Healthcare has been on everyone’s minds in the US, in the wake of the acrimonious legislative fight and with the recent elections.
And when any industry gets the squeeze, us sourcing-folk immediately think “hmmm, will they now do some outsourcing…?”. (Read our earlier piece on the impact of healthcare reform on healthcare payors).
So we thought we’d turn to someone who has the lovely task of actually selling outsourcing to healthcare organizations. Not an easy task – I can assure you, having once worked as an advisor on a healthcare BPO evaluation… and was nearly lynched and deported before being forced to watch an entire viewing of “Scrubs”.
Step up Sumit Sachdeva, the Head of Cognizant’s Healthcare BPO practice, to see if we can make some sense of it all.
Sumit has spent last 8 years of his career in the Healthcare BPO industry and has seen it evolve. He joined Cognizant BPO in 2006 as a part of the initial management team and has been instrumental in its growth. Prior to Cognizant, Sumit worked with Hexaware and Xerox India in various roles, before relocating over to the States.
A dedicated globe-trotter, you’ll always find Sumit sampling some local cuisine or culture… or even climbing a mountain, like Mount Pilatus, nearly 7,000 feet up in the Swiss Alps. And a mountain’s a pretty good metaphor for the healthcare sector. It’s massive, hard to figure out, and riddled with uncertainty. So we turned to Sumit to brief us on why there’s so much activity in the healthcare sector, and the impact of healthcare reform in the US…
Phil Fersht: Sumit – thanks for taking time to talk to HfS Research today. So tell us about the healthcare business. Why is it so busy right now?
Sumit Sachdeva: Oh, there’s quite a bit of momentum that we have. So that’s keeping us busy. We’re all set for a significant growth this year and are expecting this trend to continue for the next year or two.
Phil: What sort of work are the clients demanding?
Sumit: I think across the board, different types of customers are looking at different pieces of the pie but – once at the table – you can end up having several different discussions! We’re more focused on the vertical services – the very core operational areas within health plans. And there is significant demand in those services I feel.
Phil: So, the fact that you are vertically focused–is that playing to your advantage in the healthcare space?
Sumit: I think so, because what’s happening is that when you go and position yourself as, “Hey, I can do F&A or I can do HRO or I can do procurement” and all of that kind of stuff and then you also say “I can do also claims, etc.,” what happens is that when you’re talking to the business guys who are the core functionaries—not the CFO or not the procurement organization, etc., when they see this array of services, they feel that you are generalist BPO company. Right?
But when we go to them and say, “Hey, you know what? This is our service offering. This is what we will breathe, eat and sleep,” I think we start seeing the discussions are a little more focused.
I think the vertical BPO push and positioning that we have been following for the last three years is now gaining ground in the industry. In fact, in the last analyst session we had in New York, a lot of people were curious about, “Hey, I heard about this vertical BPO. What is it? How is it different?” So I feel that it’s gaining traction. What’s your take on it?
Phil: We’re currently ascertaining the current environment and whether health reform has been impacting sourcing demand from several healthcare organizations. I think it’s taking a long time to get the legislation introduced and then pushed through the key channels. However, we’re definitely seeing increased pressure and interest from the buy-side to look at specific processes. We’re seeing a lot of interest in claims processing, revenue cycle management services, for example. Is that where you folks are seeing most of the growth in terms of your process focus?
Sumit: Yeah. I would put it into different buckets. So if you look at the large plans where they have outsourced a lot of the low-end work, those type of health plans are now starting to look at, “Hey, what else can I do? How can I get ready for this change and reform and control my costs?” So they are pushing things to the next level. So, for example, we’re seeing this huge demand coming in, in terms of benefits configuration because as we all know that the healthcare reform is going to have an impact on the benefits plans. So starting right now, as an example, coverage denial for children with pre-existing conditions has gone away, the lifetime limits have been removed from several plans etc. So there’s a significant demand for how to go about making those changes into the benefits plan. Now if you’re a BPO organization, it’s very difficult for you to get into that space because it’s a fairly high complexity, high domain area. But since we’ve had invested in those kind of domain competencies, it has been easy for us to get in and start growing into that space.
So that’s one example of how the healthcare reform is driving demand in more complex areas. When you come to the smaller and mid-sized plans—typically more of the smaller plans where they’ve had couple of systems or their systems are a little arcane and they’ve been very manual—they are increasingly coming under pressure to do something regarding their whole operations because with the healthcare reform coming in, they know that their costs had to come down. But more importantly they have a looming regulatory requirement of complying with HIPAA 5010 and ICD-10 changes, which are pretty big changes and would require significant outlay. Especially when you have two or more systems, that’s where the dilemma is coming in: “Hey, what do I do with the two systems? Do I remediate two systems and double my 5010 and ICD-10 remediation cost? Or should I use that just as a point and consolidate it into one system? And is my system, the right system—or should I look in the market and get another system?”
So, I think, in that sense you’re seeing a kind of a trend picking up where some of the smaller plans are now looking at more of an end-to-end service. “You bring the platform. You kind of do the whole IT and BPO and infrastructure combined and just give me the service.”
