US President Barack Obama
has kept the Indian IT-BPO industry on edge with his sustained anti-offshoring rhetoric. One of the key themes of his attacks on Mitt Romney, the Republican candidate who will oppose him when he seeks re-election in November this year, is that Romney has been an "outsourcing pioneer". Obama claims that Bain Capital, a private-equity firm Romney co-founded, invested in companies that outsourced jobs to China and India.
Even so there may well be some IT bigwigs who hope Obama defeats Romney. Video:Obamacare a large opportunity for IT, BPO firms: Sid Pai
How come? Because Obama's win will ensure that Obamacare
- as the health insurance bill passed against much opposition in the US is popularly called - is implemented in full spirit, which in turn may be a multi-billion dollar revenue opportunity for India's tech industry. Some believe it could well turn out to be Indian IT's second Y2K moment.
In the late 1990s, Indian IT services received a booster shot with the Y2K phenomena, also called the Millennium bug. It required armies of software engineers to fix glitches in computer systems and allowed many of the top tier Indian firms of today to touch base with major American banks for the first time. Obamacare, or the Patient Protection and Affordable Care Act, ratified by the US Supreme Court on June 28 this year, similarly promises to open the doors for Indian IT to American hospitals and insurance companies like never before.
Four industry watchers BT spoke to estimated that the incremental IT-BPO opportunity because of Obamacare could total more than $20 billion over the long-term. Indian service providers can realistically hope to bag 40 to 50 per cent of this.
Rajat Juneja of research outfit Everest Group says the US market for IT services in health care is about $14 billion to $15 billion currently and is growing at five to seven per cent every year. "Because of Obamacare, the market could grow between eight and 10 per cent, an incremental growth of three per cent. The number of deals could grow by 20 per cent," he says.
In a study released in November last year, JP Morgan stated that over the next three to five years, health care
as a practice will grow much bigger than it is now for Indian IT players and emerge as $1 billion plus division by revenues for some companies. Cognizant already earns more than a billion dollars from its health-care practice, but not the other giants like TCS, Infosys and Wipro, who derive only five to seven per cent of their revenues from this sector.
Obamacare's 'Individual Mandate' makes it mandatory for everyone in the US to purchase health insurance in 2014 or face an annual fine. This would extend insurance coverage to 32 million Americans. It implies more business for hospitals and more volumes for insurers to handle. Both have to now upgrade IT and build technological connects to state health insurance exchanges (HIX). Under the Act, every US state has to build a HIX which will offer a marketplace for individuals and small businesses to compare policies and buy insurance. And 32 million new policy holders suggest a windfall for Indian BPO from US insurance providers who are bound to outsource member enrolment, billing and claims administration projects among many others.
"Whenever in the past there has been a combination of technology and government regulation, we have generally seen an uptake in request for proposals (RFPs). In this case, there will be RFPs from the government, from private and state insurance providers, and hospitals which need to upgrade their systems, fasten electronic medical record implementations, get on to hospital information systems and ultimately invest in analytical capability," Veera Raghavan, executive director of Healthcare and Life Sciences practice at Dell Services says.
"Today, the technology just doesn't integrate. Different insurance companies work on different technologies. All hospitals work on different systems that do not interface with the systems of the insurance companies. The option of being able to integrate technology is, in my opinion, one of the largest opportunities for the Indian IT industry after Y2K," says Raman Roy, CMD of the BPO firm, Quatrro.
The system integration Roy is talking about may take 5 to 10 years. Manual intervention will therefore be required when hospitals bill a patient and the insurer collects the bill from the hospital to check against the insurance policy. "All of that is BPO and back office work and those will be done out of India," says Roy.
While the potential is huge, there is still the danger of the growing protectionism
in the US. Since there is a government component to IT spending in Obamacare, not all projects can be offshored. But Indian players who have already invested in onshore capabilities can hope to bag some of them. Wipro, for instance, has a large American presence because of its 2007 acquisition of US-based Infocrossing. The company already does member enrolment and claims processing work for a large US state and is now preparing for HIX projects. Sangita Singh, head of the healthcare business unit at Wipro, suggests that Indian IT players may need to partner with a US-based company to do the front-end if they want to maximise their chances of bagging large Obamacare projects.
Indian IT, it appears, is more than keen, particularly since it is battling headwinds in its biggest vertical, banking and financial services that generate up to 40 per cent of the revenues for many IT companies.
|Medicare: Revenue potential of enrollment/revenue reconciliation services |
|Insurance organization||Potential annual contract value|
|United Health Group||$115 m|
|Coventry Healthcare||$28 m|
|Kaiser Permanente||$18 m|
|Wellcare Health Plans||$17 m|
|* Medicare is US health insurance for people 65 or older|
|** The TCV reflects spending of only Part C and Part D of Medicare|
|Source: Industry estimates|