IT Intensity of US Pharmaceutical Sector is Higher Than That of the Healthcare Payer Sector - Dec'12

7/24/2019 IT Intensity of US Pharmaceutical Sector is Higher Than That of the Healthcare Payer Sector - Dec'12

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Hypothesis The IT Intensity of US Pharmaceutical sector is

higher than that of the healthcare Payer sector

Dec12


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Executive Summary

Hypothesis The IT Intensity of US Pharmaceutical sector is higher than that of the healthcare

Payer sector

Hypothesis TestingIT Intensity of US Pharmaceutical vs Payer Market

The US Healthcare industry is expected to witness rapid growth in IT Spending during 20112014,

growing at a CAGR of 24% during the period, driven by reforms and SMAC adoption

The IT intensity of the pharmaceutical industry in the US has been observed to be higher than

that of healthcare payers

In 2011, the Payer segment accounted for about 10% of the total IT AO1 outsourcing

transactions performed in the US healthcare space

While the Life Sciences segment (pharmaceuticals, medical devices and biotechnology) accounted

for about 29% of the total AO contracts In 2011, the average IT spending of major US-based payers stood at 3.1% of the revenue, while

the same was 3.7% for major pharmaceutical companies hence showing that Pharma companies

spend more on technology

Accenture, IBM and Cognizant are among the leading companies engaged in providing IT solutions

to the US payer and pharmaceutical companies

Note: * IT Intensity refers to the extent of IT-enabled services supporting the vertical

1 AO stands for IT Application outsourcing


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Industry Definitions

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Pharmaceutical companies comprise all entities that

manufacture and distribute medicines and drugs

- 4 -

Pharmaceutical companies refer to all entities engaged in manufacturing and

production of pharmaceutical and medicinal products

Typical industry players are involved in activities including drug discovery,

manufacturing, marketing and distribution of medicines

Pharmaceutical companies typically procure chemicals and raw materials from

industry suppliers and process them to manufacture medicines and drugs

Additionally, such companies also conduct complex research and development

activities to discover novel drugs and market offerings

Industry Definition

Key Pharmaceutical Companies US Market


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Healthcare payers comprise all external entities

that finance healthcare expenses of patients

- 5 -

Healthcare Payer refers to any entity other than a patient that finances or

reimburses the cost of availing health services

Industry players include entities such as insurance providers, third-party

payers, health plan sponsoring union, and employers that provide benefits for

health care services to its employees

Healthcare insurance providers typically operate by charging a periodic

premium from the patient, employer or state funding the insurance policy and

re-imburse the medical expenses against a claim made by the patient

Industry Definition

Key Healthcare Payers US Market


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IT Intensity

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During 20112014, the US Healthcare IT Spending is

expected to grow at a CAGR of 24%

In 2011, the healthcare IT spending market in the US was estimated to be worth USD 40 billion

The market is expected to reach USD 76 billion by 2014, growing by a CAGR of about 24%

The key growth drivers for the market are rising spending levels on electronic health records (EHR)

systems, mobile health applications and efforts to comply with new government standards such as ICD

10 transformation

In 2011, the mobile health market was estimated to be around USD 2.1 billion, growing by a CGAR of 17% during

20092011

40

76

0

10

20

30

40

50

60

70

80

2011 2014

(US

D

Billion)

Market Size US Healthcare* IT Spending

IT Outsourcing Healthcare Market

CAGR = 24%

Note: * Healthcare includes Payer, Pharmaceutical and Providers

The addition of 32 million insured

Americans by Obama is very significant for

Indian outsourcersCompanies will see

increased opportunities as US health

insurers scramble to reorganize to comply

with the new lawAnanda Mukerji, Chief

Execut ive Off icer, Firstsource Solut ions

Mumbai (March 2010)


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During 20092011, pharmaceutical vertical registered

higher IT Intensity than the payer segment

IT Intensity Healthcare Market

19%13% 10%

26%

29% 29%

55% 58% 61%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2009 2010 2011

IT Application Outsourcing Transactions By Sub-vertical*

(20092011)

Payer Life Sciences Provider

Note: * The values have been derived by visually scaling the graph at source

IT Intensity refers to the extent of IT-enabled services supporting the vertical

During 20092011, the healthcare Provider

vertical was identified as the largest segment in

terns of number of IT outsourcing deals signed

In 2011, the Payer vertical accounted for about

10% of the total IT outsourcing transactions

performed in the US healthcare space

o During 20092011, the vertical was identified

with least IT intensity among all healthcare

verticals

The Life Sciences vertical, (comprisingpharmaceuticals, medical devices and

biotechnology) was identified with moderate IT

Intensity

o During 20092011, the segmentscontribution

to the IT deals signed ranged from 26-29%


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DrugDiscovery

andResearch

Raw MaterialProcurementManagement

SupplyChain

Management

InventoryManagement

Sales ForceAutomation

CustomerEngagement

9

Sales Force

Automation

Electronic RecordManagement

Claims Processing

CustomerEngagement

Potential areas of IT Outsourcing in pharmaceutical

industry outnumber the potential areas in the payer

value chain

Key IT Outsourcing Areas Pharma and Payer Value Chain


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The IT Budgets of top US pharmaceutical

companies range from 3.1% to 3.7% of revenue

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IT Budgets of Key US Pharmaceutical Companies

