us healthcare + offshoring = attractive high margin ... · healthcare exchanges(hies) provider...
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US Healthcare + Offshoring = Attractive HighMargin Scalable Business
June 2020
Attractive Market
Opportunity
Industry
Transformation
Globally Accepted Model with
High Margins
Healthcare BPO vendors
command a premium valuation
$3.5TnUS healthcare industry to grow at ~6% from
2017-27 leading to high growth in Healthcare
BPO segments
*Reported GM
RCM – Revenue Cycle Management; HIM – Health Information Management; PHM – Population Health Management; PE – Patient Engagement; BPO: 15 deals; IT: 14 deals, Healthcare BPO: 15 deals
IT: Accenture, Cognizant, Capgemini, TCS, Infosys, Wipro, TechM, HCL; BPO: WNS, Genpact, Conduent, Firstsource, Capita, EXL; Healthcare BPO: AGS, GeBBS, Vee Technologies, Visionary RCM; SaaS: Salesforce, Workday, SAP
RCM
HIM
PHM(Total Spend)
PE
$8Bn (2018)
$13Bn (2018)
$21Bn (2018)
$9Bn (2017)
12% (19-26)
10% (19-25)
20% (19-26)
16% (18-22)
Mkt Size
(External Spend)CAGR
2
Globally accepted as a valuable strategy
addressing critical pain points for both payers
and providers
Drivers for Healthcare BPO Valuation
High growth Scalability
High Margins Scarcity
Vendors believe tech-enabled solutions
create long term differentiation and act as a
source of competitive advantage Vendors have built $100Mn+ scalable
delivery models with best in class growth,
margins, ROE, ROCE & cash conversion
9.4x10.0x
11.1x
Avg. LTM EV/EBITDA
BPO IT Services Healthcare BPO
Deals in the last 5 years
GM (%)* EBITDA (%)
IT Services BPO Healthcare BPO SaaS
30-35%
30-35%
65-70%
70-75%
20-25%
15-20%
35-40%
20-25%
▪ High barriers to entry given the need for
domain expertise leads to scarcity
▪ Offshore vendors command a better
valuation than onshore due to higher
margins and global acceptance
▪ 75% of the RCM functions have >20%
level of automation
▪ 20% increase in coding productivity by
combining AI/ML with human talent
▪ 46% adoption of AI in PHM in 2018, up
from 33% in 2017
Technology Disruption
COVID-19 Impact
▪ Criticality and counter-cyclic nature of
healthcare driving the growth in HIM,
RCM, PHM & Telehealth during the crisis
Attractive Market Opportunity, Tech-enabled Transformation & High Margins Have Led To Premium Valuation for Healthcare BPO
3
RCM, HIM, Patient Engagement & PHM are the high growth
offshoring segments driven by regulatory changes
Computer Assisted Coding, Analytics, AI/ML & RPA are improving
productivity & efficiency in healthcare BPO
Healthcare BPO has evolved into a high margin, cash rich and
scalable business model
Valuation has been rising over the last 3 years amid significant
interest from financial and strategic investors
Criticality and counter-cyclical nature of the industry lowers the
impact of economic downturns such as COVID-19
Increasing costs and shift to value-based care are driving
providers & payers to outsource healthcare functions
5
US Health Expenditures Ageing Population and Increase in Chronic Illnesses
Expenditure and Enrollment Increasing in Medicaid and Medicare
The US health spending is projected to grow 0.8% faster than GDP per year over the 2018–27
period as per pre-COVID estimates; Spend will further increase due to COVID
$Tn
2.3
3.5
6.0
2007 2017 2027
23% 22% 21%
62% 59% 58%
15% 19% 21%
2016 2025 2035
<18 18-64 >64
Population Distribution By Age Groups
87
167 4
126
2510 6
Cancer Diabetes Alzheimer's Asthma
2015 2030
Steep Increase in the Cases of Chronic Illnesses
(‘0000 Cases)
Cost of healthcare in the US is very high, thus making outsourcing an imperative
US health spending is projected to
grow at a CAGR of 5.5% per year for
2018–27
The Healthcare spending will
grow from 17.9% of GDP in 2017
to 19.4% of GDP in 2027
~50% of these costs was spent on
billing and insurance administration
activities
Prices for health care goods and
services projected to grow faster over
2018–27 (2.5%) compared to 2014–
17 (1.1%)
Percent of Healthcare Spending by Source
of Insurance
51 53 54
59 66 69
188 193 196
2017 2022 2027
Health Insurance Enrollment
(Mn)
28% 31% 33%
23% 23% 23%
48% 46% 44%
2017 2022 2027
Medicare Medicaid CHIP Private Health Insurance
Drivers
Ageing population
Increase in the cases of chronic
illnesses
Increase in federal spending due to
higher projected enrollment growth
Source: Centers for Medicare and Medicaid Services, World Bank, United Nations, NAP
CHIP: Children's Health Insurance Program
61% 1%
1%
6 6
Source: CMS, News Articles
HITECH - Health Information Technology for Economic and Clinical Health Act6
US Healthcare Regulatory Timeline
HITECH
▪ Adopted in 2009 as a part of the American Recovery and
Re-investment Act (ARRA)
▪ Purpose was to increase meaningful use of healthcare
information technology among providers
ACA
▪ Patient Protection and Affordable Care Act adopted in
2010
▪ Purpose of the act is to increase healthcare coverage in
US and reduce costs by moving to a value-based model
ICD 10
▪ The 10th revision of the International Classification of
Disease, a medical classification list by WHO
▪ Adopted in US from October 2015, with the number of
codes going up from 14000 to 70000
CARES
▪ In April 2020, CMS released a toolkit for states to help
accelerate the adoption of telehealth coverage policies
▪ Part of identifying issues due to COVID-19 and
recommending specific actions to improve care
BCRA
▪ The Better Care Reconciliation Act (2017) was
introduced to repeal several provisions of ACA
▪ The BCRA was never voted on in its original form
MACRA
▪ Medicare Access and CHIP Reauthorization Act adopted
in April 2015
▪ Ties the Medicare increment to the performance of the
provider entity shifting from traditional volume-based
increment
2009 2010 2015
2020 2017 2015
7
Primary providers (hospitals, health systems) who act
as the first point of consultation for the patients and
secondary providers who are medical specialists,
diagnostic laboratories & pharmacies
Entities that bear the cost of healthcare are grouped
here. They can be the governments (Medicare,
Medicaid), the employers, the private insurance firms
or individuals
These firms provide support to the providers and
payers in the form of manufacturing, R&D, technical
support, pharmaceutical companies and outsourced
services
Regulators involve government departments in most
countries, since a high proportion of healthcare
spending is by governments across the countries
Providers
Payers
Suppliers
Regulators
Healthcare System
Hospital Practices Physician/ Ambulatory Practice
Payer
Primary Care Providers
Secondary Care Providers
Hospice
Primary Care Providers
Secondary Care Providers
Nursing Homes
Private Payer
Public Payer
Employer
Healthcare
Exchanges(HIEs)
Provider
Accountable Care Organizations (ACO)
Pharmacies
Healthcare IT/BPO Pharma Companies
Diagnostic Labs
IT InfrastructureDevice
Manufacturers
R
E
G
U
L
A
T
O
R
S
7 Source: Avendus Research
A healthcare organization that ties provider
reimbursements to quality metrics and reductions in
the cost of care. ACOs in the US are formed from a
group of coordinated health-care practitioners
ACO
8
Restraints for Provider Margins
Move to value-based care due to the emphasis on performance-
based payments by payers and cuts to Medicaid funding by the
federal government
The Payer mix is changing due to changing demographics resulting in
more revenue contribution coming from Medicare
Regulatory changes, such as shifting to ICD-10, AHCA etc., are
increasing the costs for healthcare providers
The investments in IT and analytics to cope with the shift to value-
based care and population health management is increasing
provider costs
The increasing employee expenses is resulting in higher operating
costs for hospitals and health systems
Source: Centers for Medicare and Medicaid Services, World Bank, United Nations, CBO, Avendus Estimates
Key Trends
Without concentrating on technology enabled
solutions for increasing productivity 51-60% of
hospitals could have negative margins by 2025
Some technologies that can help hospitals
improve their margins are technology-enabled
RCM, automation in medical coding, multi-
channel patient engagement and botification
As revenue shifts more towards government
payers leading to higher low margin payer mix,
hospitals may need new strategies to efficiently
collect from all payers—particularly commercial
health plans and self-pay patients
Automation and claims-management tools help in
identifying the payers that deny claims most often
and determining the most common denial-related
issues
Post COVID-19, 30% of the hospitals will need to outsource their RCM processesCancellation of electric surgeries due to COVID will force hospitals to
outsource AR and RCM functions to reduce cost
9
▪ Evolving industry dynamics are altering the payer-provider relationship-the boundaries are
blurring
» New reimbursement models, along with the rise of accountable care, bundled
payments and vertical integration are driving the need for increased collaboration
▪ Providers are investing in care coordination and health management capabilities as
they assume greater financial accountability
▪ Telehealth will become an integral part in US healthcare ecosystem post COVID-19
▪ As the value-based care environment hinges on capturing more covered lines vs.
