Xerox's Management Hosts Healthcare Services Analyst Day (Transcript)

| About: Xerox Corporation (XRX)

Xerox Corporation (NYSE:XRX)

March 07, 2013 12:00 pm ET

Executives

James H. Lesko - Vice President of Investor Relations and Vice President

Connie L. Harvey - Chief Operating Officer of Commercial Services and Corporate Vice President

Mary Scanlon

Mike Morrison

Charles Fred

RG Conlee

James H. Lesko

Yes, why don't we get started. I'd like to welcome everyone to Xerox Healthcare Services Analyst Day. I'm Jim Lesko, head of Investor Relations.

Before we get started, I do need to remind everyone that we're not be reaffirming or updating any prior guidance. I direct you to our forward-looking statements of Page 2 of our presentation.

With the acquisition of ACS in 2010, it really is no surprise, I think, to anyone that we are transforming our company to a Services-wide business. In fact, our Services segment in 2010 contributed over 51% of our total revenues and grew at 7% constant currency. That's a trend we expect will continue in the future. In fact, we said at our last investor conference, we expect by 2017, actually 2/3 of our revenue to be coming from our Services segment.

So the question is, why are we here today? And that's to share with you our broad exposure to the health care services industry and how it's going to continue to be an engine of growth for both our revenue growth and margin expansion. Hardly a day goes by where you don't hear in the news today information about health care challenges and opportunities. What you don't hear about today though, is that Xerox today has over $2 billion presence in the health care service industry, and we are a leader in transforming health care services for that overall industry.

We continue to show our Services segments through this slide, which depicts all of our offerings across a very diversified portfolio. And we show here our revenue contribution for the Services segment, the Document Outsourcing and it -- this with Managed Print Services and Communication and Marketing contributing to the 30%, and the percent contribution of our Services segment through to the other areas. We also wanted to highlight in green those areas which were dedicated solely to the health care industry or those areas that have partial exposure to the health care segment contributing to that a little over $2 billion of revenue from the segment. We're also highlighting, and we'll talk more about the revenue and profit contributions, which are significant. All of the offerings to the health care space are growing at above-average revenues and generate above-average margins to the corporation. And as such, we're continuing to invest, both internally and externally, to ensure that we're going to participate in what is going to be a rapidly growing market.

For today's session, we really hope to demonstrate how we participate across a broad swath of players, both employers, governments, payers, life science/pharmas and providers and how we're really looking to participate across this value chain in creating not only great services that are world class, but really can change health care outcomes and effectively impact the overall cost management of health care services.

Let me spend a minute now and go through our agenda. And as we go through this morning's session, although it is webcast, we do want to make it as interactive as we can. And much of the presentations we'll be going through will be more of educating why we think this opportunity is so great given the dynamics in market as well as how we're differentiated in the marketplace and are positioned to really be a real leader in this space.

So let me start. We've got Connie Harvey, who's Corporate Vice President and Chief Operating Officer of Commercial BPO services who'll represented the unit in view of our health care opportunity. Following Connie, we have business leaders from multiple areas that are going to go into the specific areas, offerings and opportunities that we see in the business areas. The first one will be Mary Scanlon, Senior Vice President of Government Health Care Services. She'll be followed by Mike Morrison, Senior Vice President in our payer business; and followed by Charles Fred, who is the CEO of The Breakaway Group, a Xerox Company. And Charles is extremely knowledgeable in the provider area, and has deep insights of not only Xerox's offerings, but the trends in this industry as well. At that point, we will conclude the webcast. We'll have a short break, and then over the lunch period, we've got Steve Hoover, who is CEO of PARC, Xerox PARC to give you a brief update on kind of where PARC is in its relations to Xerox and health care services. And RG Conlee is with us today. And RG is head of innovation, research and services for the Xerox Services group. We'll then break and move into -- in very close proximity, a series of innovation demos, which will really share with you how this work is being to practical practice in areas in the marketplace today. One additional guest we have today is Dr. Eliot Asyre. Eliot is with the Buck, consulting on Xerox, which really supports the employer side in terms of consulting services, and in fact earlier this week, had a very interesting announcement around employee exchanges from the employer side, which we think would be very exciting.

So with that, I'll turn it over to Connie.

Connie L. Harvey

So good morning. I'll start with just kind of an overview of what we're going to talk about today. And I think you're going to see this as a consistent message through my presentation and the presentations to follow. Xerox is one of the largest health care providers of health care services with just over $2 billion in revenue in that market. It is strong, growing and above average in terms of the margins in the mid-teens. And we have a very diverse service offering across all the key segments of government, payer and provider. And we're developing and rolling out new capabilities, some of which we'll show you later today.

So as you look at that kind of the factoids around our health care business, so Slide 5, we'd just like to just highlight for you the breadth of those services that we have. We are the largest provider of Medicaid services. We have 20 of the top 20 U.S. health care and 100% of the Blue Cross organizations as customers. And we have over 1,700 hospitals that we're supporting through Midas [ph] and our workforce -- workflow performance and clinical decision-making tools. I think this slide highlights how uniquely positioned we are in the market, to cross -- as health care reform comes in and the market changes, how uniquely positioned we are to make that transition from commercial to government and providers. We see this as continuing to be a very strong growth area.

By any analysis that you see, healthcare is a huge market and it is growing. It is expanding disproportional to the rest of the economy, and we expect that the costs associated with health care will double in the next decade. It is expanding in all areas. This isn't a shift from commercial to government or government to commercial or payer to providers. It is expanding in every single one of the different markets.

So at a very high level, health care reform is something that gets a lot of press. It is a very complicated discussion. But if we put it very simply, health care reform is about increasing access, containing costs and improving the quality of healthcare. By increasing access, it will increase the government programs. It will change the dynamic of how consumers choose their health care and funds will flow to the providers in a new and unique model. From a containing-costs standpoint, there's a lot of focus around improving the efficiency of the system, lowering the administrative costs and focusing on the fraud, waste and abuse that's in the system today. From a quality standpoint, it's going to be focused on results and using technology and personalized care to improve the performance of the health care that is delivered.

No surprise, we expect these changes in the market to drive growth across all of the sectors that we perform in. Whether it's the government, the provider or the payer market, we expect all of those markets to continue to grow in the double growth -- double-digit growth percentages.

I'm not going to go into all the details of this slide. As we go through the presentations from each of the individual sectors, we'll get into more detail. But suffice it to say, Xerox, because of our history, are very uniquely positioned in both government programs, technology and analytics and better communication between the patient and both the providers and the payers.

As we talk about what our health care business is, it's about $2.2 billion total. $900 million of that is in the government space, approximately $800 million or 36% is with the commercial payers, and about $500 million is related to the ITO and the consulting services specific to the providers. I think the key point here is historically, Xerox, ACS and then Xerox Services have then positioned in all 3 of these markets. There used to be very dark lines between these different segments, and those lines are getting grayer and grayer as the whole health care reform comes in and the programs and the way that it's going to be delivered are changing.

If you look across -- and later as you go in the presentations, we'll talk about competitors. There are very few, if any, competitors that we really compete with in all 3 of these markets. We have a strong presence on both government side, the provider side and the ITO and payer side. Very few competitors have that same breadth. If we look at what those services are in the bottom part of that slide, the biggest slice of that comes from our BPO platform, about 36%. This is an area that we have a very strong track record in and have good scale to leverage. Our ITO and our managed Medicaid platform, it's about 23% of the revenue. Communication services including customer care, communications and marketing services, about 23%. Analytics is about 10% and growing rapidly, and the consulting is about 8%. And again, as Jim mentioned earlier, that's predominately with some of the large employer groups. Overall, across all of these segments, we are growing in double digits and we have operating margins in the mid-teens.

We are going to talk about the provider, the payer, the government business in detail shortly. But again, I would highlight that as you look across the Xerox Services business, there are very few companies out there that really cross all of these different vertical delivery markets for health care.

We talked about where we deliver our health care services from. You'll see most states there and also a very strong international presence. And ultimately, this becomes a decision by the customer and the contract on where those services are delivered. For federal and state programs, they predominately need to be delivered within the state that they're servicing. But because of the international presence we have, whenever possible, we can remain cost competitive by delivering some of those services outside of the U.S.

We're going to spend some time today, we're in PARC for a reason, to talk about the innovation we've got around healthcare. I'll highlight a little bit the first bullet point there around health care exchanges. And there's been a lot of talk about health care exchanges and what that means to the market. Within our world, and Mary will cover more on the government side, our government group is providing platforms and services at a state level for individuals and small groups who choose to provide health care through those state exchanges. Buck Consulting (sic) [Consultants] just announced RightOpt, which is its private exchange that can be used for the large employers. And you can actually get leverage behind across multiple employers. And our payer services is providing connectivity to both of those exchanges in services surrounded by all the administrative functions needed for new enrollees. So as you look at how health care exchanges, no matter which direction it goes, we have a piece of that pie as well. You'll see some of the other innovation today that's focused on improving the productivity and access of information for doctors and nurses, and some of the data analytics that we are using to apply to fraud, waste and abuse, which is a big component of the health care industry today.

As we talk about this key takeaways for today, I think first of all, our health care presence is big and we're very well positioned to take advantage of the growth of the market that's going to take place. We have a very wide breadth of services, both from our government standpoint, a provider and a payer standpoint, as well as well positioned with the employer group in providing their health care. And we are investing and will continue to invest in innovation to support that growth.

Question-and-Answer Session

Unknown Analyst

The overhanding, is there any effect on you?

Connie L. Harvey

I'm sorry. Could you repeat that?

Unknown Analyst

Any type of sequestration? How you think that's going to impact these businesses under the health care umbrella? Because it will -- some of it will filter down.

Connie L. Harvey

I'll let Mary take that one. Hold on.

Unknown Analyst

We can take the 2 of you guys. Don't want to do the [indiscernible]

Connie L. Harvey

[indiscernible] Any other questions? And it's Mary then.

James H. Lesko

We should encourage everyone to feel free to ask questions along with the webcast. We do have mics situated that should pick up everyone. So make it interactive and ask as we go along.