Top US Pharma

Industry Players

IT Budget (USD

million)

Revenue (USD

million)*

IT Budget/Revenue

(% share)

Pfizer 2,513 67,425 3.7%

Merck & Co. 1,500 48,132 3.1%

Abbott Laboratories 1,437 38,851 3.7%

Eli Lilly 899 24,286 3.7%

Amgen 512 15,690 3.3%

Note: * Latest revenue published by the company


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IT Budgets of Key US Healthcare Payers

Top US Healthcare

Payers

IT Budget (USD

million)

Revenue (USD

million)*

IT Budget/Revenue

(% share)

Highmark 4,420 130,002 3.4%

CVS CareMark2,155 107,750 2.0%

Humana 1,053 36,832 2.9%

Cigna 723 22,024 3.3%

Coventry Health Care 487 12,273 4.0%

Note: * Latest revenue published by the company

1 As provided by HCL

The IT Budgets of top US healthcare payers

range from 2% to 4% of revenue


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The average IT budget if top pharmaceutical

companies stands at 3.5% of revenue while the

same for payers is 3.1%

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IT Budgets Major Pharmaceutical and Payer Companies

3.7%

3.1%

3.7% 3.7% 3.3% 3.5%

0%

1%

2%

3%

4%

5%

Pfizer Merck & Co. AbbottLaboratories

Eli Lilly Amgen PharmaAverage

IT Budget Key US Pharmaceutical Companies

3.4%

2.0%2.9%

3.3%4.0%

3.1%

0%

1%

2%

3%

4%

5%

Highmark CVS Caremark Humana Cigna Coventry HealthCare

Payer Average

IT Budget Key US Healthcare Payers

The IT budget for top US

pharmaceutical companies

as a %share of revenue

ranges from 3.1% to 3.7%

The average IT bud get of

the ph armaceut ical

com panies stands at 3.5%

The IT budget of top US

healthcare payers as a

%share of revenue ranges

from 2% to 3%

The average IT bud get of

the healthcare payers

stand s at 3.1%


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Growth Drivers IT Outsourcing

Need for maintaining Electronic Health

Records

Pharmaceutical Market

Healthcare Payer Market

Automatic Claims Processing

Need for Mobility Solutions for Patients

Data Analytics Solutions to Achieve

Operational efficiencies

Cost Savings in Back Office Operations(F&A, HR, procurement, call centre)

Research & Development Process

Automation

Sales Force Automation

Data Analytics Solutions to Achieve

Operational efficiencies

Supply Chain Management Automation

Customer Relationship Management

through Call Centers

Social Media Presence

Pharmaceutical Market

The drivers for IT outsourcing are higher in

pharmaceutical industry than in payer market


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Mobility in healthcare payer market has been

gaining rapid adoption

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Mobility in Healthcare Payers Market

Mobility in the healthcare payers market has been gaining considerable

popularity in the recent times with various payers adopting mobility solutions

Consequently, various IT services firms have expanded their offerings to

capitalize on the opportunity in the healthcare mobility market

Mobility solutions enhance the efficiency of operations for healthcare payersby providing easy and flexible access to patientsdata

Mobility has been gaining significance in both B2B and B2C segments of

the healthcare payer segment

As per a 2011 healthcare survey conducted by CompTIA (a US-based non-

profit microcomputers trade association), about 25% of the respondents

(payers and providers) used tablets and other mobility solutions while

another 21% planned to adopt such advanced mobility devices

As mobile devices and applications have become more user-friendly, affordable and powerful, the appeal

to businesses of all types, including healthcare payers and providers, has grown exponentially.Tim

Herbert, Vice Pres ident - Research, Com pTIA (November 2011)


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Cloud computing increases the operational

efficiency of healthcare payers

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Cloud Computing for Healthcare Payers

Payer Challenges Cloud Computing Impact

Data System Incompatibility

Payers often have different data systems across

different geographic locations

Gathering enrolment, claims and administration as

well as authorization of data across the payersbecomes be challenging and incurs parallel costs

Rebuilding of systems to accommodate different

types of data also proves to be expensive

A multi-sourced services solution enables payers

to bring together different types of data without a

large upfront investment and provides the ability to

share information and implement analytical tools

Both cost reduction and operational improvementsare addressed by cloud computing

Costs are lowered with the reduction of parallel

systems while simplifying processes for data

gathering

Increasing High-Performance Computing

Capacity Needs (HPC)