volume, provider organizations are seeking innovative health insurance products
▪ The shift to value-based care is pressurizing payers to more effectively control costs as
consumer expectations are changing
Converging Roles and Capabilities of Providers and Payers
Provider Role Payer Role
▪ Provide Care
▪ Deliver quality
outcomes and
maximize
profitability
▪ Underwrite and sell
insurance
▪ Minimize costs and
maximize individual
profitability
Consumer Role
Buy the most cost-
effective insurance
and receive the best
possible care
Risk Delegation Between Providers and Payers
Convergence presents a successful path to risk-adjusted care that requires realignment of payer-
provider relations and the integration of core competencies
Process of Care:
▪ Clinical
▪ Registries
▪ Gaps in Care
▪ Care
Management
Guidelines
Business of Care:
▪ Claims, Costs
▪ Contract
Management
▪ Provider Metrics
▪ Risk Scoring
▪ Utilization
(Delegated)
Risk Model
Population Health
Management
Value-Based
Care
Move to value-based care due to the emphasis on performance-based payments by payers
30%
55%
15%
50%40%
10%
Per patient revenue
that is available to
hospitals is declining
due to value-based care
Bundled/Global One/Two Sided FFS Payment
2016 2018
Source: CMS, BCG, Chilmark Research
FFS: Fee-for-service; One/Two Sided: Allows participants to share in healthcare savings if their services make care delivery more efficient; Bundled: Reimbursement to providers based on expected costs for clinically-
defined episodes of care
10
Revenue Contribution from Lower-margin Medicare Payments is Projected to Increase
Hospital Payer Mix
Increasing Medicare and Medicaid Coverage
38%
35%
18%
9%Commercial
Medicare
Medicaid
Others
33%
40%
18%
9%
2014 2024E
▪ The federal reduction in Medicare payments and shift to value-based payment methods have
resulted in the low margins
▪ Contribution of Federal government to National Healthcare Expenditure has grown to 28% on
account of introduction of ACA
▪ The revenue contribution from Medicare is projected to increase from 35% in 2014 to 40% in 2024
Source: CMS NHE Tables
CHIP: Children's Health Insurance Program
191.4 200.5
96.4131.5
2009 Column2 Column3 2018
Total Private Health Insurance Medicare & Medicaid
10% increase in the share of Medicare patients or Medicaid patients will
decrease operating revenue by 2%
57%
43%Private &
Household
Federal, State
& Local
55%
45%2009 2018
2009 2018
Expenditure by Type of Sponsor
Enrolment by Program
(Mn)
11
Increasing Number of Consumer Directed Health Plans (CDHPS) (Mn)
47.8
65.8
90.3
2014 2017 2020E
Automation that Hospitals want to Implement the Most (% of Providers)
91%
87%
85%
Insurance Eligibility Verification
Mobile/Online Payments
Automated Cost Estimation
70% 75% 23% 33%
Providers reported it
takes one month or
longer on an average
to collect payment
from a patient
Consumers choose to
pay their household
bills online. But, 87%
of consumers
received healthcare
bills in the mail
Providers lack
resources to educate
patients or answer
questions regarding
patient payment
responsibility
Only 33% of providers
offered payment
estimation services
prior to care
This will increase the cost-conscious healthcare payers and collecting from patients is
estimated to cost up to 4 times more than collecting from payers
90% of S&P 500 companies will shift their workers from employer-sponsored insurance
plans to health exchange plans by 2020
Out-of-pocket expense for a patient, which amounts to 30% of the total healthcare bill, has
resulted in a 69% increase in customer payment dues to providers over last 4 years
Consumers expect more payment transparency from providers prior to receiving care as
they take on additional payment responsibility
Survey of 1600 providers
Source: Black Book, Aite Group
▪ A CDHP means offering a high-deductible
health plan paired with a spending account
for out-of-pocket costs
▪ A CDHP encourages customers to make
informed decisions and spend on
healthcare wisely
13
Recent Trends to Counter COVID Impact
Source: CMS, News Articles, Avendus Research
CMS approves Medicaid waivers for all states in response to COVID-19
Waivers give states and providers regulatory relief on a range of requirements such as prior
authorization requirement, provider enrollment requirements and timeline relaxation
COVID-19 Healthcare Coalition:
17 health systems and tech
companies
Maryland city partners with Amazon, Sprint on $200Mn telehealth program
A vendor management software for shift
management and workflow organizationDev 2019
Feb 2020A provider of health-care video remote
language interpretation services
Many healthcare organizations are turning to AI to screen and monitor patients
through the coronavirus pandemic
Regulatory
Changes
▪ Updated ICD-10 MS-DRG GROUPER software package to
accommodate the new ICD-10-CM diagnosis code
▪ CMS released a toolkit for states to help accelerate the adoption
of telehealth coverage policies
Coalitions/
Partnerships
▪ Healthcare organizations, technology firms, academia and
startups are coordinating for pandemic response efforts using
data and analytics
▪ Hospitals are also partnering with tech firms for telehealth
programs
M&A
Activity
▪ Healthcare service providers are looking for targets to add
virtual healthcare and telehealth capabilities
Internal
Technologies
▪ Hospitals are investing more in virtual services and telehealth
▪ Increase in the use of AI and Analytics to counter COVID
Source: Avendus research, Bain
Medical loss ratio (MLR) is a measure of the percentage of premium dollars that is spent on medical claims and quality improvements, versus administrative costs14
Necessity of healthcare services irrespective of the state of economy - U.S. health care costs are supplemented by Medicare, Medicaid, and private insurance,
this funding is not susceptible to economic downturn
Near Term Impact of COVID-19
▪ Patients flooding acute care and other sites
▪ Increasing use of telemedicine and at-home care
▪ Declining patient volumes in electronic surgery and primary care
Providers
▪ Low accessibility for members with non-COVID needs
▪ Medical Loss Ratio (MLR) pressure from COVID, offset by decline
in high-cost elective procedures
▪ Loss of members due to unemployment
Payers
▪ Slowing clinical trials with downstream effect of delaying product
launches
▪ Supply chain disruptions
Pharma
▪ Weak demand in products in elective procedures
▪ Increased demand for products critical to coping with the
pandemic
MedTech
Long Term Shifts due to COVID-19
Renewed focus on healthcare as a priority: the new national defense and a source
of national economic advantage
Consolidation: Economic impact of COVID -19 challenges low-market-share competitors,
resulting in increased M&A and sector consolidation
Supply chain diversification: Diversification of MedTech and Pharma supply chains to
limit potential for future disruption
Alternate channels of care: Patients and providers increasingly comfortable with
telemedicine and seek home-based options for needed care; Till a vaccine is developed people will
look for alternative systems of care
15 Source: Bain, Avendus Estimates, MarketsAndMarkets
Segment
Short-Term Impact of
COVID-19
Long-Term Impact of
COVID-19
Health Information Management Revenue Cycle Management Population Health Management Telehealth
▪ Reduction in inpatient charts
▪ HCC coding is not impacted much
▪ Significant reduction in outpatient
& electronic surgery related charts
▪ Demand for outsourced coding to
increase due to increased
government spend as US opens
▪ Need for new effective collection
strategies due to closure of elective
surgeries
▪ Outsourcing vendors will play a
critical role with innovative and
efficient collection process
▪ Focus on analytics to improve RCM
services
▪ Increased use of AI in population
health management strategies to
track the spread of the virus,
monitor the use of resources, and
identify vulnerable individuals
▪ ~$4.1Bn spent on tracking and
tracing COVID-19 patients
▪ Increased telehealth usage both to
maintain patient-care standards
and to make up for revenue lost
through avenues such as elective
surgeries
▪ Emphasis on Clinical
Documentation Improvement
▪ Outpatient and electronic surgery
charts will increase significantly
post-crisis
▪ Other coding services to return to
normal levels due to the criticality
and counter cyclic nature
▪ Providers will continue to focus on
new collection strategies in the era
of high-deductible health plans and
other cost-sharing arrangements
▪ Patient centric solutions to gain
importance to improve satisfaction
and provide better care
▪ Near-term use of data/AI to
address crisis leading to longer-
term focus on increased
interoperability to manage
population heath
▪ Patients to use telehealth solutions
more often
▪ Most of the providers to start
telehealth solutions to improve
care and patient satisfaction
▪ Using telehealth improves patient
accessibility for providers
Source: Avendus Research17
▪ Maximize revenue
▪ Reduce soaring costs
▪ Accurate and timely payment
▪ Manage population health
▪ Maintain data security
▪ Improve patient satisfaction
Provider
▪ Increase membership and renewal
▪ Manage member network
▪ Manage population health
▪ Maintain data security
▪ Reduce cost of adjudication
▪ Integrating services and technology
Payer
Critical Pain points Outsourcing Needs
▪ Take over back office functions (Front-end
RCM)
▪ Stringent data security
▪ Lack of talent with domain expertise
▪ Error-free coding and validation (HIM)
▪ Accurate and fast claims processing
▪ Reduce denials and manage accounts
receivables (RCM)
▪ End-to-end solutions
Outsourcing Benefits
▪ Talent Base: Availability of well trained and certified coders up
to date on all coding changes
▪ Security: Outsourcing vendors have robust security
infrastructure (ISO, HIPPA etc.)
