MEDICAL TRANSCRIPTION: The Resurrection...

Circa 1997: A new industry is on the horizon. There is lot of excitement as
people anticipate the benefits of the Internet age and talk of medical
transcription as an opportunity that can potentially change the fortunes of many
Indians. Along with computer training institutes, medical-transcription training
institutes mushroomed in towns and cities promising placements to all trainees.
Entrepreneurs were gung-ho as every mom and pop set up shop. And making hay in
this excitement were the middlemen who promised abundant business.

Circa 2001: It was clearly epitaph time for the industry. The booming
industry had turned into a non-entity. The training institutes had suddenly
disappeared, many companies had downed shutters. In short, the fledging industry
died before it had learnt to walk. That was then.

Circa 2004: There is a sense of purposefulness and systematic ramp-up as the
industry goes about its business. There is a steady flow of business despite the
US backlash and some have even managed to raise funds. Led by a couple of
US-based companies the medical transcription industry in India is in a resurgent
mode.

Resurgent? Indeed! But sustainable? One can't help doubting the future of
an industry that was once so hyped, but which fizzled out as quickly. But,
judging by all the parameters, this growth looks sustainable. The industry seems
to have learnt from its failures and is doing it right the second time with its
focus on marketing, investment on technology, and emphasis on delivery of
quality service.

The Opportunity

According to US Bureau of Labor Statistics (BLS), there were a total of
97,810 medical transcriptionists working in the US in May 2003, the latest
period for which data was available. Surprising as it may sound, almost every
seven out of ten MTs in the US were employed by the hospitals or offices of
physicians. Less than 15 percent were employed by professional outsourcing
service providers.

That means, Indian companies have to sell to a business community that has
hardly outsourced. Naturally, the only appealing reason for them to offshore is
cost saving. Considering this fact, it was not very surprising that this
industry was centered only around cost. That, as we will see a little latter, is
changing.

However, what is most noteworthy is the fact that between December 2002 and
May 2003, there was a drop of slightly more than three percent in overall
employment of MTs. This was despite the fact that the bureau had predicted an
employment demand growth for MTs faster than the average growth for all
occupations, even after factoring in the offshoring phenomenon.
"Contracting out transcription work overseas," the 2002 Employment
Outlook report noted, is "not expected to significantly reduce the need for
well-trained medical transcriptionists domestically."

The drop in employment, say observers, has happened primarily because of an
acute shortage of supply. This is reflected in a press release from the Medical
Transcription Industry Alliance which said, "There are insufficient numbers
of qualified medical transcriptionists to meet the enormous demand."

This could work out in India's favor. Early signs-in fact, the present
resurgence-actually shows that it has already happened.

However, not everyone who started out pursuing this opportunity a few years
back survives today to grab the second chance. Those who survive are the ones
who invested in understanding the business and establishing a name for
themselves in the market. These are the ones that are reaping the benefit.
Fortune actually favors the prudent these days.

Growing Up, Wisely

Medical transcription, commonly perceived as the lowest end of the spectrum,
was the first back-office work to be offshored to India in the early 90s by
HealthScribe and Heartland, who started their pilot projects from south India.

As the Internet took off in the 90s, the industry caught the imagination of
many entrepreneurs who rushed headlong without a base in the nitty-gritty of the
business. The first mistake was that entrepreneurs did not have a front-office
presence and relied on the middleman. In the absence of a direct marketing
presence, early entrepreneurs had absolutely no clue about the demands of the
market and were at the mercy of sub-contractors. This dependence led to
undercutting of prices that reached unrealistic levels and became completely
unviable.

Says Raman Kumar, CEO of C-Bay Systems, arguably the largest medical
transcription company in India with a controlled workforce (direct and indirect
included) of 3,500 people, "Companies in the early phase relied solely on
the middleman to get business. That cannot be a viable business model because it
is important to own the customers. Otherwise, the customer begins to dictate
terms to you."

The C-Bay model was completely opposite to what most people were following in
India during those days. "We set up our front-end office in the US and
focused on building our presence in the market. It takes much more investment to
set up the front-office. So, that's where we focused initially."

It managed its back-end by setting up relationships with franchisees who were
trained by C-Bay and by keeping a strict control on the quality of the work.
Kumar reasons that, "We did not waste our efforts in the back end at that
time. After consolidating our front end presence, we focused on the back
end."

C-Bay had bought over three companies in the US: Arrendale Associates and
Advanced Transcription Solutions in 2002 and Emergency Dictation Services in
2004. These acquisitions gave a stable customer base to the company.

With
the front end in place, C-Bay turned its attention to the back end and set up
its own center in Hyderabad, Bangalore, and a joint venture with Godrej in
Mumbai. It also acquired some of its franchisees and is still actively
negotiating for some more deals.

And that is a very significant difference in the strategy of companies that
are dominating the medical transcription industry today. Needless to say,
companies like HealthScribe, Heartland, Spryance, Acusis, and Focus Infosys have
a strong presence in the US.

"This business is based on relationships, and clients need an interface
to understand their concerns and requirements for which a direct US presence is
absolutely critical," says Jayesh Nagda, CEO of Focus Infosys headquartered
in US with its delivery center in Bangalore.