As healthcare demand grows, the payerscomputing resource requirements also expand

Building infrastructure to accommodate workloads

requires significant investments in HPC capacity

that would have low utilization most of the time

On-demand scaling allows the segmenting of

workloads based on types of requirement

This allows payers to shift more mundaneworkloads to the cloud to free internal HPC

capacity for short-term, high-priority workloads

with very high storage or CPU needs

As a result, internal HPC infrastructure can be

built to accommodate lower and more stable

demand levels with public cloud resources

leveraged during demand spikes


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Healthcare payers are ramping up the adoption

of social media to connect with customers

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Social Media for Healthcare Payers

Health insurance companies are turning to social media, health gaming apps,

and other mobile health apps to increase patient engagement in their own health

care offerings

Kaiser Permanente and Humana, health insurance providers in the US, havebeen providing online health games for children since 2008

In 2010, UnitedHealth Group released the first version of the OptumizeMe social

game app, Anthem released its Grocery Guide app and Aetna partnered with

OneRecovery.com to provide a social network for members in recovery

Till date, about15 social games are available from United, Aetna, Humana,

Cigna, Highmark, Kaiser Permanente, Blue Shield of California, andIndependence Blue Cross

Additionally, various healthcare payers, such as AXA and Aetna, operate their

Facebook pages and Twitter handles to interact with their customers through

social media


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Capability MatrixCompetitors

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Capability MatrixPayer Solutions

Delivery capabilities

(scale, scope, domain investments, delivery footprint)

MarketSuccess(Transact

ionActivity)

Methodology

The matrix provides a framework to

assess the relative market success

and overall capability of service

providers

Service providers are positioned on the

Capability Matrix, based on evaluation

across two key dimensions:

o Market success measured by the

number, scale, and growth of large

Healthcare application outsourcing

contracts

o Delivery capability measured by scale of

operation, scope, enabling domain

investments, and delivery footprint

Service Providers Capability Matrix Healthcare Payers Solutions

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Emergin g Players

Major Contenders

Leaders

Note: * The capability matrix evaluates the players on the basis of Application Outsourcing services provided

C bili D hb d P S l i


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Capability DashboardPayer Solutions

Service Providers Capability Assessment Healthcare Payers Solutions

- 19 -Note: * The capability matrix evaluates the players on the basis of Application Outsourcing services provided

C bilit M t i Lif S i S l ti


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Capability MatrixLife Sciences Solutions

Delivery capabilities

(scale, scope, domain investments, delivery footprint)

MarketSuccess(Transact

ionActivity)

Methodology

The matrix provides a framework to

assess the relative market success

and overall capability of service

providers

Service providers are positioned on the

Capability Matrix, based on evaluation

across two key dimensions:

o Market success measured by the

number, scale, and growth of large

Healthcare application outsourcing

contracts

o Delivery capability measured by scale of

operation, scope, enabling domain

investments, and delivery footprint

Service Providers Capability Matrix Life Sciences Solutions

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Emergin g Players

Leaders

Major Contenders

Note: * The capability matrix evaluates the players on the basis of Application Outsourcing services provided

C bilit D hb d Lif S i S l ti


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Capability DashboardLife Sciences Solutions

Service Providers Capability Assessment Life Sciences Solutions

- 21 -Note: * The capability matrix evaluates the players on the basis of Application Outsourcing services provided


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Case Studies

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C titi K P C t t


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CompetitionKey Payer Contracts

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Competitor Contracts

Competitor Client Contract Details

Infosys Aetna

Infosys served as a long term ally for Aetna (a

leading US-based health insurance company)

Infosys was engaged by Aetna to support its

offshore initiatives and assist in transforming

the company into an e-business enterprise

Infosys provided a wide range of services to

Aetna, ranging from business consulting,application development, validation and testing

services, systems integration, program

management, requirements management,

architecture services, maintenance, enterprise

solutions services and business process

outsourcing

C titi K P C t t


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Infosys Blue Cross Blue Shield

A large Blue Cross Blue Shield organizationengaged Infosys to improve efficiency and cost

savings in provider file Management process

Infosys helped the organization in enhancing its

data maintenance process and hence achieve

significant improvement in efficiency,

productivity and cost savings

The solution data management solution

provided by Infosys helped the company in

reducing its total provider files inventory by

90%

C titi K P C t t


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InfosysUnnamed Health Insurance

Company

Infosys was contracted by a US-based healthinsurance company to provide Data

Warehousing services

The client company was a large health benefits

provider operating in the United States and

serving more than 11.9 million customers

The company wanted to outsource the

reengineering of the data warehouse and

partnered with Infosys to build a modular,

scalable architecture so that the processing

batch time could be reduced considerably


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Thank You

Documents

IT Intensity of US Pharmaceutical Sector is Higher Than That of the Healthcare Payer Sector - Dec'12