Mary Scanlon

Okay. Good morning. I'm Mary Scanlon and I am going to give you an overview of the government health business, and thanks for joining us today. In terms of the sequestration, to answer your question, I would say the only thing that we're seeing in terms of impact is some delays in procurement decisions as the states try to figure out what the other impact is to them. But in terms of Medicaid, Medicaid is pretty much protected from sequestration. But we're assessing this in terms of market behavior, [indiscernible]. So that's been about it for now. Okay? Yes, [indiscernible]?

Unknown Analyst

I guess, that's in the whole pipeline itself. It seems there had been delays in the -- prior to the administration. So I guess, the question for us is just how much incremental [indiscernible] that's all I can say from slowdown in the past quarter and momentum and...

Mary Scanlon

Well, I think from the government health space, I think there's some benefits of incumbency coming -- the other benefits from just keeping what we have because of several delays. But I would say in the past 18 months, and I'm the person who actually reads every proposal. And I don't think that there's been a lot of cancellations. It's been mostly 6- to 12-month's delay in terms of [indiscernible]payment issues. But the delay is primarily at the larger end. We're sourcing a lot of smaller deals in terms of the other lines of business outside of the big technology plays. But this is a balance, i.e., the benefit exchange market is very active. Care and qualities market is very active, long-term care is very active right now. So I think you have to sort of look at the whole portfolio.

Unknown Analyst

Mary, when you say delayed, is that you get a sense of people -- that there's been some recent delays? Do you get a sense that those are being scoped down or terminated, or just they don't know what to do?

Mary Scanlon

Well, I -- what I have found interesting that they haven't been scoped down. And they continue to be pretty a traditional ask in terms of our space. Not seeing as much innovation as I would have thought. But other than just the timing delay, I haven't really seen anything where they've de-scoped at all.

Unknown Analyst

Are you keeping an eye out to see if there's opportunities for some of the -- I guess additional margin rich add-ons business in the event that [indiscernible]

Mary Scanlon

Yes, I'm going to talk about that. But will say, just the short answer is, yes, we have big presence in a large number of states, and that platform gives us the opportunity to expand. I think there's a big opportunity around, what we're calling Medicaid BPO, which is basically leveraging to Connie's point, a lot of the assets in our BPO core and giving those capabilities, selling those capabilities to the state as they sort of grapple with the administrative complexities, call center, enrollment applications, scanning, processing, those kinds of things. I think there is enormous amount of work out there, if you actually take a look publicly at what's being -- in the RFP market right now.

Unknown Analyst

Would it be possible to quantify the amount of contracts that are delayed because of sequestration?

Mary Scanlon

I think it's very difficult to do. I've actually tried to do it a couple of times. I did around the fiscal cliff, and I just did it again around sequestration. And I just haven't seen it yet other than the behavioral delays. I haven't seen anything as far these go then.

Unknown Analyst

And just one more and you may begin as well on the -- how much sequestration is that [indiscernible] to the annual guidance [indiscernible]

Unknown Executive

Well, we don't know. Our exposure to the federal government is very limited, as you know, less than 5%. And so, we don't -- many of our services are key services we provide, surgical services that [indiscernible] this business operation. We don't view -- it's certainly a tailwind, but we don't view it as debilitating headwind. So I don't think we'll see any changes to our expectations, although we're not updating our dividend [indiscernible]

Unknown Analyst

Maybe there's one last before you jump into it. Funding, how does funding affect the health care segment for you guys, knowing that there was a continuing resolution. I guess that got through the House yesterday are still waiting for this on the Senate side. What happens if we get nothing from [indiscernible] March madness where you have sequestration plus no continuing resolution coming out of it? What happens at that point [indiscernible]

Mary Scanlon

Well I think our funding model -- most of our funding comes from CMS and a lot of that fed funding is ...

Unknown Analyst

CMS?

Mary Scanlon

The Center for Medicaid and Medicare Services, sorry, which is the arm of HHS that supports Medicaid. The funding model is just specifically 90-10, $0.90 federal, $0.10 state. So we don't see a big -- we haven't seen any dampening of the market due to those things, either around the time of the fiscal cliff or even now.

Unknown Analyst

Are there any variations when they [indiscernible]

Mary Scanlon

No. Okay. In terms of the government health care business, we, as Connie mentioned, we're about $900 million in revenue. Our customer base is pretty simple, it's the 50 states, primarily the Medicaid agencies in those states. And we have about 4,700 employees to support our business. I think it's important to note that 2013 is going to be a very historic year in government health in that the ACA is less than 1 year away and there's a lot of market activity, a lot of implementations going on. And today, there are about 62 million people in Medicaid. And with the increased eligibility and expansion, we anticipate there's going to be about another 15 million in the market. And obviously, that's going to affect spending. Additionally, outside of expansion, our population as a whole in this country is aging. And so there's going to be challenge to figure out ways to best manage that complex population.

A couple of the key facts about government health. Connie mentioned the platform earlier, but we are the largest Medicaid administrator by claim filing. We've been in this business for 40 years. We provide health care services, and I'll go through the portfolio in a minute, to 37 states and we touch the lives of about 36 million people. Our scale is important. We process almost 600 million health care program claims a year, medical, pharmacy, et cetera. And we also distribute a significant amount of provider payments handling.

Our market footprint is one of our strengths. We today have the ability, to your question, Anando [ph], about expanding our platform. We had an MMIS platform, which is the Medicaid claims transaction platform. We have that platform and supporting customer service operations in 12 states. That's the District of Columbia. We serve as a state pharmacy benefit manager in 20 states, and we deliver a health information exchange product in 5 states, and we provide eligibility services in another 5 states. In terms of our...

Unknown Analyst

How many of the -- in the card you have 4. So how many of the other states, [indiscernible] 1 or 2, are their contracts up? Or is there an opportunity to bid for the various -- just what is the opportunity [indiscernible]

Mary Scanlon

I think the opportunity that we see is in a couple places. Number one, the Medicaid program as a whole is going from transaction services to more of delivery of care. We have a care and quality solutions subsidiary that provides a lot of the typical services you'd see if you're in a managed care plan now. So we see significant growth there. We think in the area of analytics, as Medicaid moves more to managed care, the states are going to be looking for analytics to better understand how to manage those health plans and what data they need to look at in terms of making sure that the population -- their meeting the goals of the health in their particular state. The third area, I think, is around Medicaid BPO, is what I'm calling it. I think we associate that with the health insurance exchange market primarily. But we're also seeing a lot of the states where we have fill around the claims platforms. They're looking for ancillary BPO-type service, and we're in a good position to offer those. So in terms of the...

Unknown Analyst

I'm surprised I don't see [indiscernible] CGI Group have indicated business integration, I believe. They -- I think this morning, they were awarded Vermont and that they've been awarded 5 or 7 in the last couple of [indiscernible]

Mary Scanlon

Yes, [indiscernible].

Unknown Analyst

I guess [indiscernible] release [indiscernible] but where are they in terms of competition? Are they competing differently than you guys are? [indiscernible]

Mary Scanlon

I could've put them up there. I didn't -- we don't see them as much as we see those other 3, so I just stuck with the 3.

Unknown Analyst

But functionally, are they providing the same types of services on you -- with their exchanges or not?

Mary Scanlon

They are not in the insurance exchange market at all. I think for whatever their reasons, they chose not to go there. I think they have continued to be more of a Medicaid transaction processor and haven't extended across the portfolio as we have. And I think the point on this slide is, and Connie's mentioned it as well, I don't think that there's any one that brings this whole capability to the market. And I think if you look at the competitors across each of these capabilities, it's -- they're not the same type of competitors. So I think give us a strong position in terms of add-ons. And the second thing, I think that's important is that it gives us a strong position terms of emerging markets, in being on the ground and understanding the dynamics of health care in those particular states and developing solutions that meet those state-specific needs.

In terms of where we see the market today, I think I just mentioned that the market today in terms of platform is primarily a transaction platform. There's multiple eligibility systems. The population that Medicaid serves today is primarily mothers and children and individuals that have complex care needs. And in terms of processes and programs, it continues to be very fragmented. The fraud, waste and abuse programs are typically retrospective versus predictive, and it's very much a state-driven program.

One of our competitive advantages that I wanted to spend a couple minutes on is our Health Enterprise platform. This is a claims transaction engine that's designed specifically for Medicaid. We've invested in this. We've invested in the technology. It's a ground up. It's a service-oriented architected platform. And the reason why that's important is because it allows us to provide the states with a platform. If they want a plug-and-play with different capabilities that they have, they're allowed to do that. It also gives us a lot of flexibility and the states a lot of flexibility in meeting the changes and the demand that a lot of these mandates and requirements of the Affordable Care Act are going to come their way. From an operations perspective, which is not as significant but certainly important, is it gives the states data and intelligence for them to build their programs and policies at the state level.

In terms of our overall strategy and vision, I just wanted to point out a couple things here. Number one, with all these health care reform, cost is going to continue to be important. And we need to provide those solutions that address cost pressures at the states are building. We think there are 2 big areas around that. One is managed care, the other is long-term care. The second I mentioned already, is around the analytics. Moving from static reporting and retrospective analytics to analytics that actually are more predictive and can identify trends and information for the space.

The third, and I think the reason why we're here today, is around innovation. What we're seeing in the government health space is innovation really driven by 3 areas. One is the government. CMS as a center of innovation and they have put a significant amount of grant money in the marketplace to -- for the states to develop proof-of-concept products. The second thing is individual states are actually developing their own innovation plans. And there's a lot of opportunity for us as a vendor to be able to partner with them in delivering innovation at the state level.

So looking to the future. As I think I mentioned before, we're really moving from a purely a transaction and payment system in Medicaid to a system of care. Medicaid expansion is going to mean populations that will be, for the first time, uninsured adults under 65 are going to be in Medicaid. So well, how they're going to utilize health care services and from actuarial perspective, what that means, I think, is still pretty unknown to everyone. And the third thing is around processes and programs is, I think, we're just going to see, starting with the exchanges, much more of a consumer-driven retail marketplace.

