Medical process outsourcing: India’s next growth engine

India continues to be one of the most preferred destinations for health care outsourcing. With the regulatory push from the US government, the payer outsourcing market is expected to grow around 10% YOY in the next three to four years.

Health care has always been high on the agenda for most nations and every government wants to provide the best health care at the lowest possible cost to its people. According to World Health Organisation, most of the developed nations spent more than 10% of their GDP on health care in 2013, US leading with 17.1%, compared to that of developing nations in the range of 3 to 8%. India spent about 4% of its GDP on health care in the same year.

In order to provide affordable healthcare, controlling costs becomes an imperative. Though, health care industry has been late to outsourcing, it is seriously looking at outsourcing as an option to cut down on costs and make health care more affordable to patients.

The global health care BPO market is expected to grow at a CAGR of 10.7% till 2018. The pharmaceutical outsourcing segment is the largest share and accounted for close to 80% of the health care BPO market. The health care outsourcing market is broadly classified into payers (health care insurance companies), providers (hospitals) and pharmaceutical outsourcing.

Whereas payers outsource areas like claims management, member management, provider management, care management, product development; the providers outsource services like medical billing, coding, claim filing, collection, services in patient care like patient enrolment, medical transcription, medical imaging, device monitoring. Pharmaceutical outsourcing of services includes research for drugs and medical devices. Apart from clinical trials, which form the major portion of the CRO, the other clinical research services that are outsourced include bio-statistical data management services, regulatory submissions, medical writing and pharmacovigilance services.

US health care accounted for the largest share (73.8%) of the worldwide health care BPO market and is expected to grow at a CAGR of 11.2% to reach US$141.7 billion in 2018.

Further, the US health care outsourcing market has huge potential for growth due to the measures taken by the US government to lower the increasing health care costs. The introduction of the Patient Protection and Affordable Care Act (PPACA) expanded the insurance access to more than 30 million US citizens. This resulted in increased demand for claims processing services, leading to large-scale outsourcing of these services by payers. The growth in the US health care provider outsourcing market is primarily driven by International Classification of Diseases (ICD)-10 conversion reform and the shortage of medical coders in the US. Further, the pharmaceutical companies in the US have adopted various strategies such as downsizing and consolidation of infrastructure due to decline in global economy, leading to increase in the pharmaceutical outsourcing services.

Health care BPO market in India: India is a leading global outsourcing destination due to its large English speaking population, low cost base, large pool of graduates and post graduates in various technical and non-technical streams with large number of IT-BPO companies serving clients globally.

Overall size of health care outsourcing to India is in the range of US$3.3–4.2 billion. Of this, payer outsourcing market is around US$700–900 million, provider outsourcing market is around US$100–200 million and pharmaceutical outsourcing market is around US$2.5–3.1 billion (excluding contract manufacturing services).

Drivers for the international health care participants to outsource:

  • A multinational company moving R&D to India could save up to 50% of overall costs
  •  Large numbers of blockbuster drugs are expected to go off patent, adversely affecting the profitability of innovator companies
  • Global pharmaceutical companies are focusing on core areas like marketing and discovery, while outsourcing drug development and manufacturing to low cost countries
  •  With the US regulatory changes like PPACA, more people are enrolling for health care insurance, leading to volume increase in payer outsourcing
  • Rise of health care insurance in the US are enabling consumers to obtain coverage from competing health care providers, leading to increasing margin pressures on players
  •  Growing ability of BPO vendors to analyse big data, to discover hidden patterns and unknown correlations, are driving the new service offerings in the outsourcing markets
  • Demand from other markets in Asia Pacific and Europe, which do not have a centrally funded one-payer model is picking up and Indian IT-BPO companies are focusing on them
  • Health care hospitals are estimated to lose up to 10% of revenue due to billing errors, and on top of it increasing complexity of coding adds the risk of non-compliance and fines from regulators, which is leading to revenue cycle services becoming popular for outsourcing.

Even though India is an important healthcare services provider, there are challenges that the outsourcers face in India:

  • Rising salary levels and increasing cost of operations in India
  •  Poor global perception on data privacy and intellectual property rights in India
  •  Competition from other low cost countries like Philippines is picking up
  • Lack of knowledge of global medical coding standards, laws and policies in the source country
  • Unclear data privacy laws leading to concerns regarding confidentiality and security of the sensitive electronic medical records in the digital environment
  • Regulatory challenges in the medical trial space due to a Supreme Court order, revoking the right of Central Drugs Standard Control Organisation (CDSCO) to approve clinical trials in India. Court also banned clinical trials on 162 drugs and instructed the authorities to strengthen approvals and monitoring.

India continues to be one of the most preferred destinations for health care outsourcing. With the regulatory push from the US government, the payer outsourcing market is expected to grow around 10% YOY in the next three to four years. In the provider markets, outsourcing in services involving patient care, patient enrolment, medical imaging are becoming popular. The ICD-10 standards implementation will drive medical coding and billing outsourcing. The provider outsourcing market is growing at 30% YOY. Though regulatory changes have affected the number of clinical trials in India, still the CRO market is expected to grow around 18% in the coming years. The government on its part is working on privacy bills and IPR policies to help sustain this growth.

Indian health care BPO industry needs to build capability in specific services and complex health care processes to gain from growing demands in the health care outsourcing.

Satyakam Chakravarty, Assistant director,  Markets and Business Development, EY has also contributed to this article.

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