Business Process Services Archives

Contracting for Value: Balancing Expectations and Reality in Outsourcing Engagements | Blog

November 15, 2023

Everest Group’s Strategic Engagement Reviews (SERs) reveal several key trends that hinder enterprises from realizing maximum value from business process services (BPS) contracts. As enterprises rethink their outsourcing strategies, reevaluate current contracts, and rebalance work, these findings are highly relevant. Read on for insights into the research.

Connect with us to discuss BPS contracting.

Recently, when reading the Aesop fable The Tortoise and the Hare to my toddler niece, I was struck by its resemblance to the current state of outsourcing engagements. During the pandemic, service providers were in emergency mode to ensure business continuity for their clients, which increased satisfaction scores in 2021. However, providers faltered in maintaining the same momentum going into 2022 during the period of the Great Resignation. Providers were not prepared for the sudden large-scale attrition in the services industry, resulting in inconsistent service delivery quality and, consequently, impacting client satisfaction.

Fast forward to today, we see the recent banking collapse already casting a haze over the business landscape. As the saying goes, “Where there’s smoke, there’s fire.” Enterprises are investing more cautiously, given the current cost pressures along with fears of an economic slowdown and uncertainty. With every dollar being scrutinized, enterprises are rethinking their outsourcing strategies and evaluating the value realized from their outsourcing engagements. Let’s explore this further.

Key observations from strategic engagement reviews (SERs)

Over the past year, Everest Group has supported many leading enterprises in evaluating their outsourcing contracts across different functional areas and benchmarking them against industry standards by leveraging our proprietary Strategic Engagement Review (SER) framework. The framework enables 360-degree assessment of outsourcing engagements with analysis across various dimensions, including solutions, pricing, contract terms, provider delivery and performance, and transformation.

While most of these contracts remain operational with transactional/tactical processes, outsourcing complex and upstream work has increased. We also observed the scope is expanding into adjacent and/or non-traditional areas such as risk management and compliance and environmental, social, and governance (ESG). These advancements are the result of joint efforts by enterprises welcoming providers as strategic partners and providers building robust capabilities to support the judgment-intensive processes.

While benchmarking commercials remains a high priority for enterprises, the focus is shifting to understanding how to enhance the value from outsourcing engagements (beyond cost) and transform operations through best practices and digital adoption.

Below are a few observations from these engagements:

Most of these contracts inaccurately reflect client satisfaction due to irrelevant tracking metrics and unclear communication between parties regarding outcomes
Most of the contracts lack innovative commercial constructs that often impede full value realization out of the engagement
Both enterprises and providers need to fulfill certain existing gaps to embrace and implement more mature transformation models
This can be achieved by considering dedicated change management practices as the heart of any outsourcing engagement

Are performance dashboards merely a facade?

Indeed, performance dashboards tracking Service Level Agreements (SLAs) look as green as the proverbial “grass on the other side,” but the reality is not as rosy for a myriad of reasons. This phenomenon is often called the “watermelon effect.” Much like a watermelon that is smooth and green on the outside, hiding a red core, service metrics can be on target on the surface, but underneath, they may indicate poor service delivery and enterprise dissatisfaction.

Unclear communication regarding outcomes that lead to contract value leakage is the primary reason for this occurring. With the focus on client-centricity and winning deals, providers often commit to almost all client demands without properly clarifying how the “value gains” will be achieved. This leads to incongruity between the implementation and the client’s vision. For instance, productivity gains can be achieved either through digital resources or full-time equivalents (FTEs). Failing to mention these intricacies often results in difficulty in agreeing on the realized value after the implementation.

Aligning on well-defined outcomes won’t necessarily lead to maximum value realization without identifying and tracking the right metrics to govern the service delivery quality. We often find contractual SLAs that measure activity and workflow steps without aligning with the strategic business outcomes. Measuring irrelevant metrics may dilute the service level credit mechanism, which determines the provider’s fees tied to SLAs.

The holy grail for measuring outcomes and avoiding excess provider payouts is tracking relevant metrics that truly represent the end business goal. For example, if the goal is process standardization, then operational metrics such as payment processing accuracy might be relevant. For more mature organizations looking for large-scale transformation for topline improvement, outcome-oriented metrics, such as Days Sales Outstanding (DSO) could be better.

Sharing is indeed caring – the need for gain-sharing commercials

Enterprises often are dissatisfied with providers’ lack of proactiveness in bringing in innovation for transformation. This stems from the prevalence of the typical time-and-value commercial construct, which doesn’t incentivize the provider to exceed contractual commitments.

By embracing a gain-sharing pricing model that incentivizes providers to bring in more value-adds, enterprises can ensure providers have skin in the game. This approach not only fosters collaboration between the provider and enterprise but also builds an alliance as both parties work hand-in-hand towards a common goal. Moreover, this strategy further establishes the pathway for improved trust within the relationship, which is essential for the provider to act as a strategic partner.

It takes two to tango! Two to transform!

To draw a parallel about these engagements, a contract is like two rowers wading a boat through a turbulent river – it takes joint efforts to row through the perilous journey to reach the shore safely! Likewise, the onus of creating a sustaining long-term outsourcing relationship with maximum value realization lies with both the provider and the enterprise.

While the lift-shift-fix transformation model appears to be the most prevalent, there are profound reasons more mature transformation models are not being implemented. Although enterprises want providers to proactively pitch their technology solutions, the reality is that the willingness to embrace these contributions is limited! The reason enterprises are reluctant to adopt provider technology beyond point solutions is simply because this typically entails heavy provider ownership of the technology infrastructure. Consequently, enterprises want to avoid operational dependency that might increase future switching or termination costs.

On the other side, we also see providers being a bit risk-averse about challenging the in-house enterprise technology landscape to maintain good relationships with their clients by avoiding ruffling the features of the enterprise infrastructure!

While this type of arrangement minimizes provider intervention and operational dependency, it also limits cost efficiencies and business value that comes from leveraging provider technology. True value realization from outsourcing engagements will be achieved when enterprises provide more ownership of processes, visibility into organizational data, and greater flexibility to operationalize providers’ transformation initiatives. Concurrently, providers need to outline a clear transformation roadmap for enterprises, enabling them to visualize their journey ahead.

It’s high time that we see the “C” in change management as an underrated pivot to outsourcing

The change management aspect of resources is often underestimated in outsourcing relationships. Enterprises report that poor change management initiatives from providers can lead to disgruntled employees, resulting in employee attrition that indirectly affects the outsourcing project quality. Therefore, it is important to take a more proactive and structured approach to increase employee engagement and productivity in the outsourced service function, rather than approaching change management reactively and on an ad hoc basis.

What is the best way forward?

As enterprises plan for renewed growth, it will be intriguing to see how the outsourcing landscape evolves amidst the anticipated geopolitical unrest and recessionary environment. Some questions we’ll be following are: Will organizations need to rebalance work? Will increased provider rates challenge the cost advantages of outsourcing? Will large-scale transformation initiatives take a back seat to increased demand for short-time-to-value products in the near term?

To benchmark your current outsourcing contract, contact Everest Group. For more information, reach out to Prateek Singh, Practice Director, BPS, and Asmita Das, Senior Analyst, BPS.

Join our webinar, Key Issues 2024: Creating Accelerated Value in a Dynamic World, to discover insights into the current perspectives of IT-BP industry leaders and the major concerns, expectations, and trends for 2024.

Key Issues 2023: Assessing the Global Services Industry’s Performance Against Expectations | Blog

October 20, 2023

The global services industry’s confidence waned in 2023 after a banner post-pandemic year. Leaders were more cautious and prioritized cost optimization. To gain valuable insights into how the year unfolded compared to expectations, read on.

