March 26, 2010 / 3:29 PM / 10 years ago

Firstsource sees opportunity in health law

NEW YORK (Reuters) - The U.S. health reform signed into law this week presents a “big opportunity” for back office services providers such as India’s Firstsource Solutions Ltd (FISO.BO), Firstsource’s chief executive said on Friday.

Although a ramp-up in its healthcare business is likely to take years, not months, the company expects more demand from its hospital customers for services such as Medicaid eligibility processing, and from private insurers, whose margins will be squeezed by the new law.

“There should be a lot more people being brought under healthcare coverage,” CEO Ananda Mukerji said in an interview. “There will be more consumption of healthcare services. We should see volumes increase.”

Mukerji said the law’s expansion of Medicaid eligibility, which lifts the income threshold for the U.S. government health insurance program for low-income Americans, presents a “big opportunity” for the company.

“All the services linked to Medicaid like patient outreach, enrollment, eligibility, processing, stuff we already do. That will give rise to more work for us, whether from hospital customers or payer customers (private insurers).”


Mukerji said he expected insurance company margins are going to be squeezed as they have to pay new fees and retain sick members with high medical costs. Margins will also be squeezed as the government mandates how much money insurers must spend on medical costs, he said.

Hospitals, meanwhile, face more stringent compliance requirements. For example, they will have to take into account factors like the effectiveness of care, which means collecting more data about patients.

Almost 40 percent of Firstsource revenue comes from the healthcare market, in which the company is ranked No. 2 behind Dell Perot Systems DELL.O, according to healthcare research firm KLAS. The segment’s proportion of revenues is likely to grow in coming years, the CEO said.

Firstsource employs about 2,000 people in the United States in its health business, handling tasks such as collections and eligibility processing for hospitals.

Its competitors in the business process outsourcing (BPO) industry include Genpact Ltd (G.N), WNS Holdings Ltd (WNS.N), Cognizant Technology Solutions Corp (CTSH.O) and ExlService holdings Inc. (EXLS.O).

Clients will soon start to gear up to comply with the new mandates, but most measures under the 10-year reform plan will not come into effect until 2013 or 2014, Mukerji said, adding the company would add capacity as needed to address increased demand as new projects arise.

“I can’t recall legislation that has as much impact on our business as this,” Mukerji said. “This is a fundamental change in the way the industry is structured.”

Firstsource shares gained 0.4 percent on the Mumbai market on Friday to close at 28.95 rupees.

Reporting by Nick Zieminski, editing by Dave Zimmerman

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