Phil: Do you feel that the way BPO is moving in healthcare, it’s going to remain on a vertically-centric course like this? Or do you think that we’re going to see more horizontal areas like HR and finance open up in time?
Sumit: I think so for some time. I think that the horizontal services will open up. We’re seeing some initial trends however timing is something that we need to look for. The reason why I’m saying timing is that there are only so many balls an organization can juggle at a given point in time. So what’s happening right now is that there is so much pressure and so many changes currently happening in the environment for the next two or three years.
I don’t know how much focus would be there on, for example HR or F&A, which in a health plan environment would have a limited impact on their operations side. To give you a sense of the scale, for example, a large healthplan might have 200 to 300 people in finance and accounting but they would have 5,000 to 7,000 people in claims. So where’s the bigger bang for the buck? That’s something that will probably drive some of that timing.
Phil: Do you feel that most of the client situations you’re getting pulled into require both a technology as well as a process element? Or do you feel a lot of it is very process-only type engagement at this point?
Sumit: I think, like I said, smaller organizations are looking for a lot of platform stuff. The larger organizations understand that a combination of technology and process can play a very key role in terms of driving the process to the next level. And that where IT+BPO Synergy plays a key role. There are two key contextual pictures here
When I interact with customers across the board, one of the things that continuously comes out is: “We know that there are low-hanging fruit that can be leveraged and have a good ROI, if you just look at it in the context of a particular process. But in the context of the larger organization, that ROI is relatively small so we never get that budget or that focus or attention to do this particular kind of IT initiative.” So when we come in as a vendor, we just focus on that particular process. It’s much easier for us to bring that attention and that focus to drive that process improvement. And a lot of times, these kind of opportunities get built in pricing of the contract, etc. So that is one context.
Then the second context is where the customer says, “We understand that there are opportunities for process improvement. And we also know that there are so many different opportunities that we won’t be aware of. So if an organization can come in and drive this process enhancement, they feel that “Okay, I’m going to get the assured benefit of the identified opportunity but there are opportunities to get more.”
So that’s what the buyers are starting to look at and that’s where that whole IT/BPO synergy kind of thing starts to play very effectively.”
Phil: All right, so what do you think are the main barriers holding back firms in the health care from looking at global sourcing right now? Is it still a big barrier for them to cross—to think about using the sources outside of the country etc? What do you see?
Sumit: I think the barriers, if I may say, are, in the current economy—obviously, job losses. Spreading all of that information in the community which they service is an important factor that starts going in their mind.
The second piece is the appetite to undergo that change, because healthcare organizations have typically had the opportunity to continuously increase their premiums, although they have been under pressure to reduce costs. But that pressure has not been as intense as in some other industries, like manufacturing, retail or even banking and financial services.
And the third factor is a tendency of a lot of people internally thinking that, “Hey, we are here for the good of the society. We service the society.” So that is the kind of mentality, especially in the hospital side. But that is changing now because we are seeing that people are saying, “We are doing Social Service, we are not for profit but then I need to be viable to survive. I need to make sure that I’m covering my costs.”
I think those are some of the reasons this industry has been a late starter. But now those perceptions are changing, people are becoming more business- and top-line-, bottom-line-focused. And so that’s why we are seeing a little more traction. It will take a little time for that momentum or inertia to move more in the offshoring and outsourcing direction.
Phil: In terms of the Healthcare Reform Act, is this something that you’re seeing driving a lot of these decisions right now? Is it very much on people’s minds when you talk to your clients or do you still think that it’s being put on the back burner until it actually comes into action? What’s been your experience?
Sumit: I think definitely Healthcare Reform is forcing organizations to rethink their strategy and their business model. There is opportunity and there are challenges. They’re kind of both. A lot of organizations are now realizing that the only way to address the Healthcare Reform is to control your costs or optimize your costs and at the same time, grow. If you do just one of them, the chance of survival will be very limited. So that’s where it gets challenging for the health sector.
If you have to optimize cost then how do you invest in growth? How can you do that in combination?
And that’s where a lot of organizations are thinking about: “Hey, should I look at outsourcing? Should I invest the dollar that I have to focus on growth and then leverage a strong partner to help me in terms of optimizing some of my costs?” I think that’s the kind of thinking that is permeating in the industry in several places that we’ve been interacting and having some discussions with. However people are still kind of absorbing the whole impact.
They’re still strategizing how they are going to look at the next four years in terms of the reform and its impact. Before they were looking at how the first wheel of changes get accepted, acknowledged, etc., and now this anxiety for the November elections is also something that, especially from an outsourcing perspective, is making people, take a wait and watch approach. “Let this election pass. Let’s see what happens. The government policies might take a change or turn or whatever it is.” So I think that’s where a lot of organizations are, especially the medium and the smaller ones. There are certain organizations which are some of the more aggressive organizations have or some of the organizations have already decided that: This is an opportunity to make a big change so let’s go ahead and do that.” So we are seeing more actions in there. They are some of the more progressive organizations.
Phil: Sumit – thanks so much for your time today – our readers will certainly appreciate your insights and experiences.
Sumit Sachdeva (pictured) is Head of Cognizant’s Healthcare Business Process Outsourcing practice. He can be reached at sumit dot sachdeva at cognizant dot com