Participate in the Key Issues Survey 2024 to better understand the current thinking of industry leaders across the globe.

Coming off a bumper year in 2022 with double-digit growth driven by pent-up demand after the pandemic, the global services industry entered 2023 with macroeconomic uncertainty clouding the forecast.

As a result of these concerns, global leaders adopted a more cautious stance going into this year, according to Everest Group’s annual Key Issues survey of over 200 global leaders across industry enterprises, Global Business Services (GBS) centers, and providers.

In the survey, price and cost margin pressures ranked as the top business challenge expected in 2023, and subsequently, cost optimization emerged as the highest business priority for the year.

As 2023 nears an end and leaders start planning for 2024, let’s reflect on how the year fared against global services industry expectations of the industry.

1. Macroeconomic uncertainty subdued industry growth in 2023

In the face of macroeconomic uncertainty, most industry leaders felt cautiously optimistic about 2023. True to their expectations, results from the first three quarters of this year indicate subdued industry growth similar to the pre-pandemic numbers. A mix of macroeconomic concerns, rising prices, fiscal tightening, and geo-political tensions have resulted in a slowdown in customer demand and growing margin pressures on the global services industry. While revenues grew, the escalated cost and price pressure resulted in stagnant or even declining operating margins for most providers, as presented in Exhibit 1.

Exhibit 1: Key financial metrics for providers for 2022-23

2. Talent demand and supply mismatch eased but remain challenging for niche skills

With attrition at an all-time high and growing industry demand, talent supply continued to fall short of the demand in 2022. The talent/skill shortage was the top concern industry leaders highlighted as part of the Key Issues Survey 2022. However, as the industry prepared for the looming uncertainty in 2023, these concerns took a back seat. In line with the industry expectations, the talent situation eased in 2023. Data for the first half of 2023 show that attrition rates have declined, and most delivery geographies are reporting a narrowing talent demand-supply gap. An assessment using Everest Group’s proprietary Talent Genius^TM tool indicates talent demand for delivery of IT and contact center services has declined substantially compared to 2022, as shown in Exhibit 2.

Exhibit 2. a: Talent demand across select countries for delivery of IT services indexed to January 2022 (Jan 2022 = 100)

Exhibit 2. b: Talent demand across select countries for delivery of contact center services indexed to January 2022 (Jan 2022 = 100)

However, this improvement in talent supply has not applied to all global services, especially those requiring niche skills. Digital and next-generation technology services continue to witness a mismatch between talent demand and supply. This disparity is especially true for emerging skills like generative Artificial Intelligence (AI), where talent supply is even more limited. Preliminary estimates by Everest Group show that only 1% of AI talent has expertise in generative AI, pushing companies to focus on upskilling and reskilling their employed talent pools to bridge this gap.

3. Offshore locations and tier 2/3 cities are being considered to optimize costs

To manage growing cost pressures, a key strategy for global leaders entering 2023 was continuing to leverage offshore locations and exploring alternative delivery strategies, such as leverage of tier 2/3 cities. Global services trends in 2023 resonate with this approach. Offshore locations like India continue to be the destination of choice for global service delivery, given the significant cost arbitrage opportunities. Similarly, enterprises and providers alike are more enthusiastically exploring tier 2/3 locations driven by needs of cost savings, talent access, employee preference, and market competition management. Exhibit 3 shows how the leverage of tier 2/3 cities witnessed growth in 2023.

Exhibit 3: Trends in center setup across Tier 1 and Tier 2/3 locations (2022-23)

4. Provider bill rates increased but at lower levels than expected

Despite the prevailing macroeconomic pressures, providers maintained optimism about bill rate increases in 2023, although they were expected to be at a lower rate than in 2022. Unlike other economic downturns, provider bill rates have continued to show positive growth despite the growing cost and price pressures in the first seven months of 2023. However, with the macroeconomic scenario hitting much harder than expected, input-based pricing has been subjected to hard negotiations. This has led to muted growth (0.5-2%) in bill rates across different functions, much lower than provider industry expectations going into 2023. For example, provider bill rates for traditional applications skill delivery in offshore regions grew by only 0.5-1% compared to the expected growth of 2-5% from January to July 2023.

5. Provider portfolios underwent significant rebalancing and consolidation to ensure better deal terms

Enterprises reported much lower satisfaction with providers in 2022 compared to 2021 when providers played a key role in supporting enterprises in navigating the pandemic. The leaders cited a lack of innovation and communication as the key reasons behind this dissatisfaction. Consequently, procurement leaders expected a significant change in their provider portfolios. Additionally, with macroeconomic concerns clouding all strategies, enterprises looked to consolidate and rebalance provider portfolios to negotiate better deal terms with limited providers. As expected, 2023 witnessed a shift in provider portfolios, with major providers winning deals that had vendor consolidation components.

6. Investments in strengthening the digital core are a priority over moonshot endeavors

Prioritizing resilience through uncertainty, the focus of the global services industry continues to be on pragmatic digital investments like cloud solutions, cyber security, analytics, and automation. While the advent of newer technologies like generative AI has created an industry buzz, the primary focus continues to be on strengthening the digital core and building a resilient technological foundation. Most industry verticals continue to wait and watch before diverting constrained resources to newer projects with limited use cases and industry adoption.

As 2023 comes to a wrap, the global services industry is at the forefront of another transformative shift – the need to create value and the need to create it fast. This becomes especially imperative as technological advancements like generative AI threaten to shift the industry’s current equilibrium and potentially start the next phase of a technological revolution. The global services industry must adapt swiftly to stay ahead of the curve.

Participate in our Key Issues Survey 2024 to capture the pulse of Information Technology and Business Processing industry leaders across the globe and uncover major concerns, expectations, and key global services trends that are likely to amplify in 2024. To discuss further, or for any questions, reach out to Ravneet Kaur or Hrishi Raj Agarwalla.

Don’t miss the Key Issues 2024: Creating Accelerated Value in a Dynamic World webinar to gain valuable insights into 2024.

Transforming the Game: How Consolidation is Revolutionizing the Insurance Brokerage Industry | Blog

June 7, 2023

Readily available capital and low-interest rates made the past few years ideal for the insurance brokerage industry to consolidate in response to increased competition, changing customer expectations, and other challenges. Merged insurance intermediaries can partner with business process service (BPS) providers to optimize processes, manage risks, enhance data analytics, and improve customer experience, among other benefits. Read on to learn more.

Reach out to us directly for questions or to learn more.

The insurance brokerage industry went through an inflection point last year. A confluence of factors happening simultaneously created a perfect recipe for consolidation. These included large quantities of readily available capital, low-interest rates, highly valued broker stocks, all-time high valuation multiples, and the challenging insurance market.

The deal frenzy of 2021 slowed towards the end of 2022, with less than $2 billion of deal value announced and no large transactions in the last six months of the year. Despite this, insurance brokerage transactions trumped the activity. More than 90% of the overall insurance deals were in the brokerage space. In terms of both the volume of transactions and the multiples being paid, the consolidation rate in the re/insurance broker industry has accelerated.