▪ Accuracy: Outsourcing to a company that specializes in medical
coding will improve coding accuracy
▪ Scalable Delivery Model: Availability of low-cost delivery
locations and strong training capabilities
▪ Flexible Pricing Models: Transaction, FTE or Outcomes, clients
can pick the option that best suits their requirements
▪ End-to-end solutions: Outsourcing vendors provide end-to-end
solutions in RCM and HIM
▪ Pre-arrival services
▪ Automation: Usage of Bots/RPA
Source: Avendus research18
Provider & Payer
Revenue Cycle Management
RCM includes three stages:
▪ Pre-visit (Pre-registration, Eligibility Verification)
▪ During visit (Coding, Payment Posting)
▪ Post-visit (AR Management, Credit Balance Review)
Health Information Management
▪ HIM includes coding services , coding audits, CDI,
virtual scribe solutions etc.
▪ Coding services includes inpatient, outpatient,
emergency, clinics, urgent care, ambulatory and risk
adjusted coding & optimization services
Population Health Management
▪ PHM includes stratifying population groups based on
risk, identifying high cost conditions and taking
action like premium calculation
▪ Analytics is used to study historical data in order to
stratify populations and give insights
Patient Engagement HIE/ Integration Engine
Provider
▪ Patient portal that facilitates engagement between the
provider and the patient
▪ Guidance to patients with chronic illnesses for
improving quality of life and reducing readmission
rates for patients
▪ HIEs and Integration engines offer interoperability
between providers and between providers and other
players in the care continuum
▪ These services are offered by public HIEs, providers,
venders and pure play integration engines
Practice Management
▪ Aimed at increasing office efficiency by creating
electronic appointments, patient flow management
systems
▪ Integrates the transaction, claims and denial
management with the patient management
Claims Management Provider Network ManagementMember Management
Payer
▪ Electronic handling of claim made by providers,
employers and individuals based on coding rules
▪ Support for manual as well as electronic claims as well
as integration with fraud detection module
▪ This includes credentialing, contract and records
management and claims disbursement
▪ Using data mining techniques payers can see the
performance of various providers and accordingly
stratify the risk associated with each of them
▪ Involves enrollment of new members in health
insurance plans and handling member complaints
▪ Involves managing endorsements of insurance policies
so that the insured party receives increased coverage
High Growth Segments
HIGH GROWTH
AREAS
▪ Drivers are increasing regulation, the use of coded
healthcare information for improving patient
outcomes & reimbursement
Mkt. Size 2018 2019-25 CAGR
HEALTH
INFORMATION
MANAGEMENT
REVENUE CYCLE
MANAGEMENT
POPULATION
HEALTH
MANAGEMENT
PATIENT
ENGAGEMENT ▪ Drivers are shift to value-based care, increasing use
of data and analytics in population health and need
to reduce the high healthcare costs
Mkt. Size 2017 2018-26 CAGR
▪ Drivers are increase focus on patient
satisfaction & experience, quality of care and
need for improving patient outreach
Mkt. Size 2017 2018-22 CAGR
▪ Drivers are providers being under severe
financial pressure and lack of resources,
infrastructure, and knowledge to manage their
revenue cycle
Mkt. Size 2018 2019-26 CAGR
19
RCM – Revenue Cycle Management; HIM – Health Information Management; PHM – Population Health Management; PE – Patient Engagement
Source: Market and markets, Everest Group, Grandview Research, ResearchAndMarkets, Fortune business Insights
Market size represents outsourcing spend; *includes outsourcing and internal spend
20
RCM Outsourcing Market Size
($Bn)
8.1
19.7
2018 2026E
Major Outsourcing Vendors
Source: ResearchAndMarkets, HIMSS Analytics, KPMG
Drivers for RCM Outsourcing
Increased provider consolidation with greater propensity to outsource RCM
Growing reimbursement complexity impacts the already strained hospital resources
Increasing revenue and cash flow is an imperative for hospitals operating at low margins
Hospitals are financially weak post COVID-19
Increasing patient responsibility exacerbates revenue leakage
Acceptance of RCM outsourcing as a valuable strategy
Solution Providers
Billing Companies
RCM HIM PHM PE
21
Pre-
Registration
Eligibility &
Benefit
Verification
Referral &
AuthorizationCoding Services
Edits Resolution/
Claim
Submission
Payment
Posting &
Reconciliation
AR &
Denial
Management
Credit
Balance
Review
Insurance
Underpayment
Recoveries
▪ Patient Access Management
– Scheduling and Pre-Registration
– Eligibility & Benefit Verification
– Referral & Authorization Management
▪ Risk assessment
– Prospective review
▪ Edit Resolution/ Claim
Submission
– Assure clean claims are
submitted
– Smooth integration with
patient accounting system
– Identify and correct
incomplete claims
– Reduce first pass claims
denials
– Improve workflow automation
– Optimize collections
▪ Scribe Solutions
▪ Payment Posting &
Reconciliation
– Payment verification
– Claims denial verification
– Accurate payment posting
▪ Risk assessment
– Concurrent review
▪ AR & Denial
Management
– Automation and
process
improvement
– Streamline
revenue cycle
operations,
minimize denials
and increase
revenue
– Timely follow up
and
resubmission of
claims
▪ Credit Balance
Review -
Identification and
resolution of any
credit balances
that may have
occurred during a
billing cycle
▪ Insurance
Underpayment
Recovery Services
– Analyze payment
reports
– Compare
remittances to the
fee schedule
– Managed care
contracts
– Provide trend
analyses and
account resolution
– Identify and
rectify claims
payment errors
Pre-Visit During Visit Post-Visit
RCM Service Spectrum
Source: Markets and Markets, Everest Group Research, Avendus Research
RCM HIM PHM PE
0.12
0.33
0.870.95
1.00
1 year 6 months 3 months Point of care Precare
22
Delay in Collection by 6 Months Reduces the Value by ~70%
Value of dollar by collection timing ($)
Effect of Tech-enabled RCM Solutions on Collection Efficiency
87%
97%
Traditional Tech-Enabled
Collection Efficiency▪ The collection efficiency for top level billing
companies is 86–89%
▪ Technology-enabled solutions have the capability of
increasing the collection efficiency to near the
theoretical maximum of 96-97% - by providing multi-
channel patient communications and payment
options
Technology enabled payment solutions can make it convenient for the patients to
pay, and ensure timely collection; It will also help providers to publicize their
chargemasters
Technology provides new ways to offer patients different methods of payment, which
can ultimately reduce denials and generate clean claims
Improving collection efficiency reduces collection time and increases value of every
dollar paid by the patient
As the last point of interaction with a hospital, the patient’s experience during billing
and collection has a significant impact on patient satisfaction and loyalty
On 1st Jan 2019, a new CMS rule was passed, which requires all hospitals in the US
to publicize their chargemasters to improve price transparency
Source: Advisory Board, Aite Group,
RCM HIM PHM PE
23
Major Outsourcing Vendors
Offshore Players
Onshore Players
Source: Grand View Research, AHIMA Foundation, Bureau of Labor Statistics
Drivers for HIM Outsourcing
Obligatory implementation of complex ICD-10 coding system
Federal mandate to implement EHR
Increased regulatory requirements for patient data management
Increasing use of coded healthcare information for improving patient outcomes
Rapidly expanding use of risk adjustment for payers and patient communication
Need for optimizing risk adjustment
HIM Outsourcing Market Size
($Bn)
12.6
24.7
2018 2025E
RCM HIM PHM PE
24
Major EHR (Electronic Health Record) Platforms
Source: Grand View Research, AHIMA Foundation, Bureau of Labor Statistics, Avendus Research
Medical Coding Outsourcing Services Spectrum
</> CDI▪ Processes, technology & people, that advocates the completeness and
validity of provider documentation
AMBULATORY SURGERY▪ Complex surgery coding skills: neurosurgeries, orthopedic surgeries,
spine surgeries, and IR procedures
CLINICS▪ Coding for specialties such as ancillary diagnostics, diabetic
education, growth hormone testing, op labs, obstetric visits, physical
therapy/social therapy, Echo/EKG/EEG, cardiopulmonary, and pain
management
INPATIENT CODING▪ Used to report a patient’s diagnosis and services based on extended
stay
▪ Uses ICD-9/10-CM diagnostic codes for billing and appropriate
reimbursement but uses ICD-10-PCS as the procedural coding system
OUTPATIENT CODING▪ Uses ICD-9/10-CM diagnostic codes for billing and appropriate
reimbursement, but uses CPT or HCPCS coding system to report
procedures
▪ Documentation plays a crucial role in the CPT and HCPCS codes for
services
EMERGENCY CODING▪ Fast paced high-volume specialty encompasses elements of primary
care E&M services up to trauma services
DRG VALIDATION▪ The DRG (Diagnosis Related Groupings) Validation
Program helps ensure that hospitals perform fair and
