With the Biden administration looking to build on the Affordable Care Act (ACA), first introduced by former President Barack Obama, the healthcare sector should ideally get a booster shot. Healthcare is one of the key verticals for IT services firms.
However, unlike the mid-2010s, the excitement this time around ACA is rather subdued. According to analysts, even as the likelihood of passing a major legislation like healthcare is low, given the fractured Senate, the healthcare segment will continue to be one of the growth drivers for IT firms as companies spend on tech.
When ACA, dubbed as Obamacare, was passed in March 2010, Indian IT/ITeS providers jumped in to tap the opportunity it provided. Multiple reports had termed ‘Obamacare’ as a booster shot for IT firms, especially Wipro and Cognizant, for whom healthcare accounted for a significant share.
Obamacare, which aimed at providing access to affordable healthcare for everyone, allows people to buy their own health insurance, instead of employers.
This changed the way the healthcare insurance ecosystem worked in the US. If the policy was implemented, it would have seen the enrolment of thousands of individuals on the platform, and also their processing bills and claims. So insurance and healthcare service providers had to upgrade their IT systems, and Indian outsourcing services firms, which count insurance and hospitals as their clients, would gain.
The opportunities, reports said, was around $20 billion over the next five years. According to a 2014 report in the Hindustan Times, Infosys, BPO, HCL Tech and Wipro were looking for acquisitions to scale up operations quickly to win large contracts.
For instance, Wipro acquired US-based HealthPlan Services, which offers software solutions to health insurance firms, for $460 million in 2016. Hinduja Global Solutions, a business process outsourcing firm, acquired Colibrium, a software solutions firm in healthcare insurance in the US, in 2015.
But after Donald Trump became the President, the uncertainty around the implementation of ACA impacted these tech firms. Peter Bendor-Samuel, CEO, Everest Group, an IT consultancy firm, explained that the uncertainty around ACA continued in the first two years of the Trump administration.
Though the ACA is still intact, the changes the Trump administration brought weakened it. Biden is likely to roll them back.
Impact on IT firms
The uncertainty resulted in healthcare service providers taking a cautious stand on spending.
Rajeev Mehta, former Cognizant executive, said during the Q4 2016 (Quarter ending December) earnings call, “… clients are nervous about what will happen with the ACA and they're waiting to see what the current administration will do towards that.” Healthcare accounts for about 30 percent of the company’s revenue.
For Wipro, the damage was a lot more. Currently, healthcare accounts for about 13.7 percent of its revenues.
During the earnings call in October 2017, former Wipro CEO Abidali Neemuchwala said that the acquisition was under stress, given the uncertainty around ACA, and was slowing down growth in its healthcare business unit. “And just to give you a sense, over the last few quarters, we have lost on a run rate basis about $125 million worth of annualised revenues in that segment of our healthcare business,” he added.
The acquisition continued to drive volatility for the firm in mid-FY20, despite the growth it had seen outside the HPS business. In Q3 FY20 (quarter ended December), Neemuchwala pointed out: “…in our health business, again based on some of our portfolio mix of higher exposure to ACA, there continues to be an area of uncertainty and that will drive volatility.”
However, Neemuchwala said it is seeing an uptick in client spending outside of the acquisition. “…healthcare companies are investing in patient experience, which essentially is part of digital. And we are getting a fair share of our business,” he added.
Will the Biden administration change anything?
Of course, if the Biden administration builds on the ACA, those who had already invested in it could benefit, said Pareekh Jain, founder, Pareekh Consulting.
Partha DeSarkar, CEO, HGS, said in a recent interaction with Moneycontrol that Colibrium might prove to be an interesting tool for the firm. But “we have to see if it comes back”, pointed out Sarkar.
That is where the challenge is. Bendor-Samuel of Everest Group pointed out that a slim majority in the Senate would make the passage of major legislations like healthcare difficult.
“Hence it seems likely that the current conditions will remain and the status quo will continue. This is good for the healthcare sector,” he added.
It is good, since it is the uncertainty that interrupts growth and spending, he said. “...the healthcare markets started spending again. This has contributed to the strong performance that this sector has had this year,” he pointed out.
Indeed. Most IT firms have seen the healthcare segment grow at the back of the pandemic even as its other verticals took a hit. This growth was primarily led by life sciences. Analysts shared that IT firms will continue to see growth in healthcare as firms begin to spend on technology, which was paused earlier.Brian Humphries, CEO, Cognizant, said in a recent earnings call: “I’m very optimistic around the opportunities in life sciences at the intersection point of biopharma, medical devices, right through to Industry 4.0 healthcare, ... and indeed health tech.”