Let’s take a look at the following dominant broker groups influencing the insurance brokerage industry:

Global brokers – Large multinational insurance brokers who typically operate in multiple countries and offer a wide range of insurance products and services
Private Equity (PE)-backed brokers – PE firms provide the necessary capital for mergers and acquisitions
Family-owned brokers – Small to mid-sized insurance brokers that are family owned and operated

Drivers and challenges leading to consolidation

Competition

Increasing competition: The insurance intermediary industry is becoming increasingly crowded, with new players entering it all the time, further fragmenting the market. These new players often can offer better services, lower prices, and more innovative solutions than traditional insurance intermediaries
Market share growth: Insurance intermediaries can inorganically boost market share with additional capabilities and market penetration in new geographies by consolidating with another firm. They also can benefit from customer base growth

Capabilities

Technological advancements: The industry’s recent drive towards digital transformation by implementing new technology and platforms is forcing intermediaries to seek funds to invest in digitization or lose against better-capitalized intermediaries
Economies of scale: Insurance intermediary consolidation can spread fixed costs over a larger number of policies, resulting in lower average costs per policy. It also can provide intermediaries with increased bargaining power with insurers, provide cross-selling and up-selling opportunities, and help increase brand and mind share
Service offering diversification: Consolidation allows insurance intermediaries to expand and diversify their services and product lines. Intermediaries can attract new customers by acquiring another brokerage that provides different products or services. This keeps intermediaries relevant and competitive in a dynamic market

Complexity

Regulatory pressure: Consolidation can help smaller intermediaries remain up to date on increasingly complex risk management requirements that would be difficult for them to do by themselves
Inefficient processes and people: By joining forces, smaller firms can improve process efficiencies and combine their talent pools. Consolidation also can help large entities better manage operations

Customer

Changing customer expectations: Consumers increasingly demand customized and convenient services and anticipate an omnichannel experience. Insurance intermediaries that cannot meet shifting consumer expectations risk losing clients to rivals who can.

Impact of consolidation on stakeholders

Insurers

Customers

Routes to consolidation

Insurance intermediaries can take multiple paths to consolidate depending on their strategy, such as:

Mergers & Acquisitions: This is the preferred route for consolidation where two or more intermediaries enter into an M&A to achieve economies of scale, expand into new markets, and gain access to the latest tools and technologies. Different forms of M&A pursued are horizontal mergers between intermediaries from the same market, vertical mergers between intermediaries with different capabilities, and cross-border M&A
Strategic alliances and joint ventures: Insurance intermediaries can pursue strategic alliances or JVs under many forms, such as distribution agreements, co-marketing agreements, and shared service agreements to effectively share resources and expertise while reducing risks and increasing market power
PE investments: In recent years, PE firms have increased their involvement in this industry as they look to invest in dependable, cash-generating companies with room for expansion. PE companies can assist insurance intermediaries seeking strategic acquisitions and expansions while also providing access to finance and experience

Many intermediaries also take an independent route and pursue organic growth by investing in digital transformation initiatives to achieve unparalleled scale and efficiency.

Key players in the insurance intermediary consolidation space

The insurance intermediary market is highly competitive and dynamic, with many players pursuing different strategies to achieve their growth objectives. Here are some of the active players in the consolidation space:

Marsh & McLennan: In 2019, the company acquired Jardine Lloyd Thompson Group, a leading UK-based insurance intermediary, in a deal valued at $5.6 billion. The company also has announced the acquisition of Focus Insurance, offering tailored personal insurance programs.
Gallagher: Gallagher has pursued a growth strategy focused on M&A and has completed over 500 acquisitions since 1984. Gallagher started 2023 with an acquisition of Dublin-based commercial and personal lines broker First Ireland, making it one of Ireland’s largest brokers.
Hub International: The company also is focused on growth through M&As, and has made more than 600 acquisitions since its founding in 1998. In 2020, Hub acquired the assets of The Insurance Exchange, Inc., a leading insurance brokerage firm in California.

How intermediaries can leverage insurance service providers

Intermediaries face increasing pressure to reduce costs, increase efficiency, and deliver better customer experiences. By partnering with BPS providers, they can achieve these goals. BPS providers can deliver policy administration, claims processing, customer service, data analytics, and other services, as illustrated below:

In selecting a BPS provider, intermediaries need to evaluate the service provider’s capabilities by carefully considering their expertise, experience, cost arbitrage, flexibility, security, business continuity, delivery footprint, talent maturity, technology, infrastructure, governance approach, and client-centricity.

Everest Group can help evaluate these capabilities through its proprietary PEAK Matrix® assessment and impartially rank service providers as leaders, major contenders, and aspirants, as well as provide expert commentary to help enterprises make better-informed decisions.

To discuss insurance brokerage industry trends, please reach out to [email protected] and [email protected], and stay updated by accessing Everest Group’s latest research on Insurance Business Processes.

Generative AI in Marketing: The Sidekick You Never Knew You Needed | Blog

May 22, 2023

Generative Artificial Intelligence (GAI) can deliver efficiency and scale in content production, marketing support, and media channels like never seen before while also spurring innovation. Learn about the opportunities and obstacles of Generative AI in marketing in this blog.

Don’t miss the webinar, Welcoming the AI Summer: How Generative AI is Transforming Experiences.

“In my lifetime, I’ve seen two demonstrations of technology that struck me as revolutionary. The first time was in 1980, when I was introduced to a graphical user interface… The second big surprise came last year… from OpenAI… I knew I had just seen the most important advance in technology since the graphical user interface.” – Bill Gates

OpenAI’s introduction of ChatGPT onto the world stage heralded a seismic shift in the path toward intelligent automation. With its ability to create complex and innovative solutions, GAI has become the buzzword in boardrooms and strategy meetings. Enterprises are in an arms race to tap GAI through integrations, in-house development, and investments in start-ups.

Let’s look at its soaring popularity in the illustration below:

From healthcare to finance and from content creation to moderation, GAI has potential use cases cutting across almost every industry. Enterprises are eager to harness this groundbreaking technology’s power to streamline operations, improve efficiency, and unlock new opportunities.

What will the use of Generative AI in marketing mean?

With its impact spread across the marketing services value chain, GAI opens a novel world of possibilities, as illustrated below:

GAI proves to be efficient and effective in marketing services, particularly in content production, marketing support, and media channels. However, as with any emerging technology, it comes with concerns and challenges. Some of the implications and concerns are discussed below.

Content generation

Perceived implication: GAI frees resources for other higher-level tasks that require human attention, such as strategic planning and community building.

Possible concern: Marketers need to weigh the time and efforts required to review and validate the content generated by GAI to ensure accuracy and consistency with brand messaging.

AI-assisted branding

Perceived implication: GAI’s capabilities can improve digital media and also can impact traditional channels in areas of product ideation, branding initiatives, and advertising campaigns.

Possible concern: Despite aesthetic designs and descriptive language, consumers might not feel connected to the products without a sense-check from human input.

Search engine optimization (SEO) and organic search

Perceived implication: Due to the conversational interface, the query results are highly pinpointed, raising the bar for enterprises to focus on contextually relevant content on their landing pages.

Possible concern: The new face of search marketing will rely heavily on AI technology, meaning marketers need to upgrade to real-time AI-driven and intent-based analysis for search to stay competitive.

Intent-driven search marketing

Perceived implication: Search algorithms increasingly will be built around user-intent and intent-driven actions rather than keywords or links.

Possible concern: Instead of focusing on keywords and links as ranking factors, marketers will need to keep updated through intent analytics and stay relevant by providing users with the right information at the right time to drive conversion or engagement.

Lead generation

Perceived implication: GAI can engage with website visitors in real time and help qualify them as leads based on their specific needs and interests. This can help sales teams focus efforts on the most promising leads and improve conversion rates.

Possible concern: Customer-facing GAI tools need to be accurate and handle queries without any biases. Since the answers offered are only as accurate as the training dataset, customer dissatisfaction is always a risk.