equitable coding, utilization and billing practices
RCM HIM PHM PE
25
Risk Adjustment Coding Processes to be Outsourced
RISK ADJUSTED
CODING
▪ Audits
▪ Suspect condition capture
▪ Concurrent HCC coding
▪ Retrospective HCC coding
▪ HEDIS Abstraction
CONSULTING
▪ Provider education
▪ Technology consulting
▪ Risk contracts consulting
▪ Chart retrieval and HCC
capture consulting
▪ Quality measures consulting
Major Outsourcing
Services Vendors
Source: Grand View Research, AHIMA Foundation, Bureau of Labor Statistics
Risk Adjustment Process
▪ The Risk Adjustment (RA) model uses a patient’s demographics and HCC
diagnoses to determine a risk score, which is a relative measure of how costly that
patient is anticipated to be
▪ CMS uses Risk Adjusted Factor (RAF) to reimburse Medicare Advantage plans
based on the health of their members
RCM HIM PHM PE
Understanding the Risk Adjusted Factor
Patients are assigned risk adjusted score based on HCC (Hierarchical Condition Categories) diagnosis
▪ Patient demographics + HCC Diagnosis = Risk Adjusted Score
▪ Health plans are funded based on risk adjusted scores –
» Under coding leads to underpayment and loss of revenue
» Over coding leads to audit risk and compliance actions
▪ With shift to value-based care, risk adjusted coding for providers has been growing in importance
ICD-10-CM Codes
Diagnostic Groups (DXGs)
Condition Categories (DXGs)
70,000+
805
189
79 HCCs
Medicare Advantage Risk Adjustment Model
Major Outsourcing
Technology Vendors
26
Risk Adjusted Coding Market For Payers
Market Segment Eff. Charts (Mn) Risk Adjusted Coding Market ($Mn)
Medicare Advantage ~40 128.1
ACA - Exchange ~2 11.3
ACA - Commercial ~3 16.2
Managed Medicaid ~2 11.8
Quality Assurance (25% of first pass chart volumes) ~10 25.1
Total ~57 192.4
Huge Offshoring Opportunity- Of ~57Mn medical charts
65%+ of the opportunity is in Medicare Advantage; 72% of the
Medicare Advantage enrolment is with the tier 1 health plans
11% growth in the more mature Medicare Advantage enrolments in the
last 12 months; other segments expected to see faster growth
Key Trends In RA Coding for Payers
Source: Grand View Research, AHIMA Foundation, Bureau of Labor Statistics, CMS
RCM HIM PHM PE
Risk Adjustment Models For Payers
Growing Risk Adjusted Coding Market for Providers
▪ The convergence of payers and providers due to the shift to value-based care has resulted in the growth of risk adjusted
coding market for providers
▪ Coding accuracy, which can lead to a loss in revenue or compliance actions, depends a lot on provider documentation
▪ Provider education and consulting has become an integral part of risk adjusted coding value chain. Outsourced solutions -
» Physician staff to educate providers on coding, documentation Improvement and identifying clinical suspects
» Prospective concurrent and retrospective review for providers
HCCs (Hierarchical
Condition Categories)
MEDICARE
HHS-HCC (Health &
Human Service’s
Hierarchical Condition
Categories)
MARKETPLACE
CDPS+Rx (Chronic
Illness and Disability
Payment System)
MEDICAID
Source: CMS, NCQA: National Committee for Quality Assurance27
Healthcare Effectiveness Data and Information Set (HEDIS)
▪ The HEDIS is a tool used by more than 90% of American health plans to measure performance
on important dimensions of care and service.
▪ Health plans annually collect HEDIS statistics for reporting in the upcoming year. Analyzing this
information makes it possible to compare the performance of health plans on a verifiable and
credible basis.
▪ Medicare Advantage plans are given a yearly Star rating based on its performance on pre-
defined HEDIS measures, with other various plans and marketplaces also providing ratings
based on HEDIS measurements as well.
▪ A higher rating helps the organization earn bonus payments and rebates from the government.
HEDIS Abstraction
HEDIS Abstraction is the process of conducting a detailed review of
medical charts and insurance claims for hospitalizations, medical office
visits and other procedures to determine if they meet the quality of care
measures defined by the NCQA for the yearly HEDIS audit
Impact on Payer’s financial performance
Metric Determining Variables
Visibility and reputation in the market HEDIS Star Rating
Risk Adjusted Benchmarking HEDIS Star Rating & Risk Adjusted Factor
Rebate (%) HEDIS Star Rating
Member Premium HEDIS Star Rating & Risk Adjusted Factor
Advantages of HEDIS Abstraction
Improves care gap closure rates to boost Star ratings
Helps in providing quality care to members
Increase revenue through rebates
Attain a leading market position by increasing visibility to potential members
RCM HIM PHM PE
Me
dic
al C
od
ing
28Source: Becker’s Hospital Review, Avendus Research
*representative logos
Ris
k A
dju
ste
d C
od
ing
Pro
vid
ers
* Onshore Players*
Pa
yers
*
Chart Retrieval Coding QA Output
▪ Complete list of charts (list of inpatient and
outpatient medical records) of the patients,
retrieved from the EHR
▪ Intermediaries perform chart retrieval from
the end client EHR system and send it out to
healthcare BPOs
▪ Complete list of charts (entire medical history
including chronic illness) of the patients,
retrieved from the EHR
▪ Charts are collected from all sources
(hospitals, physicians, clinics etc.) based on
the end payer clients (Medicare, Medicaid,
and Commercials health plans)
▪ Review the
records, and
assign
appropriate
procedure (CPT)
and diagnosis
codes (ICD)
▪ Provides
prospective,
retrospective and
concurrent chart
reviews, and
assign risk
scores for each
patient
▪ QA is
conducted by
both the
vendor and
the client
▪ Reduces
coding errors
and improves
accuracy
▪ The charts and
analysis are uploaded
back (by the billing
company in case of
indirect) into the EHR
system
▪ This is used as an
input by providers for
the billing process
▪ The charts and
analysis are sent back
to the payers (by the
billing company in case
of indirect) and they
reimburse the
providers and assign
future health care
costs
Direct Client Base for Healthcare BPOs
Direct Client Base for Healthcare BPOs
Indirect
Client Base
for
Healthcare
BPOs
Indirect
Client Base
for
Healthcare
BPOs
RCM HIM PHM PE
Source: AAHCM, EPIC, ICANotes29
Patient Reports and Prescriptions – Input into the
Hospital EHR systemCharts in Hospital EHR System – Input for Coders Coding Matrix / Financial impact - Coding output
RCM HIM PHM PE
Medical Prescription Form
Name ______________________________________ Age ______________
Address ____________________________________ Date ______________
_______________________________________________________________
Refill 0 1 2 3 4 5 PRN Signature
Source: Avendus Research
Note: There is a new reward-based pricing model coming based on savings even in CDI programs30
Pricing Model Price ($) Remarks
Medical Coding
Inpatient Per chart 8-12 Volume depends on number of inpatient
days
Outpatient Per chart 1-4 Pricing depends on speciality – highest
for OP surgery and lowest for RadiologyEmergency Per chart 0.1-0.6
Pricing Model Price ($) Remarks
RA Coding Per chart 3-5% of reimbursement pricing model is also
used in certain cases
HEDIS Per chart 4-7Comes under risk adjusted coding and
RCM
Pricing Model Price ($) Remarks
Revenue Cycle Management
Pre-Visit Services per FTE per hour 9-13 Mostly billed on FTE basis
During Visit Services per FTE per hour 8-12 % of collection pricing model is also
used; ~30% by volumePost-Visit Services per FTE per hour 8-12
RCM HIM PHM PE
31
PHM Market Size (Including Internal Spend)
($Bn)
Major Outsourcing Vendors
Source: Fortune Business Insights, Avendus research
21.4
91.4
2018 2026E
Drivers for PHM Outsourcing
Regulatory changes such as the Patient Protection and Affordable Care Act
The shift from conventional fee-for-service (FFS) reimbursement to value-based payment
reimbursement
The explosion in the availability of health care data, including genomics data, electronic
medical records, and information from monitoring devices
Increasing use of analytics and AI/ML to manage population health by leveraging the
complex data sets
The need to reduce healthcare costs by providers to improve decreasing margins
Increasing need to bring in a proactive approach to managing health of a population
RCM HIM PHM PE
32 Source: HfS, Markets and Markets
Advantage of Outsourcing PHM
PHM Outsourcing Services Value Chain
▪ Aggregate population data
▪ Stratify population and assess risk
▪ Identify interventions
▪ Outreach and Educate
CONSUMER ENGAGEMENT
AND INTERACTION
▪ Prior authorization
▪ Prospective review
▪ Concurrent review/In-stay review
▪ Retrospective review
▪ Manage appeals and grievances
UTILIZATION
MANAGEMENT
▪ Program enrollment and referral
▪ Patient navigation
▪ Discharge planning
▪ Discharge admin / documentation
▪ Remote patient monitoring
CARE
COORDINATION
▪ Care management program evaluation
and assessment
▪ Utilization management
▪ Fraud, waste and abuse
▪ Quality and compliance (e.g. care gap
reporting and analysis, STARS, CAHPS,
HEDIS)
PERFORMANCE
MANAGEMENT &
OPERATIONAL ANALYTICS
▪ Identifying whom to target with what
intervention, reaching out, engaging.