I want to spend a couple minutes on the government health exchange platform. Since they said this is an online insurance marketplace that is presented to the market in a couple of ways , some states are choosing to offer a small business, a shop exchange, which is typically available to employers under 100 lives. Other states are offering individual exchange. We have been successful in 4 states in selling the platform and Medicaid BPO-type services.

In terms of kind of a percentage, I was looking at some numbers last night, right now, there are 17 states that are moving forward with an exchange, so we're -- 4 of those 17 states are our customers. There are still 26 states that have remained no -- in the no column, and 7 states that are still open. I think the clock's is ticking. There isn't a significant amount of time, since they have to be in production by January 1, 2014, but we do see some opportunity for BPO services there.

This is a slide that has a lot of dates on it. And I think the message that I'm trying to convey to you here is that reform doesn't stop in 2014. There are another -- a number of state initiatives that are going to be delivered over the next 5 years. And we're in the market now and for every single one of these mandates, we have either products, services or consulting on -- that are working with the state to fund more services. So we think this is an active market for us, be it around medical standards, which is what I see incentive. There's going to be significant provider payment reform, and the -- we have a group that just works with the states on developing reform methodologies and different types of payment .

Another area that I mentioned earlier was long-term care and dual eligibles. Simply said, duals are people that are in Medicare and Medicaid. There are about 9.1 million of them. And they are the individuals that actually drive the most cost in the system. They're actually about 43% of the total Medicaid spend. We are in this market today. We are doing consulting services around payment methodologies and value-based purchasing. We have a number of a fraud, waste and abuse products that we have in the market with the states. And we have a dedicated line of business called long-term care. I identified it as an emerging market on the earlier slide, but we are working directly with a couple of states right now on service planning assessment and reporting. Medicaid?

Unknown Analyst

No. I mean, you said people who are in Medicare?

Mary Scanlon

Right.

Unknown Analyst

As first thing, what's your demographic there?

Mary Scanlon

A lot of people -- well, here's the thing, a lot of people think of Medicare as 65-plus only. But there's a significant amount of Medicare that are aged, blind or disabled. They're Medicaid eligible because of the medical conditions that they have. So those are the people primarily that are in dual eligible population.

Unknown Analyst

That's in the 43%?

Mary Scanlon

Right. In this slide, I think it shows you kind of the percentages in terms of overall long-term care. I mean, I had a couple of people ask me why I have a slide up here that has 2010 date to the right, but that's EMS data. They report at least 18 months out, so this is not a mistake. But I think what's important to note is if you look at home and community-based care, that number is going to continue to grow. And there's going to be a shift in spend as states and healthcare reform try to move people into home-based care. So I think, there's a lot of statistics here, but the important thing is that the states -- if you look at these 26 demonstration projects, right now, the dual eligibles spend about $321 billion. And because of reform, that Federal money, that Medicare money is going to coming into the states and see if they're going to have to start to manage it. So the infrastructure that we're going to need to do that is some of the -- a lot of it is going to be around services. And we have a good -- we're in the market today. We're committed to participate in it, and we see a lot of opportunity there. Medicaid is only one human services program. The states typically manage a number of human services programs, including food stamps, transportation, those types of benefits. And I think this is a customer of ours, such as the Indiana Family and Social Services Administration. And the point I just want to leave you here is that this is a situation where we feel it is an effective partnership. We brought our BPO capabilities to a state that had, frankly, very poor program performance and federal fines.

And we were able to, over the course of 4 years, really shift that worst-case scenario into a program that really achieves results. The point I'm trying to make on this also is that I think the states are going to leverage a lot of the best practices of reform and apply those best practices with other parts of human services, and this is a good example of that.

So I think Connie mentioned, we are in a unique position to capture opportunities. We provide a significant amount of services that meet the needs of the states today as well as future needs. We feel very strongly about differentiator on our Health Enterprise platform. And secondly, the work that we've done on the insurance exchanges, we chose the Software-as-a-Service, speed to market is important. And we were -- we've been able to leverage those capabilities to secure business and generate a significant pipeline as a result of that.

Innovation is going to continue to be important to our state customers, and we're in a good position there. So in terms of key takeaways, we continue to see strong growth. Our expertise, our scale and our platform positions us very well for healthcare opportunities, and I think we have a very good view of emerging markets. I'm going to hand it over to Mike.

Unknown Analyst

I think, on software -- target [indiscernible] domestic opportunities here that are all going to spring from healthcare...

Mary Scanlon

Right. Once we are --

Unknown Analyst

Just going to pick one on the CMS. And I think you mentioned probably [ph] used a couple things. The CMS has already awarded this RAC. There are contract structures to a couple of vendors. I don't think [ph]. Do you guys have any primary or subcontractor that work with direct vendor [indiscernible].

Mary Scanlon

We looked at RAC [indiscernible] participate in that. Some of the reasons were around our footprint. And it's [indiscernible] claim, for example. So if you're in the 14 states that exclude you from that market [indiscernible] of the addressable markets [ph]. So we made a decision not to be a part of it.

Unknown Analyst

And is there any advantages or disadvantages in terms of being able to do any type of abuse or recovery-type story to work for your hospital?

Mary Scanlon

No, no, no. We plan the CMS [indiscernible]. We don't see it [ph]. It's going to be a lot complicated.

Mike Morrison

Good morning. I'm Mike Morrison. I'm going to talk about our commercial payer line of business. Just high level, it's about an $800 million book of business in terms of revenue, about 15,000 employees, both in the U.S. and some various offshore locations. I think the key thing with our commercial payer line of business is it's a very consistent business, consistent growth of top line expanded margin, consistent with our renewal rates, 95% plus with -- on a year-over-year basis. And we can consistently deliver bookings. So it's been a fantastic book of business for us in terms of growth, and it's been very consistent over last 2 to 5 years.

Next slide, just to give you an idea of some of our size and scale. We do focus on the larger payers in from the market. We see some of the fastback[ph], see some of the numbers down below. These numbers continue to grow on a year-over-year basis, not only in terms of volume but also in terms of diversity. I'll talk today about how we've diversified our service set and where we continue to grow. But we're very proud of these numbers. On an annual basis, they continue to get larger.

So what's going on in the commercial healthcare market? Well, first and foremost with reform, payers are having to shift from a B2B market more to B2C market, which creates a lot of changes not only systemically but also in terms of the service model for these individuals. And we've got a lot of different products and assets that we can bring to that, that I'll talk about today.

Secondly, there's going to be a lot more volume in the system through the exchanges. And through volume, it's going to drive additional costs, and we're in a great position to help provide efficiency in that regard.

You're going to see more and more entities, whether it's smaller health plans, co-ops, a lot of federal money that's creating additional competition in the market. You're going to continue to see cost pressure through the medical loss ratio mandate and just continued cost pressure. And there's going to be additional models of care, whether it's through ACOs, pay for performance, patients center home, all those different types of models are going to really change the market. And so all of these things combined, we're in a great position to address each and every one of these. And I'll take you through those today.

So from a Xerox perspective and how we view the addressable market within commercial payer, it's about a $925 billion market. Broken down, 85% of that goes to cost of care, which leaves about 15% for margins and administrative services. On average, most health plans are in the 6% range in terms of margin of profit, leaving $84 billion as some sort of administrative service. Right now, we see about 30% of that, that is available through the outsourcing market, although I will say this on a -- every single year it continues more and more of this shift to the right, as they get comfortable with services and going out to outsourced providers. But you're going to see this pick up a couple of points every year. So it leaves us as you take out ITO, HRO, SNA and some of those services, about a $15 billion addressable market for the service set that we offer. Any questions so far?

Unknown Analyst

What's the competition in that scan?

Mike Morrison

I'll get to our full competition in a couple of slides for each one of the service category.

Mike Morrison

So what value do we try to bring to the commercial healthcare market? Kind of the ante is you need to be able to provide cost takeout and efficiency. Very seldomly are we involved in a pursuit that we're actually adding cost.

We have a lot of assets across our government business, our provider business and our commercial payer business. And we've got a lot of subject matter that stays out in front of the market and reforms. So we are always bringing ideas, thoughts, products to our customers, out of provider market, i.e., the exchanges and how they can increase their footprint through that regard -- in that regard.

From an innovation perspective, I think that's one of the biggest things we've seen through the Xerox acquisition. Not only in terms of dollars but in terms of the methodology and the discipline. This is something that from a former ACS perspective, we tried and we tried but really struggled to bring a lot of different innovative products to the market. Through the Xerox acquisition, we've seen some big pickup in that regard. And you'll see later I'll talk about some of the specific innovation products we have going. And later today, you'll see some demonstrations of those products.

From a scale perspective, as our customers continue to grow and, I think, in the exchange, it will be another great example of that. Medicare has been a fantastic recent example of that. But as they continue to grow and need to service their membership, we are in a great position from a procurement of people, assets, real estate, all of those types of things to -- they look to us to continue to scale. So we've seen a lot of recent growth and expect to see continued growth as they grow with their membership.

And finally, at the end of the day, what we ultimately try to provide through the health plan is a positive experience and a great experience for those members that are out there. And so we're seeing a good result in that regard.

So what's in the payer services market and how we view some of the services? As you start there to the bottom left, more transactional in nature, and as you move up the curve, more strategic in nature. Some of the ones that are folded here are where we have a meaningful footprint today and some of the services that we provide. Typically, we'll find ourselves entering the market down to the far left with the transactional and more of a Tier 1 opportunity. And then as we continue to build relationships and execute on those contracts, we get the opportunity to move up the value chain and continue to grow with our clients.

Of our bookings, we typically see about 80% to 85% of our annual bookings come from our base business and about 15% to 20% will come from new logos. So just from an organizational perspective, dedication, our sales and operational model is focused on our current customer base and continue to grow within that customer base.

I will say from an acquisition perspective, we are working to grow strategically. We're, today, more focused on the comp side of the business, so more the administration, where we're looking to move in the future is more on the revenue side of the equation of sales, the marketing, billing , administration, all of those services that we will look provide a plan to get on the revenue side of the equation and not just the cost side.

Unknown Analyst

[indiscernible]

Mike Morrison

My analytics perspective -- Connie, help me here. I would say our analytics is $100 million of the $800 million.