Sales enablement

Perceived implication: GAI can provide sales teams with real-time data and insights on customer behavior, payment status, billing cycle, etc., enabling them to tailor sales pitches and ultimately lead toward revenue operations.

Possible concern: Access to consumer touchpoints and lack of transparency in the algorithms raises data privacy issues since whatever is fed into the AI is processed, stored, and re-utilized to improve query responses.

Exploring GAI: some novel use cases

As the market perspective is being developed, GAI is still in the test-and-play phase as enterprises and service providers have started experimenting with potential use cases like the ones below:

AI content creation engine	Branding through Generative AI

Samsung Europe has started using GAI to automate the creation and publication of digital banner ads running across platforms such as TikTok, Instagram, and Spotify CopyAI, Jasper AI, and Writesonic, to name just a few are helping pioneer personalized marketing at scale by applying GAI solutions in upper-funnel marketing activities	Coca-Cola launched a campaign encouraging consumers to use GAI tools to create artwork for the brand that would appear on billboards Beck’s, the German beverage brand, put GAI to full use. While ChatGPT was used to develop the recipe and name the brew Beck’s Autonomous, Midjourney developed and created its futuristic packaging, campaign, and imagery

Intelligent chatbots	Marketing and campaign support

Used vehicle seller CarMax is summarizing thousands of customer reviews using GAI Grocery delivery company Instacart is integrating ChatGPT to answer customers’ queries Snapchat announced that it is adding My AI, an experimental chatbot to its paid Snapchat+ customers, enabling them to post content with quippy descriptions	Salesforce launched Einstein GPT, a GAI-based CRM technology, that generates personalized emails, supporting the sales team and generates nuanced responses for customer service teams Attentive AI introduced Magic Message, which leverages GAI for message creation, and automated campaigns to take the manual work out of planning and testing

CMO compass: order out of chaos

Although many enterprises are using GAI as an exploration tool in marketing, realizing the business opportunity will require a customized Chief Marketing Officer (CMO) compass that can help create order out of chaos, as seen in the likeness below:

These four facets can act as the cardinal directions while navigating the GAI conversation.

GAI has rapidly transformed how content creation and marketing support are managed, showcasing a level of efficiency and scale that was previously impossible. In fact, by the time one finishes reading this blog, GAI likely handled hundreds or even thousands of queries and helped develop countless lines of content.

As this technology continues to evolve and mature, we can only expect its impact to grow, ushering in a new era of innovation. Enterprises must exercise prudence and careful consideration as they delve deeper into the potential applications of GAI. Ensuring that responsible implementation and ethical concerns remain at the forefront of their decision-making process is essential.

To discuss Generative AI in marketing, please contact Ravi Varun, or Nishant Jeyanth.

Learn more about Generative AI in marketing in, Generative AI – Redefining the Experience Design and Development Process.

Coping With Recession: How Healthcare Providers Can Maintain Financial Stability | Blog

May 11, 2023

To combat a looming recession, healthcare providers will need to take strategic action, including cutting costs, investing in patient experience, embracing digital technologies, and strengthening outsourcing partnerships. Read on to learn about the healthcare provider trends coming and how service partners can help hospitals and health systems overcome the challenges in an economic downturn.

Reach out to learn more on this topic or ask questions.

As we covered in our last blog, healthcare payers, particularly commercially-focused enterprises, have to brace for the impending economic downturn. The need to survive becomes even more essential for healthcare providers that are already bleeding under financial challenges.

The first half of the fiscal year 2022 was one of the most challenging times for hospitals in the US as they faced months of high-magnitude negative operating margins (Fig. 1). Although the margins stabilized slightly later, 2023 started on a rough note again owing to labor shortages, rising supply chain costs, and lower patient volumes – eventually leading to a further drop in hospital margins. To add to their challenges, the prospect of an impending recession is likely to exacerbate the situation.

As concerns of an impending recession take hold, patients may begin to reassess planned medical expenses in relation to other household costs, particularly when budgets become tighter. This can be particularly challenging for hospitals, especially given the aggressive cost-sharing measures associated with high-deductible health plans (HDHPs), which can pose additional obstacles to their financial recovery.

Recently, 4 in 10 Americans were compelled to delay or skip healthcare treatments, trim regular household expenses, or borrow money due to rising healthcare costs. These pressures will lead hospitals to carefully re-strategize their investments. Let’s deep-dive into some of the changes that hospitals and health systems can expect in a recessionary year.

Fig. 1: Kaufman Hall Operating Margin Index by Month

What healthcare provider trends can we expect in a recession?

Moderate drop in specialized resources demand: An extreme shortage of clinical resources last year led hospitals to depend heavily on expensive contract nurses, extended overtime hours, and more clinical errors, eventually resulting in worse patient outcomes.

While the demand for clinical resources is expected to continue to keep provider leaders up at night, a full-fledged recession might ease the shortage a bit. Several healthcare institutions reported a rise in nurses in the last recession because some retired nurses started working again or postponed retirement.

However, this is not expected to eradicate the labor problem in the long term as the “experience-complexity gap” will only worsen with an increasingly aging population having complex and chronic care needs

Squeezed cost pressure: Hospitals will continue to see cost pressures hitting their margins because of increased baseline labor rates and supply chain costs. The pandemic and ongoing geopolitical issues elevated the supply chain disruption leading to costlier negotiations for specialized medical products. As a result, medical supply prices were up a whopping 46% at the end of 2021, compared to 2019.

Furthermore, it is important to note that healthcare provider businesses face a considerable amount of exposure to labor costs. This is especially true for more labor-intensive provider businesses like home health, personal care services, and hospice, where labor can account for more than 50% of costs.

Unfortunately, while costs continue to rise, reimbursement rates tend to only increase modestly because pricing negotiations with payers take place over multiple years, and government entities adjust pricing annually. While providers may seek to re-negotiate with health plans midway, pricing corrections may not be substantial enough to adequately prepare for the financial frugality that patients may begin to exhibit

Reduced demand for non-urgent/elective care: An impact on household budgets tends to make patients rethink planned surgeries and, in some cases, delay the avoidable, non-threatening ones as well. A survey conducted during the Great Recession found that families with limited financial means prioritized spending on essential non-medical items and decreased their healthcare utilization.

The survey also revealed several concerning trends in healthcare, including patient anxiety due to the inability to pay medical bills, a rise in missed appointments, an increase in significant stress symptoms, and new illnesses and health problems resulting from a lack of preventive care.

Moreover, with reduced patient volumes, healthcare providers may face increased competition for patients, particularly in the outpatient settings, leading to lower prices and diminished profitability. The competition can be further intensified with the entry of players like Walmart and Amazon expanding their retail clinic presence

Greater revenue dip: A recession leads to an increase in uninsured patients which negatively affects hospitals’ revenue streams. During the Great Recession, hospitals suffered a huge rise in bad debt and uncompensated care.

This impact can be more prominent for hospitals with higher exposure to commercial plans. According to the American Hospital Association, the hospital reimbursement rate by private payers increased from 116 percent of hospital costs in 2000 to 128 percent eight years later.

This rate has continued to climb, with hospital systems now charging commercial insurers an average of 208 percent of their costs or even more, findings from a 2019 Rand report that analyzed claims data from private employers in 25 states show.

If unemployment leads to a shift from privately-insured plans to Medicaid, hospitals could lose revenue. While cutting costs to save margins is an option, this might have a spiraling effect as resource and bed shortages would further impact revenues.

These healthcare provider trends will compel suppliers to take a streamlined and targeted approach to survive a recession. Here are some of these strategies:

Four strategies for healthcare providers to combat a recession

Identify cost-saving opportunities: Healthcare providers will have to conduct robust audits to identify cost-saving opportunities across the front-end, mid-, and back-end revenue cycle processes.