Agrees Vijay Kaul, head, customer service, Spryance, a company which promotes
home-based transcription in India in a big way. "The importance of having a
good marketing network cannot be undermined. We are positioned as a huge
aggregator of work. That is our primary strength." Spryance aggressively
promotes home-based transcription and hires people for quality assurance and
editing work only. It employs a workforce of 1,000 people, 70 percent of whom
are home-based transcriptionists (HBTs). Incidentally, HBT is a concept that has
become quite popular in India and is being experimented by quite a few
companies.

The requirement for experienced professionals is high in this model although
freshers are also trained by providing extensive feedback. That is why some
companies like HeathScribe are a little reluctant about this model.

Says Suresh Nair, CEO of HealthScribe India, "We have a small number of
HBT, but that is not our primary model. Our HBTs are essentially ex-employees
who may have moved to different cities or may have quit for personal
reasons." HealthScribe employs 1,350 people of which only about 100 people
work from home.

Acusis that actively promotes HBT finds it a viable model. "Technology
has matured enough to allow people to work from home," says KB Anand, COO,
Acusis. "We have a tech team of 50 people who have developed a customized
solutions called Accusuite, which manages voice from US to India, and assigns it
to a specific HBT."

Today, there are workflow processes and adequate security measures in place
to allow working from home. This is one development that really has the
potential to change the face of the industry.

While ITeS has been touted as the industry that could harness the idle talent
of housewives, young mothers, and others by allowing people to work from home,
medical transcription is the only industry that has actually done it. It is
estimated that HBTs execute between 10—20 percent of the MT work that is
offshored to India.

Companies have invested a lot in technology to streamline processes and
ensure secure workflow. With stringent regulations in the US about the security
of patient information, this investment is absolutely necessary for serious
players. This is a sustained investment and requires deep pockets.

All the top players have made heavy investments in technology particularly in
ensuring information security. The Patient Health Information System of Spryance
has been audited by Ernst & Young and is HIPPA certified.

HealthScribe has also invested a lot on technology to have its systems HIPPA
compliant. It has developed its own workflow management systems that allow the
system to assign work in a systematic and secure manner.

The industry is leaving no stone unturned to address the security of patient
information. It is one of the reasons why MT companies in Bangalore have come
together under a banner called Indian Medical Transcription Industry Association
(IMTIA).

Says Suresh Nair who is also the president of the association, "The idea
is to share experiences and best practices amongst members. Most often, security
breaches occur because people are not aware of them."

The Bottomline: Quality

Finally it is the quality of work that will decide the fate of the industry.
The major reason why the industry went bust during the first phase of its growth
was because the accent on quality was lacking.

Hospitals were appalled at the poor quality of work that was being churned
out by the industry. "Lured by the hype numerous garage start-ups came up,
with little focus on quality and processes which soon reflected in the shoddy
work," says Som Marappa, president and CEO of US-based MedSoft, with
delivery centers in Bangalore, Coimbatore, and Mysore.

Today, the industry watchword is quality. "The industry has learnt that
it is only the focus on quality that will see it through," says Suresh Nair.
With 98 percent accuracy levels expected, it is indeed a tall order. The
industry is sparing no pains to gain this level of accuracy. The average
training is about nine months long and the employee gets productive only after a
year. "The gestation period in training a medical transcriptionist can take
up to two years and that is why it makes sense to look at destinations with
lower cost structure," says V Raman Kumar.

Unlike the call-center industry, trainees do not have to get their accents
right. They are trained in listening skills, introduced to medical language, and
taught some basic transcription skills. It is estimated that bigger firms invest
anywhere between Rs 60,000 to Rs 1 lakh on training each transcriptionists,
while smaller firms may invest a little less.

The transcripts go through rigorous quality checks in India and the US before
they are sent to the clients. Even companies that swear by the HBT model, hire
quality assurance people because quality is the lifeline of the industry.

What is as critical as the quality is the turnaround time. Often turnaround
time is 8—10 hours, sometimes it can even be demanded within a few minutes.
Says Nagda, "When we handle emergency dictation, doctors require notes
immediately to perform surgery and the turnaround time is a few minutes
then." Needless to say that 24x7 services command a premium in the market.

The Industry

According to bpOrbit estimates, there were close to 12,000 people working in
the Indian medical transcription industry as of August 2004. bpOrbit also
estimates the industry size to be $115 million in the year 2003—04 (April—March).
There were close to 250 companies doing medical transcription work, out of which
many worked as a franchisee for a bigger company, such as C-Bay.

The top six companies (see box) accounted for 75 percent of the revenue and
close to 70 percent of the employment. There are another five to six companies
that have 100 or more people. In that sense, the average employees per company
among the rest turns out to be less than 20. So, it has assumed the form of a
cottage industry.

The margins, contrary to popular belief, are not small. At 15—18 percent,
it is quite healthy by the outsourcing industry standards. But that kind of
margin is expected only after reaching a scale, due to deployment of technology
as well as economies of scale.