Unknown Analyst

[indiscernible] take an opportunity to be active [ph]?

Mike Morrison

Okay.

Unknown Analyst

[indiscernible]

Mike Morrison

10% to 15% on the analytics side.

Unknown Analyst

[indiscernible] just probably [indiscernible]

Mike Morrison

I would just say that some of the analytical and the technology is really an enabler of the transactional piece. So the transactional piece isn't just limited to labor or processing. A lot of it is technology that we have kind of sits underneath that transaction, and that's how we're able to work.

Unknown Analyst

I think you're right that they're trying keep it [indiscernible]?

Unknown Executive

Product development, yes.

Unknown Analyst

That we've ever done before in that marketplace, see how it performed.

Mike Morrison

Within our commercial payer book of business, going a little bit deeper into the service category, these are 4 main towers of service delivery. The first on the left, transaction processing. You're going to see some of the services listed there on the left. There's been a lot of front-end scanning, mailroom, data capture, claims processing, enrollment processing, all those different types of services that we have proprietary technology that sits underneath these fairly large labor force outside the United States doing a lot of these transactions.

Book of business. We continue to try to grow this at the high single digit 10% range if we can. But as transactions continue to automate, this is a book of business that we're continually having to backfill every year. So strong book of business for us and the genesis of a lot of our contracts, continues to be a good margin profile for us. But in terms of growth, we've got a couple other towers here that are growing at a much faster pace.

One of those towers is customer care, probably our fastest growing in terms of top line and continue to deliver solid bookings. All the types of services, when you think of customer care inbound, outbound, voice, for all the different services that you see listed there. I think the difference as all of our--us and our competition, you plan on similar labor pools, real estate, similar, where you really can make a difference on the technology side, and managing the attrition. And we've had tremendous success go in that, and it's been our -- probably, our fastest-growing tower of business.

So is our communication and marketing services. This is both the physical and electronic delivery of communications on behalf of our health plan. We got into this business about 4 years ago through an asset acquisition of a large health plan in the market, with a very unique deal structure, which was as we looked at the business model, about 20% of this is transactional in nature, 80% of it was focused on postage.

We went at it from a little different perspective to where we almost broke even, smaller margins on the transactional piece. And our ability to make margin in this space is based on the outcome of being able to take out postage through data analytics, consolidation and leveraging volume through other channels of the market to eliminate costs. And that's been a success -- tremendous success story for us. We since added 2 additional clients in this book of business and are optimistic about our future to continue this growth in that segment as well.

Finally, on the right-hand side is our recovery services book of business, primarily a data-driven from a pre- and post-cost containment and avoidance. This business is primarily focused on who's got the best mouse trap that we're continually trying to evolve each and every year to identify new ways to recover and additional ways that we can apply data and analytics to grow this book of business.

I think what you'll see on the right is you'll struggle to find any service provider in the market that is touching all of these different service categories. So from a standard or common data set, we're able to maximize the efficiency through all those different channels.

Unknown Analyst

This was how it was set up [ph]. Left to right, they're higher a little [ph]. It seems like this shift is an event [ph] to the legacy. So what are your opportunities? And is this going to eventually sort of moving up the stack? And then what are the margin differences as we move left to right with this stack?

Connie L. Harvey

So if you look at this 10 years ago, [indiscernible] 95% on the sponsorship [indiscernible] identified with [indiscernible], and that was not just the solution to [indiscernible] rates. We have moved upfront, balancing what Mike described earlier. And margins are proportionate to the value. It moves further up [indiscernible].

Unknown Analyst

Does that translate to [indiscernible] Difference as well?

Connie L. Harvey

If you go back one slide. And kind of lay out what is on other slide. The far left part at the bottom, [indiscernible] customer care, and then on a [indiscernible].

Unknown Analyst

That's helpful. And I guess, just going back to Slide 13. It has sort of the payer time here [ph], $15 million. [indiscernible] said, they approved long-term growth rates. Sounds like you guys are -- I think, your transaction processing is growing, I think, double digits. I think, that was accounted, Mike? It would start to seem to get that you're growing -- the newer opportunities are growing faster then you're growing above market. And if you could just talk about is that expectation going forward, going -- what the competitive dynamics are? And just sort of how you bring out all those there? Just talk about -- or to what degree do you bring them to bear together [ph]. It has been to the marketplace.

Connie L. Harvey

From a growth perspective, it's pretty much goes back to [indiscernible] growth. [indiscernible] I think, it's a fact [indiscernible] a lot of [indiscernible] growth, so albeit slow [indiscernible] growth. It's a function of a [indiscernible]. And if you look at the large payers, a trend that we've seen over the last several years have been, they want to see more work with less [indiscernible]. So our ability [indiscernible] in each one of those markets, we are the only provider that grows [indiscernible] capturing more of that share in some of [indiscernible].

Unknown Analyst

One quick question. Back on the Page 42 of the value-added increases curve chart. What percentage of that worked, if you think about, really, just send it offshore -- has already been offshored or will be offshored, looking at the lower end pieces ? And the other thing, [indiscernible] growth?

Connie L. Harvey

It depends on the customers. There's probably very few of those to help you [indiscernible], because of the programs that we're supporting and the green line is blurry. We have promotional finds that are providing government protests [ph]. All the other [indiscernible] if the program allows [indiscernible].

Unknown Analyst

Steve identified in his broader services commentary that flow work [ph] will be moving else if possible [ph]. It's been with health services. So in your category is that also true that over the next 3 years, if you'll have more work of the $2 billion that you have that move offshore [indiscernible] headcount? And is it in the same kind of general magnitude that Lynn talked about in his slide, 8% of workforce over the next couple of years? Or is that [indiscernible]?

Connie L. Harvey

That has been [indiscernible] delivery [indiscernible] on growth. It's been a lot of [indiscernible].

Mike Morrison

I do think as our customers improve the -- face cost pressure, that's obviously a lever that you pull us up. Either we work from the U.S. to offshore. So we're a little bit hamstrung with the direction they want to go and how aggressive they want to be, but I would see cost pressure we'll see that shift.

Unknown Analyst

Is the margin -- is that a margin opportunity as well?

Unknown Executive

[indiscernible] Steve mentioned a few moments ago that you [indiscernible] more revenue focused. I think it was the start to M&A [indiscernible] cost but -- and let's see if it is [indiscernible]. Is it market-driven? Is it -- I guess, it’s what [indiscernible].

Mike Morrison

It's kind of the next thing for us. I mean, we continually been focused on the back office and how we can take cost out. We had success in the Medicare Part D space with some of the selling and conversions on behalf of our customers and think we can have additional success as health care moves to individual purchasing. So it's more of where -- a, where we think the market's going, and b, kind of our next big thing to round out our entire offering. And you start bridging all of those things together, and from a synergy perspective, we think we can capture some of that value.

Unknown Executive

Is that right? And taking out [ph], with regard to M&A comment. So if you [indiscernible] will that be gone through acquisition, or probably, you're going to be back to the [indiscernible]

Unknown Analyst

No one's [indiscernible]what's going on in India right now. There's -- on the healthcare side? And has that actually impacted the acquisition restructuring?

Unknown Executive

I'll let Connie really speak for that. [indiscernible] the fourth quarter market stands as it falls. I think across all the organizations, payers respective [indiscernible] in terms of how well they delivered in central locations, [indiscernible] location, other [indiscernible]It is certainly [indiscernible] where the offshore opportunities, certainly more aggressive as well as our clients. I think, our only [indiscernible] rates offshore.

Unknown Analyst

[indiscernible] either [indiscernible] in our comments and provide outlook . I'm just curious, I know you guys do a lot of comping the network by [indiscernible] outsource type of business. Has there been any thought, any change -- anything [indiscernible] better than others? I mean, -- and the fat here is it seems like a natural way of save money.[indiscernible] I understand that's a lot of [indiscernible].

Connie L. Harvey

I think it's [indiscernible] very well. It seems like [indiscernible] more individually focused. And it goes to [indiscernible], but it also expands market [indiscernible].

Mike Morrison

[indiscernible] going from an innovation standpoint. I'll let RG comment on this as well. We're trying to find more innovative solutions to inbound [ph] -- here to some of the privacy issues around [indiscernible] exclusively [indiscernible] definitely, RG you can talk about it [indiscernible]. So what happened is we knew the wait [indiscernible] concern. Some of the clients will have [indiscernible] do all of the same work that we're doing [indiscernible] Creative. We partnered with a research firm outside United States as well as some [indiscernible] enclosure that you'd be able to point the competition and also provide video surveillance data with access. We'd have an add-on network together last year. The context of video as well as audio to any call center or [indiscernible] itself. Those things alone are kind of the stepping stone to be able to go further. And all else, it's pretty good basis. But the types of work is always challenged, so to be able to address that, that's some [indiscernible]. I think it's really the ability to cross the analytics and to be able to tell different part of it.

Unknown Analyst

I think it's really the ability to cross the analytics and these intelligent components. How much -- how restricted are you in terms of paper requirements and the privacy laws to be able to actually go in there and try to kind of leverage the information you might have access to?

Unknown Executive

I don't think -- I mean, within a cross customer, there's restrictions within a customer where you can find synergies through the data set. We don't have that. I'm not aware of any restrictions that we have.

Unknown Analyst

Do you guys have a sense yet how much of a kind of advantage you may have in the ability to do that? There was sort of [indiscernible] together. I think one of the bigger [indiscernible] was getting the data off the paper, getting it in databases, things like that, using some of their technology. And then there has been conversation of sort of flipping around and using it as [indiscernible] tool. [indiscernible] these health customers to be able to [indiscernible]. How robust, I guess, is that possibility? Is that some of what you're talking about when you talked about [indiscernible] discussed today? And is that a real competitive advantage [indiscernible]?

Unknown Executive

I would say most of our -- across tower analytics and data set, we will use as an enabler for continued services and driving value. We haven't spent a whole lot of time and investments across data and selling that back or kind of create value that way yet. Most of our experience so far takes the middle 2 towers. For example, customer care and some of the outbound communications say, okay, I've now purchased insurance. I'm a member, and what types of behavior do I have as a member? And I [indiscernible] phone call, what can we do through some of our other channels to proactively communicate or do some deflection for why calls are coming in? So a lot of the data that we're viewing and looking at is to create a better service model that we can then go sell. It's not to then go out in a consulting way or sell that back [indiscernible] make sense.