By identifying areas where costs can be cut without impacting patient care, providers can take concrete steps to reduce expenses and operate more efficiently. Providers with in-house revenue cycle management (RCM) operations can consider outsourcing as well as offshoring to benefit from cost arbitrage by identifying the right process, delivery, and partnership for outsourcing. In fact, outsourcing medical coding staff alone can save hospitals 25-30% on administrative costs.

Healthcare providers that have partially outsourced operations can consider expanding sourcing partnerships to other segments after a comprehensive assessment. Several health providers, such as Northern Light Health and Owensboro Health, have accelerated their RCM outsourcing plans in collaboration with service providers

Double down on patient experience: With competition intensifying during a recession, healthcare providers can differentiate themselves by investing in initiatives that improve patient satisfaction and loyalty. Providers need strong customer experience (CX) capabilities and to deliver informed and robust patient communication addressing a range of administrative and clinical issues.

Providers should strategically focus on improving awareness of overlapping needs for better relationship management, segmentation, marketing, analytics, product innovation, and engagement. The CX program should be built on fundamentals of personalization, particularly for complex care needs, as every patient has their own needs and preferences.

Healthcare providers should be open to feedback and actively seek to improve the patient experience by conducting patient surveys, analyzing data to identify improvement areas, and implementing changes based on patient response

Embrace digital: Providers will have to invest in future-proofed digital tools, solutions, and innovative portals that not only improve the front-end patient experience but also eradicate redundancies in the back office.

These solutions can span from point-based, pre-configurable solutions to E2E cloud-based artificial intelligence (AI)-enabled platforms coupled with automation and analytics capable of consuming vast amounts of information from data lakes.

A testament to this opportunity can be seen in Norman Regional Health System’s investment in VisiQuate’s AI-powered Denials Management Analytics and Revenue Management Analytics to power RCM operations using analytics.

On the clinical side, providers will have to invest in solutions that provide a comprehensive look into patients’ care journeys through proactive insights. Areas like remote monitoring and population health analytics should no longer be considered the care of the future and must be leveraged now to improve care coordination. Some of these efforts can be channelized in collaboration with health plans to ensure that care gaps are closed in time

Strengthen sourcing partnerships: Healthcare providers should comprehensively review current sourcing partnerships by taking an outcome-focused approach, adopting the right technological solutions, and creating a dynamic communication channel to manage operations and prioritize escalations.

By clearly defining performance metrics and incorporating a robust governance mechanism, healthcare providers can get the right benefits and meet the anticipated objectives.

What does this mean for service providers?

Service providers in the RCM operations space will have to adopt a unique and differentiated go-to-market strategy to solve these healthcare challenges by taking into account individual as well as market-specific issues.

This can be achieved by having a strong resource base with specialized skills and expertise, such as nursing, coupled with the scale that can support providers based on fluctuating demands.

Moreover, service providers also will have to leverage digital partnerships while simultaneously building their core competencies. By taking these steps, service providers can help hospitals and healthcare organizations weather the coming storm.

To learn more about healthcare provider trends, contact Lloyd Fernandes or Vivek Kumar.

Watch our webinar, Transforming Customer Experience in Healthcare with Hyper-personalization, to learn about hyper-personalized experiences in healthcare that span care management, proactive grievances redressal, and billing and payments.

The Rise of Retail Investors in Global Capital Markets | Blog

March 29, 2023

Retail investors are here to stay. As global capital markets face macroeconomic headwinds and a liquidity crunch, retail investors are gaining volume in traditional equity and debt markets as well as emerging alternate investments. Read on to understand the new global capital market trends, the staying power of retail investors, and the impact on investment banks, asset and wealth managers, and service providers.

Watching global capital markets over the past few years has been a rollercoaster ride of issuances and investments. Concerns of market volatility and issuances softening started way before the recent collapse of global banking giants, Silicon Valley Bank (SVB) and Credit Suisse. As illustrated below, overall global equity issuance was stagnant from 2017-2019, while global debt issuance has been steadily rising since 2017.

Driven by the pandemic, total equity issuance increased significantly starting in the third quarter of 2020 and remained high until the fourth quarter of 2021, resulting from regulatory support, major rate cuts, and gradual liquidity pumped into the markets by governments across the world.

Similarly, global debts in capital markets witnessed a significant increase in borrowing levels from the first to the third quarters of 2020. Interest rates across the globe reached historic lows during 2020 and remained down in 2021, leading to continued low borrowing costs for activities such as refinancing existing debt or financing mergers and acquisitions.

After the booms in 2020 and 2021, equity and debt issuance slowed in 2022 due to various macro-economic headwinds that resulted in volatile and low-growth capital markets.

The current market volatility has been impacted by the following factors:

Tightened money supply
Aggressive interest rate hikes
Inflationary pressures
Heightened geopolitical risks that triggered supply chain issues; Russia’s invasion of Ukraine has resulted in higher global costs for energy, minerals, and grains
Tensions between the US and China and regulatory pressures

Rise of retail investors

Despite the ups and downs in global capital markets through the recurring macroeconomic headwinds, the growth of retail investors reshaped investing trends starting in early 2020 and by 2022, individual investors held roughly half of all global wealth.

The strength of retail investors has been fueled by both demand and supply side factors. The exhibit below shows the contributing demand-side factors that include:

Drivers for expanded retail volumes

Now let’s explore the various supply-side drivers for the increased participation of retail investors:

Growth of blockchain technology-backed assets – Retail investors have had a huge influence on the performance of cryptocurrencies, non-fungible tokens (NFTs), and other similar assets/stocks
New retail investment platforms – Newly available stock trading, investment platforms, and apps that provide better customer experience and real-time information to investors at a low commission/brokerage or subscription model have grown
Innovative debt, equity, and other assets investment offerings – As the market matures, banks and fund managers are delivering innovative and customized offerings, bridging the gap between retail investors and the ticket size. Concepts such as fractional investments and ownerships have highly encouraged and facilitated market entry for retail investors with smaller trades. These fractional investments can cross investment classes, such as real estate investment trusts (REITs). These tokenized options to invest in real estate allow retail investors to gain returns from fractional investments in real estate that otherwise require huge investments with low liquidity
New equity investment options – Similarly, investing in private companies that are not yet listed through debt instruments, invoice discounting, or sale of shares in private markets have drawn retail investors’ attention to realize high returns that are less impacted by volatility compared to stocks
Central Bank Digital Currency (CBDC) – The introduction of a digital currency issued by a central bank is expected to especially appeal to cash-rich yet risk-averse retail investors
Alternative investment funds – Private investment funds such as private equity firms and hedge funds that historically catered to institutional investors are now increasingly looking to tap wealthy individuals. According to reports, individual wealth invested in alternatives will grow more than institutional capital allocated in the next decade

As retail investors increase their volume and market participation, enterprises are rapidly scaling operations to support demand from growing retail investors as well as institutional investors.

Enterprises also are building capabilities across the traditional equity-debt markets and exploring building alternative investment offerings such as gold commodities, invoice discounting, crypto, and NFTs. To enable this, enterprises require support for back-end operations and to manage declining margins.

What does it mean for Business Process Services (BPS) on the sell side:

Amid the global rise in interest rates and capital markets volatility, investment banks have begun to feel margin and cost pressure. The subdued demand was visible in the quarterly earnings results of some major investment banks. In the fourth quarter of 2022, Morgan Stanley reported a 49% drop in its investment banking business compared to the prior year, Goldman Sachs registered a 48% plunge, and Citi Group witnessed a 58% decrease, among others.

