Genpact joneses after JAWOOD to capitalize on healthcare insurance mayhem

As HfS’ Tony Filippone recently prophesied, November’s election result would dictate the future of the US healthcare industry… and the titanic upheaval of Obama’s reforms is quickly being felt.  Consequently, providers such as Genpact, are wasting no time trying to seize the initiative, as Tony discusses…

Get ready for the healthcare market to heat up over the next three years as a result of state health insurance market places, the rapid expansion of accountable care organizations, and ICD-10 implementations.

On Friday, Genpact announced its acquisitions of JAWOOD and Felix Software Solutions. This announcement comes on the heels of Cognizant’s November acquisition of Medicall, a BPO specialist provider of medical talent to the payer and provider industries with nearly 800 resources. Clearly, leading IT/BPO services providers sense real growth potential from healthcare insurers (payers) bracing to cope with these seismic changes.  We explain the forces influencing the payer market more thoroughly in our February RapidInsight™, Regulatory Fallout or a New Beginning in Healthcare?

What is Genpact getting with JAWOOD?

JAWOOD is a privately held, Michigan-based firm with 400 employees with three particular strengths in the technology enablement of healthcare payor operations.

1)   It has a variety of existing client relationships with Blue Cross and Blue Shield plans serviced completely domestically. We estimate JAWOOD’s revenues to be between $55 million to $60 million.

2)   The company specialized in ICD10 and HIPAA 5010 readiness and conversion with technical solutions provided by Felix Software.

3)   The company is a regionally strong contingent labor supplier to payers seeking operational and technical skills in McKesson, Trizetto FACETS, and NASCO.

What motivated Genpact to make the acquisition?

With over 60,000 professionals in the Genpact global organization, JAWOOD’s 400 employees would seem a rounding error inconveniently located in Detroit, Michigan, a city better-known for the American automotive industry, music (Motown, Eminem, and Kid Rock), and crime.

Nestled among such non-sequiturs, JAWOOD has exploded on the payer market in recent years, with estimated annual revenue growth of 19% over the last four years. The company’s close ties with BCBS insurers and strong systems capabilities were ideal as payers’ raced to comply with 2012’s HIPAA 5010 transaction standards. Importantly, the company built a portal to automate HIPAA transactions and pre-certify healthcare providers – an invaluable asset as the payers and providers integrate their revenue cycle processes. These customer relationships and technology assets are valuable to Genpact.

Yet, bigger changes are afoot. In particular, ICD-10’s conversion maelstrom looms around the corner with a CMS compliance mandate scheduled in October 2014. Just how big is this change? ICD-9, the current standard, has a mere 13,000 codes describing medical diagnoses upon which billing, claims adjudication, and utilization decisions are made. ICD-10 contains over 68,000 codes, including such gems as T7501XD (shock due to being struck by lightning, subsequent encounter). V91.07XA (burn due to water-skis on fire, initial encounter), and V9542XA (spacecraft crash injuring occupant, initial encounter).

Since historical claims data must still be compared to new data, payers will need to map ICD-9 codes to ICD-10 standards and vice versus. This process is called cross-walking and requires specialized tools and technology, which JAWOOD has developed. We expect solid client results from mixing JAWOOD’s technology with Genpact’s wickedly smart DNA and it puts them in the running with Accenture, Cognizant, and Infosys for ICD-10 conversion work.

More importantly, the change of codes has significant process implications in claims, pricing, and utilization management operations. Every claim must be accurately coded, payer systems must accurately adjudicate claims based on the code, and actuaries must forecast population changes based on these codes.  Genpact already has a reasonably strong healthcare payer BPO bench (over 1,500 mostly Indian-based resources), and this acquisition positions the BPO pure-play behemoth in the conversation to help when payers need operational support. This positioning is doubly important with medical loss ratio mandates that regional insurance plans will struggle to achieve without outsourcing.

The Bottom Line: Ramping up the capability is only one part of the equation.  Communicating them to the healthcare industry is the other

Genpact now has a onshore healthcare toehold upon which it can expand, especially with the availability to talent in Detroit. SourceHOV, the $500m BPO provider with many large healthcare payer BPO clients, has two locations within 20 miles of JAWOOD. The Detroit Medical Center, Henry Ford Health System, Blue Cross Blue Shield Michigan, and St. John Health System all rank in the top 15 employers. With a number of Federal and state regulations prohibiting offshoring, Genpact can now enter the game – and its has thousands of resumes in JAWOOD’s staffing database to jumpstart operations on a moment’s notice.  It is also worth noting that Genpact now has 3,500 staff located across US locations – far more than most leading Indian-headquartered business services providers.

Tony Filippone, Healthcare Payor Expert (among other things) at HfS research (click for bio)

However, as we’ve seen in many past acquisitions, acquisition decisions must do more than add capability or increase economies of scale; they must provide client relationships that can be grown, and new capabilities that can be extended. Take Cognizant’s acquisition of Medicall, which allowed Cognizant to engage the care management units of payer operations. Since care and utilization management drives medical loss ratios, it allows Cognizant to open discussions to address the 80% of payers’ costs that are medically related instead of the administratively focused 20%. With capabilities to address ICD-10 migrations and provide HIPAA-compliant portals, HfS believes that JAWOOD provides this potential for Genpact to introduce its technology-infused BPO capabilities to healthcare payers, while creating a leverage point to enter healthcare provider revenue cycle management discussions.

However, for Genpact to leverage successfully ICD-10 capabilities, they must immediately communicate their operational and transformative capabilities to payers because window of opportunity is closing quickly – by October 2014 payers must be compliant, which means payers are allocating budget in 2013 to their vendors. They also must differentiate from Infosys, Cognizant, and a variety of specialized consultants who are pitching ICD-10 solutions by emphasizing their process expertise, experience in the Blue Cross Blue Shield community, and onshore delivery model.

You can read more about the forces influencing the payer market more thoroughly in our complimentary February RapidInsight™, Regulatory Fallout or a New Beginning in Healthcare co-authored by HfS analysts Adam Luciano and Tony Filippone.

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  1. [...] where providers are adding platform capability in process niches, such as Accenture/Octagon, Genpact/Jawood, Capgemini/VWA and Infosys/McCamish, we’re yet to see any of them really attack the [...]

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