Unknown Analyst

[indiscernible]

Unknown Executive

So one of the things that we've [indiscernible] the last few years, [indiscernible] working [indiscernible] the HR consulting that we're doing. And while we haven't yet done it, we see that as the marketplace is focusing on outcomes, defining the [indiscernible] controllable with these patterns in the U.S. we know that that data is there. That's something that's in our agenda as we work through 2013 and '14, respecting all the rules that we have in terms of contracts [indiscernible] everything. So we think there's some terrific returns possibilities from everything.

Mike Morrison

So those are our 4 key [indiscernible] towers. And while we're optimistic about the growth within each one of those, I think we've gotten some tailwinds from reform in [indiscernible]. One is from the health insurance exchanges. Mary talked about the platform. Obviously, in our Buck Group, we've got the private exchanges, but at the end of the day, for health plans, you need to be able to sell your product, and you'd be able to administer, then you need to be able to retain your membership. And our focus from a health plan perspective is: A, assisting with that connectivity to whatever the exchange might be and then also the service model that surround that from us, filling the administration, customer care, all those types of services.

We've had some success on this regard. This is really a late 2013 implementation, and you'll start seeing the majority of this benefit into '14. On the right side, and this really goes to the new entities in some of the markets, but whether you're a small plan and need to scale or if you’re a coop, for example, you have some federal money and you're going to write up a new plan this year, and you're going to focus on your product, ultimately gaining membership. We've had some wins in this regard and are optimistic about the future here as well of about being a full BPO administrator in more of the TPA regard. As they go out and sell the products, we'll do all the administration in the background.

So going back to the 4 different towers, I talked about what some of the service offering that we perform in each one of those. So I'll focus now on why we win and the differentiators in each one of these towers. Really, regardless of what service tower we're in, these 5 differentiators will cut across all of them. First and foremost is our strategic business unit structure, which is a dedicated model. We don't have shared services with our customers. Dedicated leadership, dedicated equipment, dedicated space, dedicated mission each and every day from a contract perspective on that to execute.

Second is our achievement-based compensation, which drives down to the individual processors on the ground all the way up through the management structure that creates alignment between, ultimately, the outcomes that our customers are looking for and how we compensate our people. Third is our outcome-based deal structure, moving more and more to this each and every day, less about the unit cost or X times Y, a lot more about -- ultimately, this is what I'm trying to get to per resolve call pricing. If you're looking to move more to automated channels or signing up for deals, they go at risk for that, and with that risk comes a lot more reward in terms of margin as we execute.

Our asset acquisition model, as plans continued to face price pressure. Rather than going through a very long transition and implementation, where they shut it down, we light it up. We're seeing a lot of deals where we're taking deals on as is, where is, implementing our technology over time and then seeing the margin impact on a much quicker basis.

And then finally, just from a disciplined perspective, Six Sigma and continuous improvement across each and every one of these towers, we've got goals and metrics each and every year, not only from a performance perspective but internal margin perspective, of how we can become more efficient. So cutting across transactional and customer care from a crowdsourcing, kind of a new bug in the industry, but we've got a lot of people performing transactions, whether it's on the care side or on the transactional side. But one of the big differentiators that we see in the market is driving up the utilization as that person is already being paid for, how can we provide multiple paths to that person during downtime to maximize the efficiency. And secondly, we've got service centers all over the world for transactional and care that we can perform services from.

Gamification is kind of a new cool thing we're doing in customer care at the desktop level, engaging our reps, creating a fun environment as we continue to be more and more efficient. And there's a lot of prizes and things that go with that. Specific to transactional, as I talked about earlier, a lot of high-volume documents that are coming through here or transactions that have been processed and that we're performing here. Again, the key here and the differentiator, not only from a market perspective but from a margin perspective, is the technology that you have that kind of sits underneath this to enable our transaction processes. And that's why we continue to grow where the market's probably growing at a slower pace. We continue to win business in this regard through our technology.

Talking about customer care, our call simplicity demo that you'll see today, some speech analytics that's continuing to drive better outcomes for our agents. RG talked about some of the at-home things we're doing. And then another fairly large differentiator for us is hiring the right people upfront to perform the service. As you can imagine, in customer care, you can face some fairly high attrition rates, so getting it right upfront is a key metric in terms of managing costs. And so that's something that we're seeing, some reductions in our attrition helping our margin expansion.

I talked about a lot of this stuff in the communication services space, but at the end of the day, what we're trying to do is communicate through the right channel to the right person at the right time. And the deal structures here, where we can engage a lot of different technology to provide a better member experience, is helping us to be aggressive and win deals in this space.

And then lastly, I talked about this before, more of our data-driven set, data analytics, data mining. From a cost recovery and avoidance perspective, a lot of this is post. So looking at data, identifying opportunities, and most of this is on a continuous basis. What we find, we see the percentage of. Questions here?

Unknown Analyst

[indiscernible] a couple years ago, when some of these deals were sort of got consummated, [indiscernible] just sort of apply here? Is this an overarching blanket? And it's not -- sort of where does it reside -- or how is it decided [indiscernible]?

Mike Morrison

It is an overarching blanket. I would say it's probably just due to the volume of the transactions and from a staffing perspective. The 2 on the left, we probably see the most benefit from. But I continue to believe it is a differentiator for us in the market as we can align the contract structure and the deal structure all the way down to the rep level. And as we continue to perform and outperform the contract, it gives us the opportunity to expand margins.

So from a competitive landscape, they're all listed up there by tower. I think the unique thing here, Connie mentioned this earlier, we rarely run into the same competitor across different service towers, which does a couple things for us. One, it gives us a unique position in the market where we can serve multiple towers, lowering the interaction cost of the health plans today. And secondarily, it gives us a large advantage to be able to look across these towers from a synergy perspective and drive continued value. I talked about the utilization, leveraging the data set to be able to come up with more creative solutions versus being just [indiscernible] in one tower.

Unknown Analyst

[indiscernible] quotation of -- which is represented by this [indiscernible]. And what percent comes from those transactions [indiscernible]?

Unknown Executive

I don't think we're giving that level of detail. There are 100 businesses we just total all up or more across some of our lines of business, but I think you're probably more concentrated in the top half than the lower half, probably, because of revenue, which is what kind of Mike's talking about earlier.

Mary Scanlon

In terms of revenue, again, the margins are higher in the bottom levels.

Unknown Executive

So from innovation perspective, we really have a two-pronged approach. We've got an external view and then an internal view. From an external perspective, the multichannel communication, which spans across our customer care and our communication service lines of business, of getting the right message for the right reason at the right time through the right channel and that infrastructure and that platform, we're having very good success with. Again, as the market moves more to the individual side, being able to personalize content, personalize statement and communicate down at the individual level, having the platform and the ability to do that and ultimately having the analytics that support that is a big advantage for us.

I talked about the predictive member behavior. That's another area that we're focused on. We've done recent acquisitions in another one of our line of business, but we're really pulling that into the health care space, how we can ultimately get in the head of the health care patient or the health care member and how can we provide a better member experience and ultimately lower the cost through this predictive member experience and communication.

From an internal perspective, we're constantly investing in innovation to make ourselves more efficient. Obviously, from a competitive standpoint but also from an internal margin expansion, you'll see the call simplicity demo today, which we're super excited about, what that can bring in terms of; A, growing and, B, our margin expansion. And secondly, I talked about crowdsourcing earlier, but really leveraging the workforce that we have today to be more efficient and do multiple tasks with the same speed.

So finally, we've talked about a lot here. Today, through our services, our differentiators, our innovation, competitive landscape, all those things. We expect this business to continue to grow at double digit, both top and bottom line. We're super, super focused on the execution of our current business. If there's one thing that that allows us to continue to grow, it's the execution and renewals of our current contracts so that we can focus with our customers on the things that are new versus focusing on our existing business.

With our current business model we have, we're well positioned to take advantage of a lot of the tailwinds that are going to come from reform at the end of this year and in the next. Our client base of having 20 of the top 20 as we do acquisitions, as we invest and have new products and service offerings in the market, just expedite that process of getting to our customer, getting them excited about it and continuing our growth. And planning to do reform, the last piece there. As we move more to an individual consumer market, we've got a lot of assets, technology and services that can help service in that regard. So we're excited about what we can do to commercial payers in the future.

Charles Fred

Good morning. My name is Charles Fred. I'd like to introduce you to our provider business. It's a pretty exciting story that I think I have to tell you today. But before I get into the presentation, I want to ensure that you understand what our provider business is kind of about. If I could draw a circle around the technology and services that we provide in the provider business, so I consider a hospital as an acute center of care at care point, all the technologies that go with that, all the ambulatory sites that we serve, which could include clinics, post-acute care, therapeutics size and so forth, and all of the technology vendors that provide technology to those sources of care. That includes names you may recognize like McKesson, [indiscernible], Allscripts and others.

So if you were to draw a circle around that world, that is where my customers live. And so within that realm, let me take you through a couple of things that help us define even more kind of where we are today. We're serving a market that is arguably a $22 billion market, again, between 12% and 13% annual growth rate. So we're growing. And I'll tell you the story today, but we're growing at a rate that's consistent with that market today.

A couple things I thought I’d use some adjective to describe how our customers might actually speak of us. We're pretty committed. We've been at this stuff for a long time, and we're getting benefits from the investment we've made and the tenure we have in the provider space. 1,700 hospitals is greater than just the number of 1,700 because when you've penetrated the hospital market, you also get the inventory side of it and the physician practice groups that go with that. So we're pretty committed, and we're actually seen as that in the marketplace today.

