Chennai becomes a hot destination as new players make it a world-class cottage industry

The United States spent $1.42 trillion in 2002 and this figure is likely to touch $2.47 trillion in 2010. About 85 percent of this is spent indirectly as payments made by health insurers and not patients, to healthcare providers. Healthcare providers (providers) prepare bills and send it to insurers (payers) who in turn process each claim and decide on the payment. The paperwork on both sides provide great opportunities for Indian BPO service providers.

Provider BPO Services
Quite a few companies provide medical coding, billing, and collections services to healthcare providers and medical billing companies in the US. That number is on the rise, prompting us to call it a cottage industry. And Chennai is becoming a hot destination. The challenges, however, are many. The biggest one is to sell to a fragmented market. While that requires a large marketing spread, a far bigger challenge is to convince them to outsource to a far-off land, about which they have no knowledge.

The billing parameter is also 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—at a rate of 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 in the day time and by the collections staff in the night.

This space will see a lot of consolidation. Indian BPO companies that venture into this space first would be ones that have exposure to the payer side services and hence the domain expertise, if not process expertise. In fact, the trend seems to have started with Perot Systems who has acquired Vision Healthsource for $10 million.

Payer BPO Services
The payer side outsourced processes are quite similar to other insurance claims processing work, except that here there is a need that the people understand medical terminology and on phone have to deal with professionals, who call from billing/collection companies and providers, rather than end users. Large-scale BPO companies do club it with their other insurance practice, as the process is largely the same. Big Indian BPO companies doing payor work include Daksh, Hinduja TMT, ProcessMind, Vee Technologies, Nipuna, and Worldzen. Companies who have outsourced include Aetna, Cigna and IMG Health. United Healthcare has set up a center of its own.

While some health insurance companies are big enough, almost two-third of the market is held by public insurers, who may not offshore. The private insurer market again is divided among insurance companies and the employer insurance. Among private insurance companies, with the exception of a few Aetnas and Cignas, most of the market is shared by small, localized Blue Cross Blue Shield (BCBS) companies, who are less likely to outsource, though unconfirmed market grapevine has it that some companies are considering India.

Health insurance managed by large employers, where the claims administration is carried out by TPAs, are unlikely to be outsourced, unless absolutely forced. Many companies providing payer side services are likely to add provider side service to their portfolio and vice versa. Some M&A among the medical billing companies, TPAs, niche BPO players and bigger BPO players is also expected.