The margin strain trickled down to operational cost pressure that led to job cuts in the investment banking division of all the big banks, including Barclays, Citi Group, Deutsche Bank, and Goldman Sachs.

The volatile environment is expected to drive the industry to look for support from service providers to stem costs and sustain business profitability in the following ways:

Offshoring: Tier 2 and tier 3 banks that may feel more heat are expected to move more back-office and regulatory reporting operations to low-cost nearshore and offshore centers by partnering with BPS providers
Accelerated shift to digitally-enabled operations: Banks are keeping IT investments restricted to core offerings and focusing on intelligent automation transformation, cloudification, and deploying machine-learning-based platforms, among other strategies
Captive carve-outs: Banks scrambling with extreme cost pressures are expected to carve out their captives to service providers, giving them responsibility for operations and accountability for business risks

What does it mean for BPS on the buy-side:

Increasing demand for retail as well as private investments is driving many banks, fintechs, private equity firms, and hedge funds to make inroads or expand their existing asset and wealth management operations.

For instance, Morgan Stanley acquired E*TRADE in 2020 to strengthen its wealth management offerings, while JP Morgan bought digital wealth manager Nutmeg in 2021.

With enterprises scaling up and the regulatory environment changing, the need for low-cost and seamless operations is fuelling outsourcing spend in some of these key areas:

Technology-enabled and data-enabled services for better user experience
Asset servicing, such as fund administration and accounting
Corporate actions
Automated workflow for client onboarding, reconciliation, settlements, etc.
Support for existing regulations as well as up-and-coming regulations on Environmental, Social, and Governance (ESG), and cryptocurrencies
Increase in cyber security and data safety platforms and services

Changing yet challenging times

The fast-changing financial services landscape and the recent collapse of banking giants such as SVB and Credit Suisse are expected to influence investor sentiment as well as operating models and capital requirements of banking enterprises.

Watch this space for further updates on how the changing banking landscape opens additional risks and opportunities for service providers.

For more information on trends in global capital markets, reach out to the authors, Sakshi Maurya, Shrey Jain, Dheeraj Maken, and Suman Upardrasta. To learn more about BPS market trends, the competitive landscape, and our latest research findings, see Capital Markets Operations PEAK Matrix Assessment 2023.

Changing Dynamics In The Business Process Services Marketplace | Blog

March 28, 2023

I’ve blogged often in the past few months (here, for instance) about the emerging platform operations model and how it creates a more intimate, dynamic relationship between the tech stack and business operations. Just like the IT and engineering services marketplace, this new relationship between technology and operations because of platform operations is now increasingly dominating the business process services (BPS) outsourcing space.

Transformation Imperatives for Wholesalers and MGAs in Insurance: Exploring Opportunities to Unlock the Next Growth Phase | Blog

March 17, 2023

Managing General Agents (MGAs) and wholesalers are becoming increasingly relevant in the insurance ecosystem due to the unique advantages they have over brokers/agents. With five key transformation levers described in this blog, MGAs can overcome challenges and unlock a wave of unprecedented sustainable growth. Technology and business process services (BPS) providers can help MGSs reduce costs and increase their digitization and automation intensity. Read on to learn more.

As insurance intermediaries that represent carriers, MGAs provide insurance products to retail agencies and insureds. They are frequently positioned between other intermediaries, such as retail or wholesale brokers and insurance firms. MGAs also are qualified to underwrite and bind coverage as well as perform customer support services, including policy issuance and claims management. Overall, more than 1,000 MGAs are in the US, and 250-plus operate in the UK, covering nearly 5-10% of the overall insurance market.

Role of MGAs in the insurance ecosystem

The business model of MGAs stands apart from full-stack insurers and agents/brokers by the greater span of control and the profitability they generate. On the product side, MGAs have the flexibility to build products in collaboration with the insurer but may have a lower appetite for innovation and slower speed to market, depending on the insurer’s capability and commitment. On the customer relationship side, these specialized agents have full control over all customer activities.

According to a McKinsey report, 43% of top 100 Property and Casualty (P&C) insurers have at least one MGA relationship to source new premiums. Various types of MGAs operating in the ecosystem are illustrated below.

MGA profile

MGAs keep their financial profile stronger like other intermediaries in the ecosystem by achieving 20-30% EBITDA. MGAs are moderately capital efficient due to low setup cost, no legacy platform burden, quick monetization opportunity, and lean team setup.

However, they need to share the profit pool with insurers. The major revenue streams for MGAs are commission paid by insurers, risk performance-based commission, and offering additional services like claim administration and inspection.

Various value chain elements performed by MGAs include marketing, sales, distribution, underwriting, policy issuance, claims handling, policy review, customer services, risk management, policyholder communication, and renewal management.

Challenges MGAs face

Despite the significance of their role, MGAs face the following challenges in running operations effectively:

Complying with regulations: MGAs must keep up with the most recent rules and compliance standards because insurance regulation is always changing and is state-based. Penalties, fines, and legal repercussions may arise from breaking rules
Attracting and retaining talent: MGAs face hurdles in attracting and retaining skilled and experienced employees who can provide quality services to clients
Managing risks: On behalf of insurance companies, MGAs are in charge of risk management. This requires agents to have a thorough understanding of the insurance products being supplied, the underlying risks, and the potential effects of these risks on the organization
Balancing client demands with profitability: Client demands for new products, services, and coverage may not be aligned with the profitability goals of the MGA
Staying competitive in a rapidly changing industry: MGAs must stay abreast of advances in technology, goods, and services in the insurance sector to remain competitive
Competing with increasing industry consolidation: With large companies getting bigger, it is more difficult for other players to compete effectively

Five transformation pillars

To remain competitive, MGAs must find new ways to transform their businesses by leveraging new technologies and business models, as shown below.

Let’s explore each of the elements in the innovation framework in more detail:

Embrace digital transformation: MGAs can streamline operations, enhance customer experience, and cut costs by utilizing digital technologies, including automation, artificial intelligence, and cloud computing. To improve their decision-making and expand their business, MGAs can benefit from unique insights into consumer behavior and market trends provided by digital transformation
Partner with other ecosystem providers: Partnering with InsurTechs and technology and BPS providers is an effective way for MGAs to embrace digital transformation and wide-scale automation levers like Robotic Processing Automation (RPA), Artificial Intelligence/Machine Learning (AI/ML), Natural Language Processing (NLP), Optical Character Recognition (OCR), etc. By leveraging the expertise and technology of these providers, MGAs can access new tools and capabilities, helping them remain competitive and grow their business.
Embrace a customer-centric approach: Young customers prefer a digital-native approach and demand slick web and mobile interfaces to engage; direct-to-consumer (D2C) distribution platforms to buy; and two-way SMS messaging, chatbots, and interactive documents, forms, and videos to communicate. By offering these services, MGA insurance companies can not only improve customer satisfaction but also build deeper relationships with their customers, which can lead to increased loyalty and longer-term engagement
Enable data-driven decision-making: Data and analytics play an increasingly important role in the insurance industry, and MGAs must leverage these tools to remain competitive. By collecting and analyzing data from multiple sources, such as customer interactions, market trends, and operational performance, MGAs can gain new insights into their business, enabling them to make more informed decisions and drive growth
Foster a culture of innovation: Innovation is key to remaining competitive in the insurance industry, and MGAs must foster a culture of innovation to stay ahead of the curve. This requires a commitment to investing in new ideas and technologies, as well as encouraging employees to think creatively and embrace change.