From an innovation perspective, we've had some acquisitions and also some pretty large investments over the years. And we actually bring quite an improvement to the adoption of new technology and the analytical side, which I'll speak to a little bit later today. From a trusted perspective, we're highly referenceable. And in the provider side of health care, this is a really important point for you to know. You cannot grow if you're not referenceable in the provider side. It's an evidence-based world. It's driven many times by physicians that are making decisions about acquiring our services and technology. So that's a pretty important point for us. The focused part of us is that we're the highest rated management and quality outcomes software solution and have been for many years. So this isn't just something new for us.

And last but not least, we're recognized. Gartner, KLAS, which, by the way, is a measurement in size, specifically of health care IT. It's KLAS that are looking at us as leaders in this space.

I thought I'd take just a second to talk about some trends because we, in the provider side of health care, live in -- I wouldn't say a unique position relative to a lot of the governmental actions that are going on, but we are basically affected by the decisions. The trends that I see, I mean, I'd take you through each one of these. If I can just give you an overtone, the trend across financial, clinical and patient is stressed.

So right now, when we look at financial, the trends, for example, on the financial is that a lot of the shift is going back to the providers. And they're going to have to basically stand up in order to be reimbursed against some pretty tough quality measures as we press forward. And we don't see this actually abating in the future. So what we do see, however, is them playing much more of a team game, being part of an accountable care organization, which I'll speak to a little bit later, and really us helping them get across that bridge. And I think we have some pretty unique services to do that.

On the clinical side, we've probably seen more changes in the last 2 years than we've seen in the previous 30. Because really, what's happening with physician-driven protocols, the values that they're going to have to perform against and the fact that they can't just be in isolation if they're going to have to play again across this.

And then with the future, what we see is we can deal in some other markets. For the first time, I believe that primary providers of care are going to have to think in a global form around how they serve and yet be very local in what they actually do. So we're seeing some trends in health care and the future in health care that are following a lot of other markets that we've had.

This is the age of the consumer/patient. And if you want to take not only what we're seeing today but what we're going to see in depth in the future is the consumer is going to take care of his or her care. So they're going to start having information at their fingertips that they've never had before. They're going to ask a lot more questions. And as the burden of care and wellness goes back on the patient, it will actually then be transformed over to the providers. We believe this trend in the future, we're uniquely positioned to help us forward. And the more change that happens in these areas, the better our business is. So we are thriving on the changes right now that are going on the provider side of health care.

This is a chart I'm going to use a couple of times this morning. Let me take you through the top because it's an important piece, so hopefully, your question sets and your understanding of our provider business. We do 4 integrated things, and we do so in 4 different business units. One of the things that we've been able to build off of the long history at ACS and now Xerox is IT outsourcing and getting into the health care space of being able to select, implement and manage the infrastructure inside of a hospital for a health care system. And that is really where we can actually put our platform and our framework for where we start reducing costs, and I'll talk about cost-reduction pressures in a minute.

Once we have that, we can teach them how to use it, and this is a unique position. We acquired the Breakaway Group about 1.5 years ago. Our simulation technology is a big barrier for other people coming in and helping physicians get up to speed quickly on the technology that we are servicing. And then we help integrate and navigate, and this is a really important part. We've talked about insurance exchanges, but one of the greatest benefits of an electronic health record is sharing of information across the region or across the population. We would now have them using a system of which we now actually teach them to get referrals, build their businesses and to reduce costs.

And last but clearly not least is our information business, our analytics business. So if we have the installed infrastructure and we're managing costs and we're teaching them how to use it, they're using it correctly, we're integrating them into the network. We now can take all of the information from those 3 things and provide information and insight to our caregivers. So let me go through -- I'll come back to this slide and talk about competition in a few minutes. But I want time to take you through a little bit of a deeper dive with each one of these.

The platform for reduce cost is a real landmark for us. This is -- you may not -- you may or may not ask this question. This is about 50% of our business today. It's an important part of our business in part because this is a real sticky factor. It's hard, but we're in there managing this and doing a really good job and reducing cost over time. This becomes basically the foundation on which we can build the rest of the business off of. We then can basically consolidate the platforms for both interoperability and cost effectiveness. I want to stress this morning the greatest value proposition that we have in the provider side today, over time, will be the massive reduction of cost because we can integrate what we do. And this is going to be an important -- and when I show you our competition, this is where we will play best.

And last on this part is really, the operational excellence is that -- this is what we do. We have a large reference account. We're actually best-in-class in IT outsourcing. And this is a place, again, where we'll continue to grow. So that's job one.

Job 2 is helping them use the implementation we've put in there. I know you're very familiar with electronic health records, but the electronic health record now is the locus per se of the work that we're doing within an hospital setting or a network setting. And this is where we're building extensions off of that health record. The Breakaway Group, which we'll not only talk a little bit more about later today but we're going to have a demonstration for you, is a simulation-based process that dramatically reduces the cost of training, education, turnover and so forth. And then we get it -- once you're using it, we want to actually help optimization through our digital nurse assistant process and some others. We're now looking at dramatic changes in how you're using the application and interfacing, for example, between a work list on the electronic health record and a lab and prescriptions and so forth.

Again, the clinical data, the lead transformation, the important part here on optimization, we'll have that at our fingertips. And the last part of it is that because of the technology we have with the Breakaway Group, we actually have metrics in adoption. We know where they -- our customers are in an adoption life cycle. This is critical in a health care setting on the provider side because of the turnover. There's quite a bit of turnover, especially in the revenue cycle side of the provider site, and there's turnover in a lot of our academic medical centers.

So again, I'm just taking you through the process. We are now taking advantage of the implementation work. Now we're teaching them how to use it and optimize it, and then we're going to help integrate. This is actually a picture of a dashboard that we use for adoption. And the interesting part, it's dynamic. At any one point in time, we know where an organization is relative to their use and effectiveness of their use within the electronic health record.

So navigate and integrate is an important part. This may be -- if there was pivot point in our business, that is another very difficult place to compete with us. We literally help drive the provider business. So we're not just reducing costs. Because we can share information now, we can actually help lead referrals to physician practice groups. We can integrate between disparate organizations. One might be using one health record and the other one might be using a different one. We can actually help them integrate that. And the last part on this one, which is really important, is this is also where we integrate with the payer side on ICD-10. Our specific work on the provider side is through the physician documentation work that drives ICD-10, the new coding system that will be so important and relevant to getting paid. So that's where we're going through the navigate and integrate. And then if we...

Unknown Analyst

I don't know how to [indiscernible].

Charles Fred

Great question. So let's address that 2 ways. So there's hospitals that are out on the HR, and then there's physician groups that are on the HRs. So according to the latest study for the ONC, which is the national coordinator for health under the CMS organization, 55% of hospitals are now effectively using a health record. About 40% of physician groups are using that. What's interesting is that only 14% to 15% are actually producing order sets with it. So it's a really important question that you asked because this is why we are going to grow so much in this market. We're helping them adopt and take advantage of that massive investment they're making with their health record.

So we want to get the 14% to 30% to 50%, and it's going to take 2 to 3 years. There is one catalytic mechanism in there that's important. And that is there's still leftover funding from the stimulus high-tech carve-out. Roughly 2/3 of that still has to be paid out to the providers. That was a $30 billion set aside for Meaningful Use. We're coming up on the Stage 2 version of Meaningful Use, which -- the provider side that I'm this speaking to today -- our primary business is driving providers to do that. And this is millions of dollars of reimbursement through Medicare processed through the providers. A big part of our business, it's one of the reasons we're growing so well. But I'll show you how uniquely positioned we are within that for people not to be able to take that from us.

Unknown Analyst

[indiscernible] customers and practice groups?

Charles Fred

Great question. We don't provide services directly to the small 1- and 2-doc practices. However, we use Allscripts, as an example, and those types of vendors within our contracting process, and we reach through them through our scalable solution to reach those physicians. Today, right now, we have about 124,000 practicing physicians that are using the breakaway method, as an example. And many of those are 1- and 2-doctor practices, so it's quite scalable. Any other question?

Unknown Attendee

[indiscernible] the 50% -- sorry, 30% [ph] percentage of using EHR?

Charles Fred

Yes. So electronic health records, let's see, 55% of hospitals have implemented a health record, and that's actually fairly current data. HIMSS was just last week, which was the big healthcare information systems conference on New Orleans. Roughly 40% of practice groups are using -- or have implemented one. But the ultimate question, the important question from our business and also from health care in general is "Are they actually producing an order set?" So it's one -- an order set...

Unknown Attendee

[indiscernible]

Charles Fred

Good question. When you go -- this is actually a great discussion because when you walk into a provider today, just on the health record, they have your information. They might even have the episodes they're actually treating you for. But the important next step, if we're going to have an integrated health record nationally today is you have to produce an electronic order that tells the nurse or the other care providers what they actually need to do in your care. And that triggers then the second important part, and that is the e-prescription, so we can actually connect the prescribing, the dosing and the care all electronically. What this enables us to do then is the next time you come in, we actually see what's happened over the life cycle of that care or that treatment. This is a vital especially for people with long-term illnesses.

So it's a really important question because it's one thing to install one, it's another one to use it in a way that the government now determines meaningful use, and that is literally a threshold to get reimbursement on a high-tech app. Yes?

Unknown Attendee

You're amassing information on treatments, success rates and things like that, such that -- so now that's sort of a feedback to the government eventually, a mystery how this all sort of plays in.

Charles Fred

Great question. In fact, it's this stuff that I'm going to talk through right now. The best part of the business, so the way we've built the provider business is that at the end of the day, the richest part that we have for our customers and also for ourselves is the data. Now we are not an electronic health care business. We're not an application vendor. But we're gathering, basically, to process information around the use of that record. And the most important part was Midas. We actually get to track nursing information because most of the records is around the provider, but now we get to see clinical information. And we can inform our clients now that they're spending too much time on certain parts of care. We can do bedside information. We have all kinds of care management information that we can provide back. And that's why Midas is such a great business for us and such a high-margin business is it doesn't cost us -- our customers very much money to get that information. It doesn't cost us a lot to serve it to them, but our margins are high. So it's a great business and all 3 of the previous ones leave us in this position to be in the information business, the analytics business.

Unknown Attendee

So you have this tool that it requires -- potentially, say, this is the best way to treat or this the -- provide that level or is that further down?

