HEALTH CARE: Tough and Lucrative

Of all the verticals that Indian BPO companies have targeted so far, probably the most challenging and promising is healthcare. Challenging, because in more ways than one, it is different from other BPO companies’ favorites like banking, insurance, telecom, and consumer goods. While the highly fragmented nature of the market and the extent of government role makes it an extremely difficult market to tap, the extent of domain knowledge required makes it an equally difficult service to deliver. At the same time, it is extremely promising because of the sheer size of the market and more importantly, the existence of built-in inefficiencies in the processes that offer tremendous scope to improve them and hence move up the value chain.

So what has been the progress so far? It would probably be better to understand how the US healthcare system works to be able to comprehend the magnitude and value of this opportunity. 

The US Healthcare Industry

According to data released by OECD, the US is the most health-conscious nation among all OECD members, with healthcare spending growing steadily from about 8.5 percent of GDP in 1980 to about 14 percent in 2002. In actual terms, the total healthcare spend in 2002 was $1.42 trillion, a few times the national GDP of India. This figure is likely to touch $2.47 trillion by 2010. 

Interestingly, this huge industry runs in a mechanism that has been put in place to fulfill an objective that emanates from the US society’s belief that an individual’s healthcare should not depend on his/her income. So a dominant majority of the US population is covered by one health insurance plan or the other. In fact, only 15 percent of the healthcare expenditure is done out of pocket. The rest, 85 percent (or about 1.2 billion is spent through an indirect way, with payments being made by health insurers–either government agencies such as Medicare and Medicaid; or private insurers, or employers. Here is how.

The System and Processes

An individual buys a health plan from a health insurance agency. The agency has tie-ups with a few hospitals, or physicians, or chains of hospitals/physicians called health maintenance organizations (HMOs) or preferred provider organizations
(PPOs).

When the insured individual requires medical treatment, he approaches a hospital or a physician, specified by his insurance agency, gets the treatment after a quick on-the-spot check on the validity of his insurance, and goes away. The expenditure is collected from the insurance company by the hospital, after both the sides agree on the claim. The medicines purchased by the patient is also sometimes covered in the health plan and is paid by the insurance company. In the last few years, this pharmaceutical expenditure is increasingly being covered by the health insurance. 

Challenges Provider Side Fragmented market makes selling difficult Smaller players have no experience about India Specialized training required Collections percentage as a billing parameter makes it result-oriented Payor Side Large insurance companies are preferring captive of late Smaller companies are too small Government agencies account for one third of the market Small TPAs are hard to sell to

Broadly speaking, there are three types of players in the process–the hospitals, physicians, and HMOs/PPOs, broadly called providers; the health insurance agencies, broadly called payors; and sometimes the medicine sellers. Since the processes are complex in the first two categories, there is ample opportunity there for the BPO companies. 

Opportunities for the BPO service providers exist both in the provider side and the payor side. And both the opportunities are being tapped by Indian companies. However, the services rendered, the nature of markets, and hence the challenges are very different in these two types of work. 

On the provider side, the broad process involved medical coding (no insurance claim is entertained unless it is properly assigned by an HCFA code that is unique for each service rendered by a service provider), billing, and the follow-up for actual collections. The companies that outsource these services are hospitals, HMOs/PPOs, and some specialized medical billing companies that exist to provide billing services to providers. Usually, the BPO service provider gets paid as a percentage of collection. 

The payor could be a major health insurance company, or a government management agency, or a large employer. Some large employers decide to manage the risk themselves instead of hiring an external insurance agency. They, however, outsource the claims administration process to smaller companies called third-party administrators (TPAs). In fact, the TPAs actually do what BPO companies do. The payor-side process is similar to any other insurance claims processing process. The claims are processed, adjudicated, and accepted or denied. It may involve taking calls from the providers/HMOs or billing companies as well. 

The Challenges

n Provider Side

There are quite a few companies providing medical coding, billing, and collection services to providers and medical billing companies in the US. With a few exceptions, these are companies that focus on this niche. Major companies are Vision Healthsource, Nittany, MM Imagine Technologies, Lapiz Digital, Amrutanjan Infotech, etc. Alpha Thought, a US-based medical billing company has also set up its delivery center in India. The other broad-based BPO companies targeting this area include ProcessMind, Global Respondez, and
Worldzen. 