▪ Processing authorizations, reviews,
appeals, and grievances
▪ Coordinating care with and for the
patient/member
▪ Measuring outcomes, analyzing,
reporting
Lower health, medical, and
administrative costEnhance the experience of careImprove the health of populations
RCM HIM PHM PE
33
PE Outsourcing Market Size
($Bn)
Major Onshore Outsourcing Vendors
Source: Markets and Markets, Everest Group Research
8.8
18.7
2017 2022E
Drivers for PE Outsourcing
Increasing focus on patient satisfaction and experience to improve provider financial
performance
The need to improve clinical outcomes and quality of care
Providers focusing on improving topline by increasing timely appointments and reducing
rate of no-shows
Growth in telehealth has led to focus on improving patient outreach
Patients focusing on e-visits and secure messaging to communicate faster with providers
Increased focus on monitoring patient performance to be able to treat them in a more cost-
efficient way
RCM HIM PHM PE
34
Consumers under 40
are unsatisfied with
the tech-capabilities
of the hospitals
Patients said that
inability to
immediately access
their own medical
records hindered
patient satisfaction
Patient portals, telehealth, and mHealth are all core
patient engagement technologies
Patient Rating (Average
Hospital
Net Margin)
Increase in Net patient
revenue per adjusted
patient days that can be
achieved by improving
patient satisfaction
Savings per interaction
by using chatbots with
AI in patient
engagement tools;
reduce 4 minutes per
inquiry
PATIENT PORTALS AS CORE
ENGAGEMENT TOOLS
Patients do not have
EHR access
Providers who improved patient
engagement credit the
availability of patient portals
Providers should improve their
patient portals with new tech &
integrate their EHR with the portals
to improve patient satisfaction & in
turn revenues
Patients actively requested
remote care options from
their providers
Americans live in rural areas
across US where healthcare
access is scarce
Providers should create innovative
telemedicine platform to gain access
to the patient's health history to
assist in remote patient care; They
should also integrate telehealth with
scribe solutions
CAGR of the healthcare
wearables market from 2019 to
2026
With increasing usage of healthcare
wearables, engagement can be combined
with data from wearables
USING TELEHEALTH TO
CONVENIENTLY SERVE PATIENTS
UTILIZING MHEALTH AND
WEARABLES
The Patient satisfaction have a direct
correlation with the hospital marginsExcellent Low
Advantages
Source: American Nurse Today, TripleTree, Dzone, MarketsAndMarkets
RCM HIM PHM PE
Healthcare data can be used to
provide real time insights to
providers helping in quicker
responses to health issues and
maintain population health
36
Big Data Analytics and AI to Have the Maximum Impact in Healthcare Features Providers Expect from Technology-enabled RCM
30%
25%
15%
10%
6% 5%
9%
Big Data
Analytics
AI mHealth Wearables Cloud Robotics Others
Key Technology Impacting Healthcare in 2019 (Survey Results from 150
providers)
Features Advantage
Customizable and user friendly Adapt to new features and miscellaneous needs of the hospital
Reduction in manpower needed Offer multiple automated functions
Cloud storage Manage data remotely and maintain backup
Mobile access Access to real time information
Internet functionality Provide online connectivity
Financial management Provide clarity on financial obligations and policy details
Established workflows Track every activity of the patient in the hospital
Patient balance due after insurance Provide price transparency
Real-time information Provide real-time and accurate information on patient accounts
Level of Automation Among Various Functions Across RCM Value Chain
High Automation
(30-100%)
Medium Automation
(20-30%)
Low Automation
(10-20%)
Appeals and Denials management | Claims update and refile | Client Reporting | Eligibility and Insurance Discovery | Charge posting | Data Input and Capture |
Reconciliation | Demographics Entry – High level of automation provides a large opportunity for the usage of RPA in outsourced solutions
Quality Control | Compliance Monitoring | Credit Balance Management | Process Auditing | Client Onboarding | Claim Generation Rejection Management | Document
and Data Management
Customer Relationship Management | Performance Measurement | Patient Responsibility Management | Analysis and Modeling | Research and Analytics
Source: HFMA, Frost and Sullivan
Source: Mckinsey & Company, Beckershospitalreview37
Accelerate Cost Estimation Using RPA bots to automate the benefits retrieval processes and generate cost estimates
Automate Claim Denials RPA bots can perform denial resolutions, freeing the staff for addressing complex denials
Assist Pre-AuthorizationsRPA in RCM allows healthcare organizations to collect information from various systems and integrate that information directly into the Hospital Information System
(HIS) and to submit for pre-authorizations in some cases
Error-Free Collection RPA offers transaction processing that eliminates manual errors, identifies anomalies in unpaid balances, and aids in error-free collection protocol
Improve Consumer Experience RPA-driven website chat bots used to answer simple queries, enhancing the consumer experience
RCM Function Benefits Usage of RPA/Bots
Automate Patient Registration RPA helps automate patient registration by procuring accurate details and validates primary insurances before claims
Major Outsourcing Vendors
Using Bots in RCM
Technology Capabilities
Required
According to McKinsey & Company, more than one third of tasks in the healthcare industry could be automated to increase efficiency
AI/ML NLP
38
Merging AI and ML with Human Effort
Most providers spend too much time searching for the right diagnostic codes
for their patients rather than looking at and listening to them
CAC reduces work hours, creating better standardization and eliminating errors
resulting in savings to providers
Fewer errors increases your first-pass claim acceptance rate, can improve data
abstraction, and offer more robust reporting than standalone EHR
Coder Productivity Coding Time
Savings per year if insurers eliminated unnecessary administrative tasks with
automated systems for processing and paying medical claims
Represents 21% of total administrative costs that physicians spend to ensure
accurate payments from insurers
Average turnaround time in traditional medical billing from filing a claim to receiving payments is 5-
7 weeks whereas in automated medical billing can be reduced to 2 weeks
However CAC cannot completely replace human coding as CAC have a lower precision rate when
used without the assistance of a certified coder
Improper payments due to coding errors in
FY2017Total number of billable codes after ICD-10
▪ This has increased the need for medical coders at a significant rate
▪ Medical coders analyze records to match treatments with the correct code and manually entering
this data for billing purposes
▪ This has given rise to Computer Assisted Coding (CAC), which uses ML and NLP
▪ The software scans medical records, searching for specific language, terms, and phrases to help
identify charges that need to be coded
The Global CAC Market is Projected to Reach $4.75Bn By 2022 at a CAGR of 11.5%
2.5
4.8
2016 2022E
Drivers
▪ Increased regulatory requirements
▪ Increasing implementation of EHR
▪ Growing utilization to curtail the soaring healthcare
costs
Source: AHIMA Foundation, Bureau of Labor Statistics
39
AI and ML Using Complex Datasets Available for Clinical Decision Support
Providers are specifically using analytics
tools to manage population health at scale
Providers are using data analytics to improve
chronic care management
Artificial Intelligence
Machine LearningData
EHR, Image, Genetic data
Nature Language
Processing
Clinical Notes in Human
Language
Clinical activities
Screening, Diagnosis,
Treatment
Improves
readmissions
rates
Improves
health
interventions
Shortens
hospital stays
Identifies
patients at risk
Population Health Domains Potential use of AI
Health protection Analysing patterns of data for almost real-time surveillance and
disease detection
Health promotion Offering targeted and personalized health advice based on
personal risk profile and behavioral patterns
Increasing efficiency of
health services
(1) Using ML to detect abnormalities in screening tests such as
mammography or cervical cytology
(2) ML facilitated automated evidence synthesis
Source: osplabs, HIMSS Analytics, PHG Foundation
Many EHR vendors
are shifting from
traditional EHR
system to a creative
AI-enabled and
Cloud-based EHR
systems
Advanced analytics
competencies, such
as developing
personalized risk
scores with AI or
using
predictive clinical
decision support to
target interventions,
are still rare among
organizations
Applying new
algorithms, seeing
the big picture,
discovering insights
and consistent
deployment across
organization are
some of the core
benefits of AI-driven
solutions
AI’s deep learning
technique is
improving prediction
challenges and
identifying
connections between
unrelated datasets
40 Source: Company websites
▪ Clinical Analytics: Provides clinical insights and support next gen health management
▪ Virtual Health: Leverage virtual interactions to deliver better care
▪ Population Health: Services to support and improve delivery of longitudinal health & wellness for
individuals/populations
▪ iCode Workflow: Cloud-based workflow management solution
▪ iCode Risk Adjustment: Tech-enabled provider scheduling, chart retrieval and HCC coding
▪ iCode Assurance: Cloud-based audit intelligence solution to improve coding performance
▪ iP2P: Real time production reporting, management and QA/Audit tool
▪ VeeCAP: Coding assistance platform to improve productivity using OCR & NLP
▪ VeeProMIS: Web-based AR & Denials management solution
▪ VeeMCode: Tool to understand the productivity and quality of a coder
▪ RAOptimizer: Captures missed opportunities and improve clinical documentation
▪ BOT.H: RPA platform using bots in eligibility verification, claims management etc.