These five transformation levers can help mitigate challenges like compliance adherence, talent management, low profitability, risk management, and strong competitive intensity by ensuring a culture of innovation, enforcing client-centricity, utilizing data analytics, outsourcing non-core functions, and embracing digitization.

Sourcing implications

MGAs operate in an area requiring specialized knowledge and experience in specific insurance markets and products. Companies typically prefer to keep core functions in-house and outsource non-core traditional and technology-led activities.

Multiple tech and BPS service providers work across the ecosystem with insurers, agents, brokers, insurtechs, and MGAs that have built superior capabilities to provide services across multiple business lines and geographies.

Service providers also offer the latest tools and technology, superior customer experience capabilities, operational efficiency, Service Level Agreement (SLA) management, flexibility to ramp operations up and down, superior talent, a low-cost advantage, best-in-class lean operations, improved risk management, and much more. MGAs can outsource either a part of the value chain or engage in end-to-end transformative deals, depending on their appetite for outsourcing, process maturity, and management buy-in.

Some of the areas within MGA’s and wholesaler’s process value chain that can be outsourced are as follows:

MGAs need to evaluate the service provider’s capabilities after carefully considering their expertise, experience, cost arbitrage, flexibility, security, business continuity, delivery footprint, talent maturity, technology, infrastructure, governance approach, and client-centricity.

Analyst firms like Everest Group can help evaluate these capabilities through its proprietary PEAK Matrix® assessment and impartially rank the service providers as leaders, major contenders, and aspirants, as well as provide expert commentary to help enterprises make better-informed decisions.

To discuss MGAs in insurance and outsourcing trends, please reach out to [email protected] and [email protected], and stay updated by accessing our latest research on insurance business processes.

The Dark Side of the Moon: Generative AI Spurring Rising Trust and Safety Interventions | Blog

March 17, 2023

The rise of generative Artificial Intelligence (AI) has been nothing short of a technological revolution. From art to advertising, it has transformed content creation and consumption. As we dive deeper into generative AI, we can’t ignore the elephant in the room: How will it impact enterprise Trust and Safety (T&S) policies and operations? Read this latest blog in our series to learn about the impact of generative AI on T&S, potential challenges for enterprises, and recommendations to navigate T&S waters.

“In the age of generative AI, trust brokers will become increasingly necessary and increasingly valuable in the marketplace.” – Hendrith Vanlon Smith Jr., CEO of Mayflower-Plymouth

Generative AI is making headlines as organizations discover exciting breakthroughs by investing in developing their own models. These advanced models have demonstrated remarkable abilities to generate realistic and diverse outputs that can be useful in various applications such as content creation, language translation, image and video synthesis, and even drug discovery. However, valid potential ethical concerns arise around deepfakes, truthfulness (or lack thereof), biased output, plagiarism, and malware, among others. Let’s explore this further.

Generative AI is the future of content but introduces additional complexities for enterprises

Generative AI is a type of artificial intelligence that can create new and diverse data forms, including images, audio, text, and videos. This technology has been around for some time, but recent advancements in models such as ChatGPT, DALL-E 2, Midjourney, and others have brought generative AI into the spotlight. While generative AI has led to an explosion in potential usability across diverse fields, it also presents additional complexities for enterprises to moderate it effectively, as illustrated below.

As generative AI constantly evolves with daily updates and new models contributing to its increasing complexity, heightened protection and care are necessary to avoid lasting negative consequences, such as reduced brand value and loss of customer trust. To ensure customer protection and platform safety, enterprises require dedicated T&S teams more than ever.

Generative AI impacts the entire T&S value chain to varying degrees

Below are some examples of emerging T&S use cases:

Getty Images, a UK-based photo and art gallery, sued Stability AI in the UK and US for copying over 12 million photos without permission, alleging copyright infringement, trademark violation, and unfair competition
Twitch, a streaming platform, temporarily banned the AI-generated sitcom “Nothing, Forever,” a parody of the popular TV show “Seinfeld,” due to the use of transphobic language in an episode

T&S needs to keep pace with generative AI

Current T&S operations are lagging behind the evolution in various content formats and need to step up their game to deal with the nuances of generative AI.

T&S services:

Effectively moderating generative AI content requires human moderators to possess a blend of technical expertise, ethical consciousness, and critical thinking abilities. A lack of these attributes can result in incorrectly flagging or removing content, as evidenced by the artist who was banned from a well-known art community by the moderator on accusations of using AI to create their artwork. Moderation of AI-generated content also can be limited by a lack of support for moderating niche languages.

Moreover, training the AI requires moderators to be exposed to more dangerous and harmful threats over longer periods, which could take a toll on their mental health and productivity. For example, a service provider hired by a tech-based company to train its GPT model terminated the contract due to prolonged exposure to harmful content.

T&S solutions:

Content moderation technology solutions have room to improve their maturity and ethical technology to effectively handle complex content formats such as generative AI content. The technology also needs to become more robust to moderate all types of generative AI content, including audio, video, and livestream. The shortage of training data leading to the lack of explainable AI and contextual understanding also poses a significant hurdle for content moderation that relies on large datasets.

Efforts to create effective AI-generated content detectors are underway, but their accuracy remains a challenge, with current capabilities falling short of achieving 95% reliability. In the race between generative AI creating harmful content and T&S AI moderating it, generative AI seems to be leading its T&S counterpart.

Enterprises need to amplify their FOCUS on T&S to deal with the nuances of generative AI

In this rapidly changing AI world, implementing the FOCUS framework illustrated below can enhance enterprises’ capabilities in handling generative AI complexities to safeguard users.

Strategic providers can help enterprises maintain the FOCUS framework in the following ways:

Upgrade algorithms and training datasets: Partnerships can help maintain the robustness of enterprise T&S platforms by improving algorithm accuracy and including a wide and large variety of data sets to train the T&S technology
Approach innovation collaboratively: Enterprises should look outward for innovation in addition to in-house investments. The right partner can help explore new technologies, such as explainable AI and responsible and ethical AI, to detect patterns and anomalies in generative AI content and assist enterprises in keeping their platforms secure
Provide policy management support: Enterprises also require constant market monitoring in addition to collaboration with regulatory bodies and policymakers to identify triggers, which can potentially impact existing T&S policies
Customize moderation rules: Operationally, generative AI requires customized moderation rules that are specifically geared to identify and highlight AI output that violates enterprise guidelines or other policies
Deliver holistic platform-based T&S solution: Service providers are increasingly partnering with technology providers that offer comprehensive, scalable platforms integrating various content handling technologies and human capabilities into a unified system

Looking forward, T&S for generative AI puts forth many questions:

As generative AI evolves, the following questions need to be addressed before charting the right investment strategy for T&S:

Can generative AI be used to build a T&S solution that replaces current AI models?
Will data privacy regulations and the reluctance of peers to share proprietary data limit companies’ ability to collect and use data for generative AI training?
Will content generated by AI be used to train even more AI models?

As we continue to make progress in the AI field, the possibilities for generative AI are endless, and imagining a future where AI-generated content becomes the norm is conceivable. However, it’s essential to approach this development cautiously and diligently, taking into account all the potential implications. As the future of generative AI unfolds, its success will depend on our ability to balance its power with our responsibility to use and moderate it wisely.

For our other recent blogs on how ChatGPT will impact various industry sectors, see Impact of ChatGPT and Similar Generative AI Solutions on the Talent Market, Can BFSI Benefit from an Intelligent Conversation Friend in the Long Term, and ChatGPT Trends – A Bot’s Perspective on How the Promising Technology will Impact BPS.

To discuss how generative AI will impact the T&S process in detail, please reach out to Abhijnan Dasgupta and Shubhali Jain.

