Health Care Providers The Latest To Ship IT Work To India

"We cannot increase our rates, yet health care costs are rising," one CIO says. "So if you're dealing with those two things, you are constantly battling your administrative costs to find better ways to do business."

By Paul McDougall InformationWeek

Jul 17, 2006 12:00 AM

Anyone who's paid a doctor's bill lately knows medical costs are out of control, so it should come as no surprise that health care is the latest industry to tighten its belt by sending IT work abroad.

Faced with rising expenses but saddled with HMO regulations that prevent it from raising premiums without state approval, Molina Healthcare in Long Beach, Calif., outsourced a good chunk of its IT work to a firm that operates primarily in lower-wage India.

Privacy worries limit growth, Narayanan says

For the past three years, Molina, which insures patients in six states, has turned to Cognizant Technology Solutions for development and integration of applications that power its $1.65 billion-a-year business. Earlier this year, Cognizant built a portal for Molina that members, physicians, and business partners use to access information on services, claim status, eligibility, and the like. About 50 Cognizant technicians work at Molina's U.S. facilities, while another 120 provide support from India. "They're an integral part of our team," says Rick Click, CIO at the managed care provider. Click first became aware of Cognizant's services while he worked as global technology leader at eBay.

Molina is one of a growing number of companies in the U.S. health care supply chain that are turning to India for business and technology services. Work moving offshore includes design, testing, and maintenance of medical ERP systems, medical transcription, claims management, and HIPAA compliance administration. Indian vendor Infosys recently built a customer contact system for St. Louis-based Mercy Health Plans that reps use to access member information from data sources throughout the company.

The health care industry's spending on outsourcing will rise from $6.2 billion last year to $7.7 billion in 2008, IDC forecasts. Offshore outsourcing will rise from $321.7 million in 2005 to $575.3 million in 2008, reaching about 7.5% of outsourcing spending, IDC predicts.

Click cites a simple reason managed care companies like Molina offshore: "We cannot increase our rates, yet health care costs are rising. So if you're dealing with those two things, you are constantly battling your administrative costs to find better ways to do business." Programming wages in India typically run 60% to 80% less than in the United States. It's not just about cost, though, Click says. Cognizant ranked highly in Molina's vendor evaluations.

Healthy Growth

Cognizant and most of its Indian peers are developing practices that specialize in the health care and life sciences industries. Cognizant's revenue from health care services rose to $176.1 million in 2005 from $78.4 million in 2003. CEO Lakshmi Narayanan says he expects U.S. health care spending on IT outsourcing to remain strong.

Still, health care offshoring is tempered by concerns about patient privacy. Cognizant doesn't handle any of Molina's patient data, and CIO Click would have it no other way. "You want to be very sensitive with patient information, so the only portion that our offshore partners work on is coding," he says. HIPAA regulations don't prohibit the offshoring of patient data, but they do require outsourcers, regardless of where they're located, to ensure that patient data and privacy aren't compromised. Among other things, vendors handling personal medical data must hire a privacy officer.

Some state governments that outsource health care administration support won't let patient data leave U.S. shores. In May, EDS signed a $308 million contract to manage and support the IT systems underpinning Florida's Medicaid program. EDS has spent millions building data centers in India, but they won't be used for this project. The state's contract with EDS "enforces strict safeguards to protect patient's privacy, such as requiring all business to be conducted in Florida," a spokesman for the state's Agency for Health Care Administration says.

Narayanan concedes that privacy concerns could limit the amount of work dispatched offshore by health care providers and agencies: "It makes breaking into health care more difficult."