The average per-line price commanded by the companies for transcription is
close to 6—12 cents. Depending upon experience, the average lines transcribed
by an MT could vary from a low of 200 lines to a high of 750 lines per day. On
an average, this yields close to $4.5 per hour, which is what the low-end voice
call centers with much higher capex and opex, as well as salaries, realize. The
added advantage in this industry is that as unlike the voice work, here it is
not just the quality but even the productivity of an employee increases with
experience, resulting in direct increases in revenue. With lesser attrition and
higher productivity, this industry is good for long-term players with high
scales.

Geared Up

The MT industry does not necessarily have to work at night, except in cases
offering 24x7 service. The attrition rate at 15 percent is, therefore, far lower
than the BPO industry. Says Veer Sagar, chairman of Selectronics Equipment and
Service, "This is intelligent work which requires an analytical and logical
mind. This goes a long way in curbing attrition because the work is not
repetitive."

India's opportunity emerges in the backdrops of the consolidation that the
US MT industry is undergoing. The dynamics in the healthcare industry changed
with the adoption of technology. Billing became more transparent and US
transcription companies came under intense pressure as result of which
offshoring became a popular option.

At the same time, there was a shortage of qualified transcriptionists. In the
Journal of AHIMA, Carrie Boatman, director of professional relations for the
American Association for Medical Transcription said, "The problem facing
employers is that the majority of the transcriptionists graduating from a
program require additional training before they can be truly productive.
Training the staff is not a popular option. Training transcriptionists is an
expensive proposition that can require six months to a year."

Not many hospitals and health practitioners are ready to bear that kind of
cost burden. Which means two things. One, that the healthcare industry has to
move away from the dependence on employed labor and has to turn to offshoring.
Two, with large training costs becoming imperative, those with a scale would
benefit from it. So what we are seeing is a big consolidation.

Viewed from this perspective, it will not be an exaggeration to say that
India could be the epicenter-and not just another location-of this new phase
of consolidation. Also, with US elections almost round the corner, the India
factor will not be so much a sensitive issue. In any case, in this industry, it
has never been such a problem. Says Raman Kumar, "It has to be very clear
that offshoring of work occurred because of the shortage of qualified
professionals. Never has offshoring of MT grown at the cost of jobs in the
US." This explains why even at the height of the backlash against
outsourcing in US, MT was not really an issue.

Many Miles to Go...

The industry would do well to gear up its security measures. Although big
players are conscientiously addressing the issue, the same cannot be said for
all small players. Americans are absolutely paranoid about their health
information. The incident regarding a Pakistani doctor Lubna Baloch blackmailing
the American subcontractor to expose patient information if the alleged payment
dues were not fulfilled has sent shockwaves through the industry. A similar
incident in Bangalore by two Heartland employees threatening to release
sensitive patient data in lieu of some concession has further hackled the
industry. "Another Lubna Baloch or Heartland could well be the beginning of
the end of the transcription industry overseas," says Marappa of Medsoft.

Another threat is the emergence of voice recognition software. The industry
can ill-afford to remain ignorant of new technology trends. Voice recognition
has not fully matured and shall still require editing skills. In anticipation,
some companies like Focus Infosys have experimented with the software in-house.
But there need to be many more initiatives to address this challenge.

A recent marketing trend is hospitals belonging to a particular group or
chain are aggregating transcription work and offloading it to offshore vendors
as a single deal. "The consolidation of suppliers in a bid to get better
price from vendors has begun to happen," says Nair. This has the potential
to squeeze the margins of major vendors.

Many of the medium and small Indian vendors are currently servicing the
clinic segment in the US and the large hospitals remain untapped. The clinics
account for between 30—40 percent of the overall market.

While marketing challenges can be won over with innovation, concerns
regarding security are potentially more explosive and can upset the applecart
even before growth has stabilized. However with the growth momentum building up
and a determined industry bent on success, it is unlikely that the industry will
stumble the second time round.

Balaka Baruah Aggarwal

Top Companies

C-Bay

Mode of Operation: Own centers and franchisees

CEO: V Raman Kumar

No. of Employees: 3,500

Presence in India: Hyderabad, Mumbai, Bangalore

Website: www.cbaysystems.com

Heartland

Mode of Operation: Own center/JV

CEO: Bryan Black

No. of Employees: 1,500

Presence in India: Delhi, Bangalore, Coimbatore

Wesite: www.heartlandis.com

HealthScribe

Mode of Operation: Own center and HBT

CEO: Suresh Nair

No of Employees: 1,350

Presence in India: Bangalore

Website: www.healthscribe.com

Spryance

Mode of Operation: Own centers and HBTs

CEO: Raj Malhotra

No. of Employees: 1,000

Presence in India: Mumbai, Pune, Chennai

Wesite: www.spryance.com

Acusis

Mode of Operation: Own center and HBTs

COO: KB Anand

No. of Employees: 550

Presence in India: Bangalore, Chennai, Mysore, and Coimbatore

Website: www.acusis.com

Focus Infosys

Mode of Operation: Own centers

CEO: Jayesh Nagda

No of Employees: 500 plus

Presence in India: Bangalore

Website: www.focusmt.com