Charles Fred

We're not advising on the clinical side.

Unknown Executive

[indiscernible]

Charles Fred

Yes, yes, exactly. I've got a couple of slides, why don't I get to that.

Unknown Executive

Which is really the analytics platform that's going to drive the data.

Charles Fred

Yes, so -- and even -- when we speak to this slide here, really what we're trying to do is these kinds of things. The analytics deliver information basically decision-making, risk and outcomes by giving them an aggregation of that information. So I'm not driving it, I'm actually collecting it, and that's an important part for us.

Second is that we're looking at everything from uninsured patient costs, payer mix, length of stay. We have all that information in a database that we hold today, and this is critical information to our providers, but it's also the greatest barrier for anybody coming in -- that come into our payer -- or provider business.

And last but not the least is the notion of real-time clinical surveillance. It's a real-time system. I mean, we've taken advantage of the technology. I think the combination with ACS, the acquisitions we've made and Xerox has really put us in a nice position from that perspective, and we'll show you some demonstrations of that later today.

This just gives you see a little bit of what we're doing with that information with Midas. Midas has been a brand and a product that we've had, again, for -- it's been -- it's a 25-year-old business. Deep penetration into the hospital side, soon to be, hopefully, ambulatory side. Population management, you're going to hear about that, this is going to be a big growth area for us. It's the ability to take that information across a region or a population and then look at trends, and that trend information will help drive costs out of a providing organization. It will also even help them with strategy, even the type of providers that they want to put into their care organization.

On the provider management side, again, this is really the physician peer review. We can look at credentialing, provider benchmarking and so forth because of the information that we have. Again, it's quality-level information, outcome-based information.

And then, organizational performance. The one thing that we know right now within the care settings that are moving toward an accountable care organization -- does anybody need a definition of what the ACO, accountable care organization, is, real quickly? With the Affordable Care Act, we are now, as a provider business, and I'm talking about physicians, hospitals ambulatory, can it truly be accountable to a population. And they're going to now watch the merging of physician groups, hospital systems, ambulatory sites and even some technology companies coming in to one region, one area.

And the important part is that we think we're going to have the data to show them how to do it. This is an area where, today, there's a lot of ambiguity around it. People really don't know what to do. They know they need to do it. There's a lot of anxiety, and we think through some of our information, especially our quality information, we can give them the path to how to do that. So another big growth area of our business that we think we can build out is Midas.

So let me return to this real quickly. The 4 pieces that were on the top, those are the 4 business units per se of our provider business. If I go to the bottom, where competition is, this is a pretty telling chart for us, and we are somewhat liberal with even throwing some names in here. But we're the only -- we believe we're the only enterprise out there that has the 4 pieces. You can't get in the analytics business just because you want to be in the analytics business. You have to have a business that drives the data. We have the business that drives the data. We've selected, implemented and managed the system. We teach them how to use it. We know what they know. Because of that, we help integrate through other systems, and in that process, we're capturing the data that we can actually have on the analytics side it.

So very unique position. We think we're going to grow a lot in this one -- in this business. And at the very least, we're going to grow at the same slope as the market right now, which is between 13% and 15%. Some analysts have had it at 20%. So we think we're going to grow like that, and the margins look pretty good in this as well. Let me give you a -- yes?

Unknown Attendee

Just on technology, so you mean by that Midas has been with you for 20 or 25 years. There's tremendous change in the analytics market. A new technology per se couldn't last 5 years, and so it leads me to believe that maybe Midas isn't a cutting-edge technology. So go back to the question, are you guys bringing value to your customers because you have processes that help them distill what they need from the analytics or you have technology that helps them on the analytics side for this particular area?

Charles Fred

Very good questions. We have both. Though I think it's one of the reasons we probably have -- we have a little bit more runway with Midas to remake that when we need to. And we're in the process of reinvesting in that as we speak today. Because it's the process, it's actually the installed base that we have across a 1,700 hospitals. Just the user group that we have there and the loyalty in that user group allows us to actually put new processes in place to gather new pieces of information.

Our investment, for example, in one of our products that we're working on now, called Digital Nurse Assistant, is literally an overlay on our Midas process to go gather more information now on how a nurse, in this case, actually works and integrates between applications. So I think we have both. It means that we can't remain flat-footed. There's a lot of people that want to get into this business. They speak about big data and analytics. But you have to have the wherewithal to capture it, and that's what I think we have, first and foremost, which gives us a little bit more runway to go build some more technologies. We move -- we're moving to a mobile platform as fast as we possibly can.

Unknown Executive

[indiscernible]

Charles Fred

Yes, we have a full team in Nashville that's working on this as we speak. So it's a big investment for us. Good question. So differentiators. Again, I think it's the way we've attacked this and the way we're actually getting to the information that we have. We have a lot of expertise on the consulting side that drives this. But the consulting side, the nice part is, again, they have a framework to work within. The platforms and technology, the upper right-hand corner, I believe, long term, and I think I speak for our whole team here on the provider side, when we can actually put a technology with the process and the brand that we have, I think that's the thing that's going to win the day for us. And that's why we're acquiring a lot of customers. Our bookings look strong in this area.

And the provider innovation group, the thing that we've done within the last 18 months is we have a dedicated team of people that are doing 2 things for us. We're either using our relationship with PARC and our other research efforts and doing some organic development there. But we're also looking at acquisitions, which I'll speak to in a minute. And you'll see a couple of those today when we do some demonstrations.

So to wrap up, a couple things that I want you to take away. One is that we're in a market that's growing and it's a sizeable market. The HIT market is a sizable. It is morphing a little bit, and it's still catalyzed by the high-tech carve-outs. There's still 2/3 of those dollars that are still out there to get. And the Affordable Care Act with the ACO movement is also going to play well for us.

The electronic health record knowledge that we're gathering is going to be the thing that we monetize in our future. So you're going to see it lift our margins, and you're going to see our ability to actually retain our customers because we have so much important data that they need.

On the ITO outsourcing, the nice part is we play to our strength. This is one area that we just have a deep referenceable area for this. And again, on the analytical part, don't just think about analytics from a linear perspective, what we really have is the wherewithal to gather the information, that's an important part for us. And we are going to be acquisitive when we see the right people that can come in and add technology or process to it.

So thank you for your attention on the provider side. We're pretty excited about it.

James H. Lesko

Any other question for Charles?

I think what we'll do now is we'll -- yes?

Unknown Attendee

Just on the payment side of that. So electronic health record and you're actually working through that. So is all that actually being done on the payment side? Is that actually all being handled electronically? If we're trying to get a number, and this is going back to the statistics you provided earlier that less than 2% of the payments was actually being processed electronically. You said a lot of people was using the system, so when CMS gets all that data its basically, truckloads of payments -- I'm sorry, of boxes of paper that have to [indiscernible] actually go through in order to figure out was it proper paying, was it improper paying. And so that to be image archived and [indiscernible] are running the [indiscernible] to deal with that? Is that actually the case?

Charles Fred

Actually, again, it's a really good question. It still exists. It's much higher than 2%. I think it lags. If you have an implementation of a health record that might be -- Learner [ph], another publicly traded company, more than likely they're using somebody else for revenue cycle. And there is -- that integration, by the way, is another thing that we do well within our practice. So our ITO outsourcing business, we think we can bring a solution to that pain point. I think we can help on the ICD-10 rollout, which is the coding part of that. So all of those pain points that you're speaking to really play right into our business model today. And I think it's one of the reasons that we're growing as fast as we are today.

Unknown Executive

I think [indiscernible] supporting you in terms of unit costs will come out as you get better data, [indiscernible] remember that, that is being paid by American employers and by American workers, so the vast part of where we're taking information and helping them basically redesign their benefit plans and drive their efficiency in a sense and then hopefully, also productivity to drive better outcomes.

James H. Lesko

Great. Well, certainly, everyone is available for more questions. So what we'll do is shift now before we take a break to one other topic. I'm going to have RG Conlee, Chief Innovation Officer at Xerox Services really talk about how innovation has been evolving as -- within the Xerox Services Group and also kind of lead into some of the innovation activities that we'll be demonstrating with you later today. After that time, the webcast will conclude. We'll have a break, and then we'll start the proceedings following the break.

RG Conlee

Great, thanks, Jim. I was little bit taken back because we we're going to be 1.5 hours early, and I was left here with Steve Hoover coming in later with slides instead of what I was going to present. But welcome to PARC. PARC is obviously a very historical location for innovation throughout, not only for Xerox, but around the country. And as you walk around or as you're in and out, you'll see some of -- the legacy of innovation has to offer. I kidded Mike as we were out in the hall, there's what's called a PARC pad [ph] just sitting down there from 1992, which is the predecessor to the technology you see today. It wasn't quite as easy, but it's -- and definitely it's still there.

This is an important aspect of it to because 3 years ago when we added -- when ACS was acquired by Xerox, one of the major things that we had to do was say, "How we connect the R&D functions and get the leverage out of that for ACS?" And that's been an ongoing activity that we've had since that point. We've made a lot of strides in being able to do that. We've connected all of our business groups now to research and development. We have chief innovation officers around the entire organization who are in charge of being able to focus on their business units, making sure that the verticals can get full access to that.

You're going to see some of the demos today that are byproducts of those activities. We have a number of -- in fact, I think, it's over 40 research and development projects that are specific to services from around the Xerox innovation group. And just as a point of note, PARC is only one of the various facilities. There's 6 of them around the world. And so we participate with all of them but you got to come here today. My wife, in fact, texted me, "With all the snow from the East Coast, so you've got the better side of the deal."

In connecting with that, we have a -- really, a change in our perspective so that we're able to look not only at the short term, so being very fast, flexible and the ability to have cost reductions and things for the moment, but also the long term, so you look at top and bottom line. Some of the things you'll see on the demos today are more top line types of new products and advantages that we put out in the market. Some of them are a little bit more focused on the bottom line and increasing margin. We talked about -- we've talked about call simplicity, which is one of the demos that we'll do today. It's focus is on really taking a number of different aspects of innovations we have, putting it together and saying, "Can we do our business a little bit better? We can make it simpler. We can make it more automated. Can we put analytics into that?" So you're going to see some of those things.

