Please Note: Blog posts are not selected, edited or screened by Seeking Alpha editors.

Healthcare Outsourcing Providers Remain Optimistic Amid Concerns

|Includes:CTSH, Forrester Research, Inc. (FORR), RE

By Audrey B.

The adoption of electronic medical records is a necessary step, one which is expected to usher the healthcare industry into the future.  But while the need is there, healthcare providers still remain skeptical and cautious of the move.  Not because they do not wish to change the system, but because the costs of which would be significant and they warily eye the adoption of outsourcing such as with medical billing services in order to fulfill the need without breaking the bank.

Although outsourcing has gained worldwide acceptance, the US healthcare market still faces doubts over accepting offshoring as a solution for the healthcare reform, which includes the adoption of electronic medical records and the transition of medical coding to ICD-10.

In what Forrester (NASDAQ:FORR) estimates is a $50 billion market, prospects for increased revenues from healthcare related services is at its highest.

India is one of the countries currently positioning itself at the fore in an effort to obtain a significant share of business in the sector.  The country is one of the leading outsourcing destinations in the world, catering to about 35-40% of the business process outsourcing market based on the third quarter 2010 results as presented by the Everest Group (NYSE:RE) on the 28th of October.

In an interview with HCL Technologies (NSE:HCLTECH) on the 21st of October, Vice-Chairman and CEO Vineet Nayar, names healthcare along with public services as verticals that the company is currently focusing on.   Cognizant President (NASDAQ:CTSH) and CEO, Francisco D’Souza, also advised on the 2nd of November that the company believes that the healthcare reform will be one of the drivers for growth in the outsourcing business.  Outsourcing company 3i Infotech (NSE:3IINFOTECH) meanwhile announced on the same day that that it is expanding its service offerings in North America, including healthcare through its business process outsourcing group.

Southeast Asian country, the Philippines, on the other hand is also positioning itself.  A country boasting of an increased surplus of healthcare professionals, the country is moving to convert this surplus into business process outsourcing professionals working in the healthcare sector such as medical billing and medical coding.  The Philippines, like India, is one of the top outsourcing destinations.  In a study by the Business Processing Association of the Philippines (BPAP) which was released on the 27th of October, outsourcing revenues in the country, particularly in IT-BPO is continuously growing.  According to Oscar Sañez, BPAP CEO, “The industry can grow from $9 billion in annual revenues and approximately 500,000 direct employees today to $20 billion and 900,000 employees by 2016 if current conditions are sustained and with a lot of hard work.”

Business process outsourcing firm, SPi Global, announced on the 28th of October that the company is eyeing the expansion of its healthcare business. According to Mike Beninato, CEO of SPi’s healthcare group, “The amount of money being paid for medical procedures in the US is escalating. Hospitals are looking for ways to do it more efficiently.”  SPi owes about one third of its revenues to healthcare services such as providing medical billing and medical coding outsourcing services.

But while India and the Philippines both offer good prospects for US healthcare providers, offshoring concerns, one of the foremost being the issue of data security and the legal ramifications of sending sensitive information offshore, still plague healthcare providers particularly hospitals.  According to George Conklin, CIO of Christus Health, “As soon as it [patient information] leaves the confines of the U.S., it’s not subject to the same rigorous laws as we are.”

A concern that although valid, may have to be surpassed with the healthcare reform deadline fast approaching.  A fact which outsourcing providers keep in mind.

Disclosure: "No positions"
Stocks: FORR, RE, CTSH