Genpact (NYSE: G) and TCS have stated that healthcare outsourcing will be one of their focus areas in 2009, voicing the interest of many others in the Indian outsourcing industry. This is owing to the debate in the US about impending healthcare reforms along with a realization that the industry did not crumble under the severe recessionary trend. Genpact currently earns about 7-8% of its revenues from this vertical. The company currently offers asset management, hospital administration, supply chain logistics and finance and is looking to further expand its offerings. TCS earned close to 6% of its revenues from this segment in 2008-09.

The Indian outsourcing companies have extended the gamut of services in healthcare and are now equally competent when it comes to knowledge based services. Cost arbitrage coupled with qualified personnel has channeled outsourcing in healthcare to research and development and diagnostic services, also termed as KPO. BPO services typically include medical transcription, billing, coding, and data management. Clinical trials in spite of the controversy attached are already being carried out in India. The Indian IT service providers consider healthcare an important part of their services portfolio, and have developed solutions specific to client requirements. HR and e-learning for healthcare are also in great demand and require vertical knowledge.

US healthcare policy changes: Opportunities galore

The healthcare expenditure in the US is expected to be close to USD 2.5 trillion in 2009. President Barack Obama is spearheading an overhaul of US healthcare system to provide the best possible medical care to all Americans. Hospitals, in following this mandate will need help - to cope with core responsibilities and also to cut costs. This indicates an increased use of third party providers especially for all non-core functions. The Indian outsourcing companies hope to make the most of this opportunity. Though a strong anti-outsourcing sentiment is gaining ground in the US, benefits are difficult to ignore and radical strategy changes are not expected.

After the initial boom and then the bust of Indian medical transcription services in 1990s, awareness about strict regulations and policies around healthcare has increased and most companies are equipped to deal with them. With growing interest of top companies in this segment, standards are likely to be high and competition tough.

The Indian government has also recognized the opportunity and is doing its bit by interacting with the industry players in the US. At the FICCI summit recently, efforts were made to encourage engagement between companies in various sectors including healthcare. Facilities at the tech and IT parks in Andhra Pradesh are a case in point where the government is initiating measures to encourage overseas companies to invest in the state.

Greater the opportunity, Higher the risk

Michael Tysiak, CEO, Biobase, a German-based biotech company, recently stated that about 85% of their work in now done in India. Oxygen Healthcare (O2H), a UK-based biotech company is setting up new labs in Ahmedabad SEZ. The cost advantages that go up to more than 50%, are difficult to ignore especially under current economic conditions. However healthcare is an extremely sensitive area and data security is a challenge. Indian IP laws are better than many other countries, and companies have also taken measures to address the issue. There have been instances of lapses where individuals have given out information to journalists. Even a one-off incident creates a dent in confidence.

Technology is another area of concern as more and more companies vie for high-end services. Improvements in education structure and investment in infrastructure are of paramount importance. Government involvement is critical as the Indian outsourcing industry strives to measure up to the standards needed to grow to partnering overseas companies.

ValueNotes Outsourcing Watch: Insights for Investors is a unique news and analysis service from the ValueNotes Outsourcing Practice, focused entirely on outsourcing; This publication analyses events in outsourcing, outsourcing companies, trends in the sector, impact of global competition from offshoring to established US companies, and emerging investment opportunities.

No responsibility is accepted for errors of fact or opinion. Neither the analyst nor ValueNotes has a position in the stocks covered above, or has received any payment in any form for this report. ValueNotes does not own or trade in the stocks of companies under coverage. ValueNotes does not provide investment banking services or investor relations' services to preserve the independence of its research. Neither ValueNotes nor the analyst incurs any liability arising out of use of the above information/ report. Reproduction in whole or in part without written permission is prohibited.

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