The process that we have to get there, which is what I wanted to just notate here for a moment, really requires picking taking a lot of people and being able to connect a lot of the dots. And so by putting people strategically in all of our business units, making sure there's a good cadence month after month of looking at innovation, seeing where we are, benchmarking it, dashboarding it. Coming up with that cadence that we make sure that we're making continual improvements is really the crux of what we've been able to do in the last 3 years. So we've gone from really not having a research and development operation with the ACS component to now having everybody connected at one time. We've made some significant gains and increased our funding and done all sorts of thing to be able to get to that point.

And I think you'll see, by the demos, that there are some very credible outcomes that have come from that. We also speak to our customers a lot about innovation. We've had over 1,000 presentations in the last year for -- on innovation for our customer base. We also do what's called dreaming sessions, which are more targeted and focused at a customer level, bringing them in, just like you're doing today almost, and looking at their pain points, their visions and things, tying the research community into that -- to the customer directly, and I think we have over 100 of those in the last year, as well as establishing key partnerships with our customers, renovation councils and some of our partners. So tie that together has made a pretty robust process.

We can get people actively engaged with the research community, with innovation community and tying also what we would call organic innovation, probably not an appropriate term but hopefully, it's descriptive enough to say that some of our innovation comes from things outside of research. Because we have plenty of engineers, plenty of developers, plenty of business experts, but it comes outside of that, as well as from research, tying it together so that we have a good cadence between the 30-, 60-, 90-day type of approach, and the 1-year, 2-year, 3-year type of approach. So a lot of processes on top of that.

A couple of comments on things that we had that's come up, and if you noticed, on all the key takeaways, there's usually something on innovation that was on every one of them. Automation and analytics are 2 key points of focus that we have right now. Data is huge. Everybody has noticed, with the health care, there's lots of data that comes through. Now it's not always as accessible as we like and there is treatment and all that goes with that, but being able to apply the analytics and analytic capabilities we have is very important.

Charles was talking about the Midas platform. I think there's question in terms of the age of the platform. The underlying technology, however, has not aged. It's been upgraded. We had it evaluated by our research community for capabilities, of what we would need in the future, both this year, as well as the next 5 years, and it really ranked right out in the top with the top 3 -- top analytics engines that were available, so we felt very comfortable about putting it into our framework of analytics capabilities and building on top of that.

On the automation set, we've got some really strong offerings on being able to automate because just labor arbitrage is, we've pointed out, is only one aspect of what we want to do. As we move up that sweep chart, the automations are there, and you'll see some of the automation today in those of demos but there's more behind that. It's an important thrust that we've got in research to be able to look and say, "How best can we do at automation to that?" and the something you'll see in the years to come that we've got available.

We talked about the Vpod [ph]. I do have to mention, Vpod [ph] is the name of the company that we've dealt with and partnered with. We are still going through branding for the actual artifact to be able to bring it out to market. But it's only one of the examples of what we're trying to do to make sure that we can prepare for crowdsourcing. Crowdsourcing is a nice buzzword, not as easy to implement as it might sound. And being able to make sure you can address the concerns of the customer for security, for privacy, for treatment of data and all the other aspects that come along with not only health care but across the book of business. At the same time, have accessibility, have ways of being able to recruit, deliver. Those are things that we're doing within that arena. But not only the pod concept but also an at-home network, being able to connect call centers to agents in a much more transparent way and being able to make life simple because being able to crowdsource means you have to also make the transactions simpler to deal with. Complex transactions are a lot harder to field to push out to everybody. And so as you see, call simplicity, you'll see what we've done to be able to help with that.

And then I guess, last is that being able to get everybody together to affect what our outcomes are, be able to help with outcomes as opposed to just transactions. There's a big thrust that we've got with the research and development community. That sweep chart, being able to move up that sweep chart and affect other places means you also have to leverage. What we basically say, getting our smart people together all on the same room. That's something that we've been focused of being able to do, and I think the structure that we've put in place is going to be important for doing that.

So I'm not just going to drone on with that but I thought I'd make some comments and if you have questions about innovations or the things you'll see on the demos or what's been here, we're glad to answer those.

Unknown Attendee

Probably that you're dedicating towards trying to consolidate payer [indiscernible] or the services organization with 50 [ph] people, 100 [ph] people. What's kind of allocation?

RG Conlee

It's a great question. I guess, there's a couple of different answers. I mean just in the research community, so as you look at facilities like this, you'll see multiple hundreds of people in a research facility. PARC is a subsidiary of Xerox, and 50% of it is, Steve will give you more of the details, the numbers, is dedicated to non-Xerox activities. But we found that, over the last 3 years, there's -- we've had -- where we started with almost no services focused on that, that shift has gone now probably to the middle in terms of the remaining people, and that's not just at PARC. It's throughout all of other -- through Nobel [ph] and Webster and other research facilities, we've seen a pretty dramatic shift in terms of the hundreds of people that would be working on that.

Now, again, we have people besides this research community, that are working on IP as well, so within our own ranks in the businesses that we have invention disclosures and patents and things that are filed at a much greater rate, by the way, that we've had since we became part of Xerox because that's part of the processes that has allowed us to be able to capitalize on that intellectual property. We're, in the past, maybe not quite as dedicated to doing that. So we've got a rise of the invention disclosures and patents within our business ranks, as well. In fact, we started a new program this year to be able to recognize and reward and encourage those types of activity.

James H. Lesko

RG, thanks very much. I think that will -- yes? Sure.

Unknown Attendee

[indiscernible]. There is clearly a huge amount of opportunities out there. So I'm curious where the pain points are, what's going to limit the growth or slow the growth, what you guys are worried about and just what the challenges are because, obviously, everything has been very positive.

RG Conlee

One of the reasons we want to focus on health care today, and I'll let Connie respond to that, was because we see so many positive attributes. Obviously, we have many lines of business across many areas, all of which we critically look at to ensure they perform in a positive fashion. But health care, in particular, a crossover, we think, is uniquely positioned, given the environment we participate in and some of the capabilities that we can bring to that. With that maybe, I'll talk to...

Connie L. Harvey

I'll take that. I think probably the biggest challenge that we've had over the last 12 to 24 months is trying to predict where this market goes. I think we get -- we've got a much better picture of what health care reform is today. About how the market reacts to that, some large employers continue to buy directly with potential payers or do they go to private, do the individuals opt into state programs or are they going to end up as individual participants in the large payers market as well. I think that's probably the biggest challenge, trying to kind of started [indiscernible] it's getting narrow and narrow. But I still think although we know what health care reform is going to drive, I don't know that we have a real clear picture of how the market will look.

Unknown Attendee

[indiscernible].

Connie L. Harvey

You remember that. My husband has one of those. If you look at that, one of those first slides that we showed where the costs are going, it's -- every single person, whether it's large companies, small companies or individuals are going to see a dramatic cost.

Unknown Executive

I think the big thing that we've seen -- what we've seen in the last year is some clarity. [indiscernible] Supreme Court decisions and elections, clearly. But I actually do think they help remove a sense of confusion. I think once the state and the federal exchanges are up and running, that will tell us some things that many, many employers and individuals and companies are waiting to hear, and then as we get better and better data [indiscernible] for I think for the next 12 to 24 [ph] months [indiscernible].

Unknown Attendee

[indiscernible] that will lead to revenue growth. As Charles mentioned, business revenue growth [indiscernible]. If we just give about $2 billion [indiscernible] is that double-digit revenue growth?

Connie L. Harvey

Yes, I think there's actually [indiscernible]

Charles Fred

We said good growth. We didn't say double digit.

Connie L. Harvey

[indiscernible]

Unknown Executive

And if you don't mind, the businesses that are represented here are across 3 Chief Operating Officers. Connie has the payer group under her. David Bywater has the government health care solutions; and Kevin Kaiser, [ph] was at provider business.

Unknown Attendee

The question [indiscernible] .

Connie L. Harvey

If you look at the Slide #13, historically, all of these business are double-digit growth. And from 2012 to 2015 to 2016, we expect this to continue. [indiscernible] .

Charles Fred

And that's consistent with how we've kind of expressed the BPO side of our business where this obviously is -- a growing percentage of our BPO business would have high -- low-double digit kind of growth. And this is probably the catalyst for that. It may vary based on the payers and contract startups, ramps up and so for any quarter. But in general, this was the primary catalyst, I think, for that accelerated BPO growth. We've talked, obviously, ITO is at a lower growth level and so the other -- the BPO solutions are probably at the lower growth level as well.

Connie L. Harvey

And I think here we're kind of -- from this day forward, if you look at this historically, it's been a consistent double-digit growth.

Unknown Executive

And I think it becomes a larger, larger percentage of our business, that's kind of why we feel confident about the future and the opportunity to grow and grow margins as well.

Unknown Attendee

[indiscernible]

Connie L. Harvey

That's 2 things from an internal perspective. There's so much market activity. For us, it's really focusing on the right thing, where we can be successful. The thing that I kind of worry about the most at the market level is I call it Medicaid, consumerism I think we're going to -- I think the market is expecting an awful lot of free-fall that is going into the insurance market for the first time, and I think we have a pretty good understanding of what that service model is. Certainly from Mike's area and mine, you'll see a lot of that work right now.

But health literacy at the state level, they're experience of only going through an emergency room for care. There's a lot that's going to be coming at them, and that's support model driven. The whole reason for [indiscernible] is to improve health outcomes. We have to, I think, be cognizant of a lot of those challenges that these individuals are going to have to pay and the system that's going to support them.

Unknown Attendee

[indiscernible] the operating margin versus revenue growth chart. If you had to draw a line here, where is the operating margin on this chart here, relative to your models?

Charles Fred

Well, you can take on the average. Margins in our Services segment, we target 10% to 13%. We're operating closer to the 10%, with modest improvement anticipated this year. And from a revenue growth perspective, the segment grew 7% last year.

Unknown Attendee

So the operating margins are [indiscernible] above corporate average?

Unknown Executive

They can [ph].

James H. Lesko

Okay. This concludes the webcast version of the conference. And so thank you very much, participants.

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