Discover more about generative AI in our LinkedIn Live, Generative AI and ChatGPT: Separating Fact from Fiction.

The Recessionary Conundrum: What Lies Ahead for Healthcare Payers?

March 13, 2023

A looming global recession may finally take its toll on payers who have escaped prior economic challenges. Let’s take a look at the healthcare trends influencing decision-making by payers, the markets most likely to be affected, and the actions payers can take with the uncertain outlook.

Wall Street predicts that the probability of a global recession in 2023 is 61%, well above the stable benchmarks. Although inflation has eased up marginally since the last quarter, tighter financial conditions and weaker global growth still indicate a potential downturn.

The healthcare industry historically has weathered economic collapses better than core industries that are generally more severely impacted. A Forbes assessment shows that while the US economy (as measured by GDP growth) plunged into recession eight times over a 60-year period from 1960-2020, healthcare expenditure growth never shrunk, often outgrowing gross domestic product (GDP) as illustrated in Exhibit 1.

This stability is primarily because impacted employees either opt for subsidized government programs or forego medical care, as applicable, pushing the healthcare cost to the future. As a result, health plans tend to be relatively less affected due to recessionary headwinds. In fact, reports suggest that earnings for healthcare payers declined only by 27% compared to a 77% decrease for the overall S&P 500.

Exhibit 1: Real GDP growth and national health expenditure growth 1960-2020

Although many healthcare payers posted strong growth rates at the end of fiscal year 2022 as shown below (Exhibit 2), the results may not be as positive in 2023, particularly for employer-sponsored or provider-owned health plans.

Exhibit 2: Year-over-year growth rate by revenue for healthcare payers

The overall impact on the payers in the fiscal year 2023, however, will be determined by several upcoming trends. Let’s look at some of these influencing factors in detail below.

005 — Exhibit 3: Major healthcare trends defining the decision-making process of payers in 2023

Medicaid redetermination: As states kickstart Medicaid redetermination in April 2023, over 15 million Medicaid members are expected to lose their enrollment after the renewal process. Several payers, such as Centene, expect to lose about 2.2 million members over the next 18 months. On the other hand, payers like Humana and Molina Healthcare project their Medicaid membership to be largely stable due to new Medicaid contracts offsetting redetermination losses
Prior authorization rule: The CMS Interoperability and Prior Authorization rule requires regulated payers (Medicaid, Medicare, CHIP, and QHP) to utilize Application Programming Interfaces (APIs) that give healthcare providers more streamlined access to data. Payers will be required to maintain these APIs using the Fast Healthcare Interoperability Resources (FHIR) standard. This regulation is expected to bring effective workforce utilization, improved data exchange, reduced appeals, and, in turn, more timely claims disbursal
Inflation reduction act: Starting this year, Medicare will be allowed to negotiate prices for prescription drugs with pharmaceutical companies. Apprehensions are high that this will lead to cost-shifting to privately funded and employer-sponsored health plans. Or, the reverse also could be true, and privately-funded plans may demand similar negotiations along the lines of Medicare to avoid overpaying for healthcare. Moreover, the Part D plans will have to bear higher responsibility in the catastrophic phase as the law puts a spending and inflationary cap on out-of-pocket expenditure beginning in 2025
Focus on alternative care market: Payers are striving to strengthen preventative care and ensure end-to-end offerings, as many big players (e.g., United HealthCare, CVS Health) have invested in home, virtual, and alternative care. The race to outcomes-based care is shifting from retrospective to proactive and comprehensive health management through multiple integrations
Member experience and STAR Ratings: With the Consumer Assessment of Healthcare Providers & Systems (CAHPS) member experience weights increasing to four times in 2023, ensuring top-of-the-class member experience will remain a priority for health plans

Impact of the potential downturn on the healthcare payer market

So, how specifically will payers be impacted? It’s hard to say, given the global inflation outlook improvement. But lessons from the past indicate that a sustained period of economic uncertainty will impact both the government and the private markets in the following key markets:

Privately-funded market: Markets such as employer-sponsored health plans could lose members due to layoffs and loss of employee-sponsored coverage. Payers such as Cigna, that have significantly high commercial membership (Exhibit 4), could feel the heat of the competition from the health insurance exchange (HIX) and Medicaid plans. However, these losses can be offset if payers can retain these members in other product lines. Alternatively, having a diversified business portfolio such as a pharmacy or data services also may provide a cushion against medical membership loss
Government market: While the Medicaid market would traditionally gain membership in a recession, instead it will see the combined effect of redetermination and a potential economic downturn. As some of the members who lose employer coverage join Medicaid, the drop in membership might be less than expected after the redetermination process. The impact on Medicare, however, is expected to be relatively insignificant. Overall, the payer mix might experience a shift toward government business

Lastly, the uninsured population may experience an uptick due to information asymmetry and administrative complexities. According to an assessment done from 2007-09, only some of the insurance loss from a lack of employer coverage was offset by added public coverage, leading to a 5.6 million rise in uninsured adults. While the Affordable Care Act (ACA) has lowered the uninsured population, an economic downturn potentially can add to the current uninsured coverage.

004 — Exhibit.4: Percentage of membership in the commercial business

What should payers do in this uncertain market outlook?

With the market unpredictability, healthcare payers will have to take calculated measures to prevent business impact. Here are four actions they can take:

Focus on operational efficiencies: Healthcare providers are more likely to be impacted by a downturn, pushing them to negotiate for higher contract prices. Payers will have to explore ways to offset any price hikes. This can lead to increased outsourcing and offshoring of traditional processes, such as provider and claims management to ensure lower administrative spending and higher operational efficiencies
Invest in preventative care: Price-conscious members may move to higher deductible plans and avoid care, particularly preventive services, leading to lower utilization. This can have lingering long-term effects, particularly for members with multiple chronic diseases. To combat this, payers should identify susceptible members, invest in areas such as social determinants of health (SDoH), and devise strategies that prevent care gaps and discontinuity
Increase digital member engagement efforts: Millions of members lost their coverage in the last recession despite being eligible for other plan options, partly due to a failure in getting the right information and comprehensive engagement with their insurers. To avoid this from happening again, payers will have to ramp up investments in member engagement to avoid losing members. Regional health plans and the Blues will have to bring in digital-enabled solutions that help to understand member needs and provide forward-planning insights. Support from third-party services providers who offer customized, plug-and-play customer experience (CX) solutions can help meet this need
Upgrade systems: Several payers with strong capital support can undertake digital transformation efforts to replace legacy systems and move to interoperable, connected ecosystems that will help improve administrative as well as care outcomes. However, this might only be applicable for payers who experience limited utilization and payouts due to the downturn.

Outlook for service providers

These measures will require service providers to proactively engage with healthcare payers and focus on three levers – the right clients, the right capabilities, and the right value addition. This will enable service providers to aim for the right opportunities such as member engagement and preventive care and ensure sustainable growth in an uncertain economic environment. Finally, in a highly competitive market like payer services, service providers will have to offer targeted digital and traditional Business Process Outsourcing (BPO) services to serve the right client need and differentiate themselves with unique value propositions refined as per the prevailing market demand.

To learn more about healthcare payer and provider trends, contact Lloyd Fernandes or Vivek Kumar.

To learn about the changes in the pharmacy benefits management (PBM) industry, such as increased regulatory scrutiny surrounding pricing transparency and rebate-sharing rules, watch our video, Pharmacy Benefits Management: The Next Big Healthcare Opportunity.

You can also learn more about How to Deliver Hyper-personalized Customer Experiences in Life Sciences in this LinkedIn Live session.

Category: Business Process Services