▪ MyDoc teledoc platform: Telehealth platform
▪ RCM Technology: ATOM (Amplify & Transform Operations Management), Web claim status &
eligibility verification and iARMS (Integrated Accounts Receivables Management System)
▪ Coding Technology: CBI (Coding & Billing Interface), CAC (Computer Assisted Coding) and RuBAT
(Rule-Based Audit Tool)
▪ Payment Processing Platform: Intelligent, OCR enabled payment processing platform
▪ ARC.IN Platform: Tech-enabled RCM platform with operations dashboard, workflow & client
portal, BI and other integrated technology
▪ RPA Suite: EOB processing & payments, claims status & resolution and medical coding
automation
▪ Custom workflow tools for better, smarter and faster delivery
▪ Smart learning tools that increase learning speed by over 40%
▪ Proprietary document management tool for client P&Ps with stringent controls
42
Pre Hitech 2009 Mar 2010 Apr 2015 Oct 2015 2020
HITECH
Increase use of healthcare
information technology
among providers
ACA
Increase healthcare coverage
and reduce costs by moving
to a value-based model
MACRA
Incentive-based system model
of Medicare payment
ICD10
Increased the number of
codes from 17,800 to over
139,000
COVID-19
Increase focus towards
telemedicine and virtual
healthcare
Pre – HITECH
Low use of technology in
the healthcare
outsourcing space
▪ Started with Payer
solutions
▪ RCM and Medical
Coding gradually
increased
▪ Increased adoption of
EHR
▪ Large volumes of charts
retrieved easily
▪ Risk shifting to
providers
▪ Increase in provider
functions outsourcing
▪ Convergence of payers
and providers
▪ Increase in end-to-end
solutions
▪ Increase in complexity
of medical coding
▪ Offshore locations
building talent base
▪ Increase in telehealth
and virtual health
solutions
Major Offshoring Locations
India Philippines
Focus Locations
▪ Quezon City
▪ Pasay City
▪ Pasig City
Focus Locations
▪ Bangalore
▪ Chennai
▪ Hyderabad
▪ Salem
▪ Mysore
▪ NCR
▪ Key services provided include – Medical Transcription, RCM,
Care Management, Claims Processing, Clinical Support,
Compliance Management & Disease Management
▪ Large nursing talent pool – Ideal blend of medical knowledge
and strong customer interaction skills
▪ Promoted by Healthcare Information Management Association
of the Philippines (HIMAP)
▪ Key services provided include – Medical Coding, RCM, HCC
Coding, Claims Management, AR Management, Provider
Network Management & Medical Transcription
▪ Large medical coding talent pool – Certified coding talent
pool with strong domain expertise
▪ Promoted by Health Information Management Association
India (HIMA India)
Source: CMS, Avendus Research
HITECH - Health Information Technology for Economic and Clinical Health Act
43
GM (%) EBITDA (%)
IT BPO Healthcare BPO SaaS
30-35%
Healthcare BPO Margins are Comparable to SaaS Players, Significantly Higher than IT And BPO
Source: Annual Reports, CMS, Avendus Research
IT: Accenture, Cognizant, Capgemini, TCS, Infosys, Wipro, TechM, HCL; BPO: WNS, Genpact, Conduent, Firstsource, Capita, EXL; Healthcare BPO: AGS, GeBBS, Vee Technologies, Visionary RCM; SaaS: Salesforce, Workday, SAP
Key Factors Leading to Higher Margins
30-35%
65-70%70-75%
20-25% 15-20%
35-40%
20-25%
High pricing power Low annual cost per employeeTech-enabled solutions increasing productivity and
efficiency
▪ Biggest advantage is the availability of large skilled
workforce in outsourcing locations like India & Philippines,
which is ready to take on projects of any size and
complexity
▪ Per chart pricing model gives better margins (Only RCM
solutions are billed on FTE basis)
Avg Cost per employee ($'000)
IT BPO Healthcare BPO
15-20 15-20
5-10
75%
20%
Of the RCM functions have >20% level of
automation
Increase in coding productivity by combining
AI/ML with human talent
▪ Healthcare BPO hire
talent from Life Sciences
and medical coding
background rather than
engineers like IT/BPO
Offshore Model Provides Additional Cost Benefit
Healthcare Offshore Model Healthcare Onshore Model
Avg. cost per employee per year ($’000)
5-10
40-60
Margins further improve in the healthcare offshore model due to the low
cost per delivery employee as compared to onshore
44
Source: CapitalIQ, Avendus Research
IT: Accenture, Cognizant, Capgemini, TCS, Infosys, Wipro, TechM, HCL; BPO: WNS, Genpact, Conduent, Firstsource, Capita, EXL; Healthcare BPO: AGS, GeBBS, Vee Technologies, Visionary RCM; SaaS: Salesforce, Workday, SAP
RoE = Earnings from continuing operation / Avg. Equity; RoCE = EBIT (1-Effective Tax Rate)/Avg. Capital Employed; Capital employed = Equity (including Minority Interest) + Debt – Cash
Earnings from continuing operation = EBIT - Net Interest Expense + Non-operating Expenses – Tax; Cash Conversion Ratio: (CFO-Capex)/EBITDA
8%4%
27%
22%
Historical 3 year growth (%)
Growing At ~30% in the Last 3 Years
23%17%
39%
7%
ROE (%)
Delivering High Return on Equity
16%
8%
28%
5%
ROCE (%)
Delivering High Return on Capital Employed
72%
51%
80%
40%
Cash Conversion Ratio (%)
Cash Rich Nature (85% Cash Conversion)
IT BPO Healthcare BPO SaaS
Source: Company websites, Avendus research45
Offshore Players with
focus on Direct Clients
Offshore Players with
focus on Indirect Clients
Onshore Players
Large IT/BPO Players
with Healthcare Presence
Captive Companies
▪ Majority of clients are large hospitals, health
systems, payers
▪ Large players providing both healthcare IT and
BPO solutions
▪ Majority of the solutions are provided onsite
▪ Large portion of the talent base in the US
▪ Majority of clients are indirect – billing
companies
▪ Captive delivery centers in offshoring locations
High Medium Low
Category Major playersDirect Client
Base
Onshore
Presence
Coding
Capabilities
Technology
CapabilitiesRemarks
46
AHIMA or AAPC certified talent base
How the Model is Changing?
Remove the burden of your back-end
healthcare processes
Round-the-clock value-for-money
services
Tech-enabled solutions to increase the
productivity, quality, and value
End-to-end tech enabled solutions
backed by top notch talent pool
Domain Expertise
Proficiency in pediatric, adolescent,
orthopedic, cardiology, chronic
condition management, IR and other
specialties
Good understanding of the RCM value chain: Eligibility
Verification, Billing Solutions and Claims & Denials Mgmt.