Although quite a few companies have entered this space, it is anything but easy. The first and foremost challenge is to sell to a fragmented market. Unlike other BPO segments, here no Fortune 500 company is involved. It is numerous small companies–providers, HMOs, and medical billing companies–that you have to sell to. While that requires a large marketing spread, which itself is a challenge, a far bigger challenge is to convince them to outsource to a far-off land, about which they don’t have any knowledge. It is very different from convincing a Citicorp or an Amex, which have been in India, and know the country well. 

The delivery challenges are also many. First and foremost, it requires domain knowledge and highly trained manpower, supervised by a few physicians themselves. Most BPO companies have a few doctors on the roll. Also, the billing parameter is totally result-oriented, with payment decided as a percentage of collection. That means the risk is higher. 

While the average revenue realization per employee is similar to some voice services–about $ 900—1100 per month on a FTE–the profitability is slightly better, because of a better utilization of infrastructure–the same infrastructure is used by the coding and billing staff during the day time and by the collections staff at night. (India time). 

It is noteworthy that none of the top 15—20 BPO companies in India are in this space. While the rates and profitability margins are far better than many other low-end jobs that these companies have got into, one possible explanation is that none of the companies are used to market to small companies. Also, very often, it’s the number of Fortune 500 clients that forms their measure of success. 

bpOrbit believes that this space will see a lot of consolidation. It is expected that many medical billing companies will be active, with both-way acquisitions–bigger Indian BPO companies will acquire medical billing companies abroad while the medical billing companies there will acquire niche BPO providers here. 

Those Indian BPO companies that have exposure to the payor side services and hence the domain expertise, if not process expertise, will be the first to venture into this space. In fact, the trend seems to have started with Perot Systems, which has a good IT and BPO practice in the payor side healthcare services, acquiring Vision Healthsource for $10 million. According to bpOrbit estimates, this is more than double the forward sales of the company. This is a much higher benchmark as compared to what has been happening in the generic BPO industry. However, one such acquisition is too small to be called a trend.

Expect action in this space. 

n The Payor Side 

The payor side outsourced processes are quite similar to other insurance claims processing works, except that here there is a need that people understand medical terminology and can deal with professionals, who call from billing/collection companies and providers, rather than end users, over the phone. 

Large-scale BPO companies do club it with their insurance practice, as the process is largely the same. Some of the bigger Indian BPO companies doing the payor side work include Daksh, Hinduja TMT, ProcessMind, Vee Technologies, Nipuna, and Worldzen. Companies that have outsourced include Aetna, Cigna, Guardian Health, and IMG Health. United Healthcare has set up a shared services center of its own. 

While some of the health insurance companies are big enough (yes, Aetna, Cigna, United Healthcare, et al are Fortune 500 companies), the potential health insurance BPOs should realize that the market held by private insurers is just about one-third of the total market size. The rest is either with the public insurers, or lies uninsured. With the outcry against offshore outsourcing on the rise, public health insurance agencies are the last thing that Indian companies can think of targeting. 

More info http://www.bcbs.com/glossary/glossary.html http://www.medicalbillingandcoding.net http://cms.hhs.gov/charts/series/sec1.ppt

The private insurer market again is divided among insurance companies and employer insurance. Among the private insurance companies, with the exception of a few Aetnas and Cignas, most of the market is shared by smaller, localized Blue Cross Blue Shield (BCBS) companies, which are less likely to outsource. However, unconfirmed market grapevine suggests that some of these companies are seriously toying with the idea of testing India. 

In the health insurance managed by large employers, where the claims administration is carried out by TPAs, companies are less likely to outsource, unless absolutely forced. 

A trend seen of late is particularly worrisome. Most insurance companies–and we see no reason why health insurance companies would be an exception–are setting up captive centers. This is something that could upset all other calculations. 

It makes sense for Indian medium-sized BPO companies to acquire a few TPAs to get a foothold into the market. In fact, we expect this to happen to some extent in 2003—04. 

Outlook

Many companies providing payor-side services will add provider-side service to their portfolio and vice versa. This, accompanied by some M&As among the medical billing companies, TPAs, niche BPO players and bigger BPO players, will make 2003—04 a year of healthcare services. 

Shyamanuja Das