Healthcare: A Challenging yet Promising Market for India

Date:   Monday , July 12, 2010

The recent healthcare reforms announced in the U.S. have arguably been one of the most opportunistic business areas that Indian services industry can look forward to. While the quality of healthcare in the US is arguably one of the best in the world, the administrative aspects of the industry is by far the most complex and difficult to comprehend systems and processes in the world. The healthcare industry currently represents about 12 percent of the US GDP and is expected to reach close to 15 percent over the next 7-8 years. Traditionally, the administrative side of the healthcare industry has been termed the laggard when it comes to technology adoption, and the IT spend is estimated to be about two percent of revenues compared to the financial or banking industries where it is about 8 to 10 percent.

Trends

There is a major reason why technology adoption is difficult in the administrative side of the healthcare industry; it is the regulatory complexities involved. Most IT companies have found it difficult to build systems that are able to handle the ever changing federal, state, and private insurance regulations. There is a lot of work that has to be done manually in order to keep the monies flowing between the various constituents. While this trend has been changing over the years, it will still take a very long time for systems to catch up and replace the amount of manual work that will always be needed.

It is anticipated that over the next few years the amount of data entry work will probably reduce, as systems get more sophisticated and data transfer between the various systems become more seamless. Regardless of this, the need for value added services like medical coding, insurance follow-up, collection activities, and claims adjudication services will continue to increase. The healthcare reform package recently announced by President Obama, which is considered the most sweeping change in the industry since the Medicare changes in the 1960ís, has some challenges to overcome in terms of financing the various programs and reforms that have been announced.

In any event, some form of the reform is much needed in the industry and will go into effect only over the next 3 to 5 years, and will add more than 40 million Americans (who currently donít have insurance) to the insurance system. This will increase the magnitude and scope of the administrative complexity, thus leading to more manual work that has to be performed. In addition, the US has mandated that the entire industry move from ICD-9 (International Classification of Diseases) to the usage of ICD-10 codes throughout. This move to the ICD-10 coding system is forecast to be as big as the Y2K opportunity. Thousands of companies in the industry will have to make changes to their systems and processes to accommodate this transition. For example, there is a total of over 16,000 ICD-9 codes while the number of ICD-10 codes are about 64,000 and more.

Challenges

The opportunity for IT and services outsourcing companies in the US healthcare industry is bound to increase over the next few years. As the US economy slowly recovers, companies will look to get more efficient and profitable leading to increased usage of offshore resources. A lot of entrepreneurs and Indian companies understand that the US healthcare industry is stable and fairly recession-proof and the huge opportunity they foresee makes them too eager to get into the industry. Therefore, they tend to get into undesirable business practices like arbitrarily lowering the pricing and paying more for labor in India, in effect squeezing the margins and jeopardizing the long term viability of the services industry from a quality perspective.

Security of information is extremely important when servicing the US healthcare industry and a lot of companies in India do not understand the risks associated with sensitive information leaking outside and the negative effect it will have on the future of the entire industry. Servicing the US healthcare industry properly will require a good amount of capital investment upfront to set up the proper infrastructure. Serious entrepreneurs should be cognizant of this, if they are in it for a long haul. The other challenge will be to find good talent in India to provide the services, especially the voice based ones as this requires not only good English communication skills but also very good analytical skills.

In summary, while the opportunity remains huge for the healthcare outsourcing industry in India and can grow 20-fold from where it is today, it will happen only if we collectivity provide a lot of value added and high quality services.

The author is the CEO of Omega Healthcare