1
23
Proficiency across
Medicaid, Medicaid and
Commercial payers
Talent Base
▪ Majority of the talent base should possess a
medical, nursing, para-medical, or life sciences
background
▪ Other preferred certifications - CCS, CPC, COC,
CPMA
Security Certifications
Source: Annual Reports, CMS, Avendus Research
Key Requirements
Technology Capabilities
Coding
Assistant
Platform
Workflow
Management
Tool
RPA,
AI/ML
capabilities
Learning Tools/
Knowledge Base
47
IT/BPO Players Healthcare Service Providers Captives
He
alt
hc
are
Em
plo
ye
es
*
>2
0,0
00
5,0
00
-20
,00
01
,00
0-5
,00
0<
10
00
Source: Annual Reports;
*Apportioned basis healthcare revenue for IT/BPO Players
48 Source: Company Websites, Mergermarket, Avendus Research
$10-30Mn$100Mn+ $30-100Mn
REVENUE
HQ: Bangalore
Other Locations in India:
Bangalore,
Visakhapatnam,
Hyderabad,
Employees
1,000+
Company HQ and Locations Size
Founded: 2017
HQ: Hyderabad
Other Locations in India:
Karimnagar
Employees
~500Founded: 2008
HQ: Florida, Bangalore
Other Locations in India:
Chennai, Trichy,
Hyderabad, Bhimavaram
Employees
14,000
Company HQ and Locations Size
Founded: 2003
HQ: California
Other Locations in India:
Mumbai, Navi Mumbai
Employees
8,000+Founded: 2015
HQ: Bangalore, New York
Other Locations in India:
Salem, Chennai
Employees
2,800
Company HQ and Locations Size
Founded: 2004
HQ: Texas
Other Locations in India:
Bangalore, Mysore
Employees
1,000Founded: 2004
HQ: Chennai, New Jersey
Other Locations in India:
Hyderabad, Vellore,
Tirupati
Employees
6,000+Founded: 2010
HQ: Chennai, Texas
Other Locations in India:
Coimbatore, Pune,
Mumbai
Employees
12,000+Founded: 2010
HQ: Chennai, Minnesota
Other Locations in India:
Coimbatore, Hyderabad
Employees
3,000Founded: 2006
50
Valuation has been Consistently Increasing in the Last 3 Years
Key Rationale for M&A
High margins, scalable delivery model and barrier
to entry are expected to deliver high returns for
investors - ~50% of control deals are PE led
HIGH
RETURNS
9.6x
11.2x 11.9x
2.2x2.9x
4.3x
2017 2018 2019
Avg. LTM EV/EBITDA Avg. LTM EV/Revenue
Healthcare BPO Vendors have Commanded a Premium Valuation
9.4x
2.2x
10.0x
1.3x
11.1x
2.7x
Avg. LTM EV/EBITDA Avg. LTM EV/Revenue
BPO IT Healthcare BPO
Source: Mergermarket, Avendus Research, News Articles
BPO: 15 deals; IT: 14 deals, Healthcare BPO: 15 deals
Deals in the last 5 years Healthcare BPO deals
PORTFOLIO
EXPANSION
The business models of payers and providers are changing due to a transition to
value-based care systems, and other regulatory impetus. This necessitates the
expansion of offerings by Healthcare BPOs – a trigger for both inorganic and
organic enhancement of capabilities
PLATFORM
BASED
ACQUISITION
Financial sponsors are seeking, to club
smaller assets, to create larger scaled up
platforms
51 Source: VCCEdge, Mergermarket
Date Target Target Service Description Bidder
Deal Value
($Mn)
EV / Revenue
(TTM)
EV / EBITDA
(TTM)
Mar-20 Omega Healthcare Provider of healthcare business and knowledge process outsourcing servicesGoldman Sachs;
EverstoneNA NA NA
Apr-19 AGSHealthRevenue cycle management company that provides medical billing, medical
coding and healthcare analytics services to healthcare service providers
Barings Private Equity
Asia320 4.3x 11.9x
Apr-19 Medusind Provider of turnkey medical billing and collections solutions HIG Capital 86 NA NA
Feb-19 Athenahealth (91% Stake) Provider of internet-based business services for physician practicesVeritas Capital Fund
Management5,700 4.3x NA
Dec-18 GeBBSProvider of revenue cycle management (RCM) and health information
management (HIM) solutionsChrysCapital 140 NA NA
May-18 Intermedix CorporationProvider revenue cycle management, practice management and data analytics
servicesR1 RCM Inc 469 2.4x 9.8x
May-18 SCIO Health Analytics Provider of medical analytics software and related support services EXL 237 3.0x NA
Mar-18 Bolder Healthcare SolutionsProvider of revenue cycle management solutions to hospitals, physician
practices and other specialist healthcare organizations
Cognizant Technology
Solutions Corporation477 3.2x 12.6x
Dec-17 Visionary RCM Provider of risk adjustment solutions Carlyle Group 70 2.8x 6.7x
Oct-17 T-systemsProvider of gold-standard ER documentation and coding software and services
for 1900 hospitals and clinicsFidelity National Financial 201 2.0x 8.3x
52 Source: VCCEdge, Mergermarket
Date Target Target Service Description Bidder
Deal Value
($Mn)
EV / Revenue
(TTM)
EV / EBITDA
(TTM)
Aug-17 inVentiv HealthProvider of outsourced services to pharmaceutical, biotechnology, medical
device and diagnostics, and healthcare industries INC Research 4,582 2.0x 13.7x
Aug-17 Sigma Informatica s.p.a. Provider of outsourcing services to the healthcare sector GPI S.p.A. 17 1.8x NA
Sep-16 Anthelio Healthcare SolutionsInformation technology and business process service provider focused on the
healthcare industryAtos 275 1.4x 8.5x
Dec-15 R1 RCM Inc (44% Stake)Provider of healthcare revenue cycle management services to hospitals and
healthcare providers
TowerBrook Capital
Partners L.P.; Ascension
Health Ventures, LLC
200 1.5x NA
Nov-15 MedAssets, Inc.Healthcare analytics company engaged in providing cost and clinical resource
management and data and analytics tools
Pamplona Capital
Management LLP2,638 3.7x 17.3x
Mean 2.7x 11.1x
Median 2.6x 10.9x
53 Source: CapitalIQ as of 4th May 2020
Company Name
Market Cap
($Mn)
EV
($Mn)
LTM Revenue
($Mn)
LTM EBITDA
($Mn)
Last 3-Year
Growth (%)
Fwd. 2-Year
Growth (%)
LTM EBITDA
Margin (%)
EV/EBITDA
(LTM)
EV/EBITDA
(FY+1)
EV/Revenue
(LTM)
EV/Revenue
(FY+1)
IQVIA Holdings 26,070.4 38,023.4 11,158.0 1,887.0 28% 3% 17% 18.3x 16.9x 3.4x 3.5x
Cerner 20,303.1 21,422.7 5,714.5 1,168.9 6% 2% 20% 17.8x 12.1x 3.7x 3.8x
Inovalon 2,536.0 3,489.7 651.1 181.6 15% 7% 28% 18.0x 15.0x 5.4x 5.0x
HMS Holdings 2,520.6 2,643.5 626.4 140.8 8% 9% 22% 18.2x 14.2x 4.2x 3.8x
AMN Healthcare 2,071.9 2,711.2 2,222.1 242.6 6% 7% 11% 9.5x 8.6x 1.2x 1.1x
R1 RCM 1,127.0 1,723.0 1,186.1 139.8 79% 11% 12% 11.0x 6.6x 1.5x 1.3x
Allscripts 1,002.1 1,906.4 1,771.7 96.6 5% 1% 5% 15.6x 6.2x 1.1x 1.1x
NextGen Healthcare 656.4 716.2 538.6 38.1 3% 2% 7% 15.6x 7.8x 1.3x 1.3x
Evolent Health 582.1 854.8 846.4 (60.8) 50% 10% (7%) NM 30.3x 1.0x 0.9x
Mean 15.5x 13.1x 2.5x 2.4x
Median 16.7x 12.1x 1.5x 1.3x
RCM / HIT Companies
55
Term Brief Description
AAPC American Academy of Professional Coders (AAPC) is a professional association for people working in specific areas of administration within healthcare businesses in the United States
ACAAffordable Care Act is a United States federal statute signed into law by President Barack Obama on March 23, 2010. The ACA was enacted to increase the quality and affordability of health insurance and cut down
on healthcare costs
ACO Accountable Care Organizations (ACOs) are groups of doctors, hospitals, and other health care providers, who come together voluntarily to give coordinated high quality care to their Medicare patients
AHIMAThe American Health Information Management Association (AHIMA) is a professional association for health professionals involved in the health information management needed to deliver quality health care to the
public
Ambulatory Ambulatory care or outpatient care is medical care provided on an outpatient basis, including diagnosis, observation, consultation, treatment, intervention, and rehabilitation services
Analytics Analytics is used to describe statistical and mathematical data analysis that clusters, segments, scores and predicts what scenarios are most likely to happen
ARRA The American Recovery and Reinvestment Act of 2009 was a stimulus package enacted by the 111th United States Congress in February 2009 and signed into law on February 17, 2009, by President Barack Obama.
