with healthcare service providers who need solutions for medical transcription, medical coding, account receivables and the like. “However, the providers’ market is a fragmented one, which operates in a highly competitive environment. Hence the BPO catering to it has to operate with a very low margin until it finds scope to move up the value chain,” said Roy.

He said that since costs (both administrative and medical) are sky-rocketing across the provider industry, it has resulted in increased pressure to outsource some operations. Added Roy, “The global pharmaceutical industry, which is already losing money in patent-related delays, is very positive about outsourcing clinical trials and post-marketing clinical trials to countries like India.” Rising consumer expectations, stringent regulatory environments, continuous merger and acquisition activities, and the necessity to convert paper-based information into digital form are some of the factors behind the boom in the healthcare outsourcing business.

Quoting industry estimates, Roy said that by 2008 over 70 percent of all payers will engage in BPO for administrative processes, and around 30 percent will opt for end-to-end process outsourcing. Providers who are now resisting the concept of BPO will turn aggressive with at least half of them engaging in the BPO business by 2008. According to Nasscom, BPO in healthcare is expected to bring in revenues to the tune of Rs 23,000 crore by 2008. Roy was also of the view that the line between IT and BPO is getting increasingly blurred. “Customers do not separate the two anymore. To them, both are part of their global business strategy.”

Mohan Narayanan, vice-president, CTS, echoed this view. He said the challenge for software companies who enter healthcare BPO was to bring software services and BPO under a single umbrella, and pointed out that “there are some major differences between these two segments, such as the revenue model and work culture: BPO is a long-term, low-profit business, while software is short-term, high-profit and project-based.”

The working hours of BPO employees and the compensation structure are dramatically different from what they are in the software industry. BPO employees belong to a very young age group, and job-hopping is alarmingly high. Their skill sets and profiles are also different from those of employees in a software/IT services firm, he observed.

Narayanan also pointed out that software firms (which cater to the healthcare industry) have all along dealt with only the chief information officers (CIOs), who are the decision-makers for software projects. “However, since BPO represents the organisation’s business strategy, and is driven by the need for cost-competitiveness, decisions are invariably taken by chief executive officers or chief operating officers, not CIOs.”

According to Namit Aggrawal, senior vice-president, BPO operations, Apollo Health Street, the Indian BPO needs to focus on the US healthcare industry, the size of which is estimated at $1.3 trillion. Its BPO component is worth over $350 billion, with the business outsourced in customer interaction services being $872 million, HR services at $3.3 billion, finance and accounting at $204 million, medical transcription at $2.6 billion, coding at $4.1 billion, billing at $7.5 billion and clinical processing at $11 billion, which make for a total of nearly $30 billion.

Aggrawal said that the Indian BPO industry, which employed two million people in 2003 (up from 0.8 million in 2001), needs to look at increasing its revenue per employee. “The average revenue per employee in a BPO outfit is $7 per hour, but it is $15 per hour in medical coding.” The favourable aspects of the healthcare BPO business? It has a high entry barrier, enjoys substantial client stickiness, and has long-term revenue visibility. The challenge, however, is that end-clients (especially providers) are quite conservative.

Aggrawal believes that the Indian BPO industry has to scale up operations and bypass intermediaries to realise its full revenue potential. The industry should also focus on untapped market segments, including healthcare customer services, telemedicine, e-learning, healthcare knowledge management, electronic medical record management, clinical research and clinical trials. “The industry has to consider moving away from the low-hanging fruits,” he said, while pointing out an interesting aspect of the business: “Fortunately for the Indian healthcare BPO industry, many of the top decision-makers in American hospitals are doctors of Indian origin, so they are familiar with Indian culture. This means business development is comparatively easy.”

Dr Sunil Shroff, chairman, Medical Computer Society of India, urged the healthcare BPO industry to concentrate more on high-end IT applications in clinical aspects, and take up telemedicine and telepresence robotic surgery practices in a big way rather than executing just low-end BPO projects like medical transcription. He pointed out that there’s a huge opportunity for India to become the healthcare IT/BPO solutions provider for developing countries, especially in Africa, since India is in a better position to understand markets which are similar to itself.

sankar@expresscomputeronline.com