BCRA Better Care Reconciliation Act (BCRA) was passed on May 4th 2017 which would repeal and replace the Affordable Care Act (ACA) and make significant changes to the Medicaid program
BPOBusiness process outsourcing (BPO) is the delegation of one or more IT-intensive business processes to an external provider that, in turn, owns, administrates and manages the selected processes based on defined
and measurable performance metrics
CAC A computer assisted coding (CAC) is software that analyzes healthcare documents and produces appropriate medical codes for specific phrases and terms within the document to improve the productivity of a coder
CAGR The compound annual growth rate (CAGR) is the mean annual growth rate of an investment over a specified period of time longer than one year.
CCS The Certified Coding Specialist (CCS) credential certifies advanced data quality skills for coding professionals within inpatient settings
CDHConsumer-driven healthcare (CDHC), or consumer-driven health plans (CDHP) refers to a type of health insurance plan that allows members to use health savings accounts (HSAs), health reimbursement accounts
(HRAs), or similar medical payment accounts to pay routine healthcare expenses directly
CDIClinical documentation improvement (CDI) is the best practices, processes, technology, people, and joint effort between providers and billers that advocates the completeness, precision, and validity of provider
documentation inherent to transaction code sets
CHIPChildren's Health Insurance Program is a program administered by the United States Department of Health and Human Services that provides matching funds to states for health insurance to families with children
who are too rich to qualify for Medicare
Claims ProcessingThe fulfillment by an insurer of its obligation to receive, investigate and act on a claim filed by an insured. It involves multiple administrative and customer service layers that includes review,
investigation, adjustment, remittance or denial of the claim.
56
Term Brief Description
Cloud Computing Gartner defines cloud computing as a style of computing in which scalable and elastic IT-enabled capabilities are delivered as a service using Internet technologies.
CMS The Centers for Medicare & Medicaid Services (CMS) is a US federal agency that administers the Medicare program and works in partnership with state governments to administer Medicaid, CHIP etc.
COC The Certified Outpatient Coder (COC) is the only standalone outpatient coding credential in the healthcare industry
Community
Hospital
A community hospital refers to a hospital that is accessible to the general public, and provides a general or specific medical care which is usually short-term, in a cost-effective setting, and focusses on preventing
illnesses
CPC Certified Professional Coder (CPC) is a highly trained certified medical coding professional
DRG A diagnosis-related group (DRG) is a patient classification system that standardizes prospective payment to hospitals and encourages cost containment initiatives
EBITDA Earnings Before Interest, Taxes, Depreciation and Amortization is an indicator of a company's financial performance
EDIS Emergency Department Information System prioritizes & schedules patient emergency treatment and streamlines workflow
EHR An Electronic Health Record is a digital version of a patient’s paper chart. EHRs are real-time, patient-centered records that make information available instantly and securely to authorized users.
EMR An electronic medical record (EMR) is a digital version of the traditional paper-based medical record for an individual. The EMR represents a medical record within a single facility, such as a doctor's office or a clinic.
EV Enterprise Value, or EV for short, is a measure of a company's total value, often used as a more comprehensive alternative to equity market capitalization.
FFSFee-for-service (FFS) is a payment model where services are unbundled and paid for separately. In health care, it gives an incentivefor physicians to provide more treatments because payment is dependent on the
quantity of care, rather than quality of care.
FTE Full-Time Equivalent is a unit that indicates the workload of an employed person in a way that makes workloads or class loads comparable across various contexts
Health ExchangesIn the United States, health insurance marketplaces, also called health exchanges, are organizations set up to facilitate the purchase of health insurance in each state in accordance with the Patient Protection and
Affordable Care Act
Healthcare SystemA health system, also sometimes referred to as health care system or healthcare system, is the organization of people, institutions, and resources that deliver health care services to meet the health needs of target
populations.
HEDIS The Healthcare Effectiveness Data and Information Set (HEDIS) is a tool used by more than 90 %of America's health plans to measure performance on important dimensions of care and service.
57
Term Brief Description
HIEHealth Information Exchange is the mobilization of health care information electronically across organizations within a region, community or hospital system. The term HIE may also refer to the organization that
facilitates the exchange.
HIMSSThe Healthcare Information and Management Systems Society is a not-for-profit organization dedicated to improving healthcare quality, safety, cost-effectiveness, and access, through the best use of information
technology and management systems
HITECHThe Health Information Technology for Economic and Clinical Health (HITECH) Act, enacted as part of the American Recovery and Reinvestment Act of 2009, was signed into law on February 17, 2009, to promote the
adoption and meaningful use of health information technology.
ICD 10ICD-10 is the 10th revision of the International Statistical Classification of Diseases and Related Health Problems (ICD), a medical classification list by the World Health Organization (WHO). It contains codes for
diseases, signs and symptoms, abnormal findings, complaints, social circumstances, and external causes of injury or diseases.
Inpatient Inpatient care is the care of patients whose condition requires admission to a hospital.
Interoperability In healthcare, interoperability is the ability of different information technology systems and software applications to communicate, exchange data, and use the information that has been exchanged.
ITThis is the common term for the entire spectrum of technologies for information processing, including software, hardware, communications technologies and related services. In general, IT does not include embedded
technologies that do not generate data for enterprise use.
IT Infrastructure IT infrastructure refers to the composite hardware, software, network resources and services required for the existence, operation and management of an enterprise IT environment.
MACRAMedicare Access and CHIP Reauthorization Act of 2015 (MACRA), commonly called the Permanent Doc Fix, establishes a new way to pay doctors who treat Medicare patients, revising the Balanced Budget Act of
1997.
MCO Managed Care Organisations in the United States is used to describe a variety of techniques intended to reduce the cost of providing health benefits and improve the quality of care
Medicaid Medicaid in the United States is a social health care program for families and individuals with low income and limited resources.
Medical Billing Medical billing is the process of submitting and following up on claims with health insurance companies in order to receive payment for services rendered by a healthcare provider
Medical Coding Medical coding is the transformation of healthcare diagnosis, procedures, medical services, and equipment into universal medical alphanumeric codes.
MedicareIn the United States, Medicare is a national social insurance program, administered by theU.S. federal government since 1966. Medicare provides health insurance for Americans aged 65 and older who have worked
and paid into the system.
Mhealth mHealth (mobile health) is a general term for the use of mobile phones and other wireless technology in medical care
MSSPThe Medicare Shared Savings Program was established by the Affordable Care Act. It was enacted to ensure better cooperation among providers to improve the quality of care for Medicare Fee-For-Service (FFS)
beneficiaries and reduce unnecessary costs.
58
Term Brief Description
NLPNatural-language processing technology involves the ability to turn text or audio speech into encoded, structured information, based on an appropriate ontology. The structured data may be used simply to classify a
document, or to identify findings, procedures, medications, allergies and participants.
Patient
EngagementPatient engagement is used to describe everything from patient portals to social media strategies, from tracking vitals with wearables to patients actively participating in their own health and wellness.
Payer Any entity that is authorised to provide health insurance payments which may inclode commercial health insurance companies, federal and state governements as well as employers
PHMPopulation Health Management is the aggregation of patient data across multiplehealth IT resources, the analysis of that data into a single, actionable patient record, and the actions through which care providers can
improve both clinical and financial outcomes.
PPACAThe Patient Protection and Affordable Care Act is a United States federal statute signed into law by President Barack Obama on March 23, 2010. The ACA was enacted to increase the quality and affordability of
health insurance and cut down on healthcare costs
Practice
Management
Practice Management software deals with the day-to-day operations of a medical practice. Such software frequently allows users to capture patient demographics, schedule appointments, maintain lists of insurance
payors, perform billing tasks, and generate reports.
Provider Health care providers in the U.S. encompass individual health care personnel, health care facilities and medical products.
RAF Risk adjustment is a method to offset the cost of providing health insurance for individuals—such as those with chronic health conditions—who represent a relatively high risk to insurers
RCM Revenue Cycle Management encompasses all administrative and clinical functions that contribute to the capture, management, and collection of patient service revenue
SaaSSoftware that is owned, delivered and managed remotely by one or more providers. The provider delivers software based on one set of common code and data definitions that is consumed in a one-to-many model by
all contracted customers at anytime
Shared Savings A apyment arrangement in the healh care system in which the provider and payer benifit from cost savings undertaken by the healthcare providers
TelehealthTelehealth is the delivery of health-related services and information via telecommunications technologies. Telehealth could cary from a simple telephone conversation to doing robotic surgery between facilities at
different ends of the globe
Value Based
PaymentValue-Based Payment (VBP) is a strategy used by purchasers to promote quality and value of health care services. The goal of any VBP program is to shift from pure volume-based payment
VendorA software vendor is an organization specializing in making or selling software, designed for mass or nichemarkets. This is in contrast to software developed for in-house use only within an organization or software
designed or adapted for a single, specific customer.
WHO The World Health Organization is a specialized agency of the United Nations that is concerned with international public health.
60
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