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How digitisation provides new business opportunities for technology providers in healthcare

Mapping and moving clinical data have always been challenging. Nudged by the Hi-Tech Act in 2010 that forced US medical records to get digitised, this is now a global trend across Europe and pockets of Asia, throwing open new business opportunitie...

Nov 08, 2019, 07.56 AM IST
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Rizwan Koita, CEO (left) and Jagdish Moorjani, COO (right) of CitiusTech
Mapping and moving medical data have always been challenging, but digitisation is throwing up new business opportunities for technology providers. And homegrown specialists like CitiusTech are playing to their strengths at the confluence of technology and healthcare, says ET.

If fellow IITians, Rizwan Koita and Jagdish Moorjani, are proud of one thing about CitiusTech, it is that the healthcare analytics company they cofounded 15 years ago has become a valued unicorn with zero external capital.

The entire journey since its founding has seen no primary capital infusion from investors, although two highly successful secondary stake sales have catapulted the company into the elite billion-dollar valuation club.

In July, Baring Private Equity stepped in to take control of 80% of the company at 15 times its forward multiple, as General Atlantic cashed out of its 5-year old bet with a 3.5X return on investment. The Baring buyout finally consummated earlier this month. “Our entire journey has been bottoms up,” says Koita, when we meet him at the company’s Navi Mumbai campus.

Baring has strong sectoral credentials, having helped home-grown mid-size IT players Hexaware and NIIT Technologies transform from legacy outsourcing work —infrastructure management, business process services, application management — to a more digital focus involving machine learning, AI, and Cloud.

Around Asia, it has bought hospital chains and clinics, contract manufacturing pharma companies or high-end equipment makers.

It also bought AGS Health, a medical revenue cycle management BPO, earlier this year, but has been on the prowl for a specialist in the IT space that dwells in the space between technology and healthcare.

Koita and Moorjani have both seen how fast technology services could get commoditised.

That led them to sell their first venture, Transworks, to the Aditya Birla Group in 2003, just four years after setting it up. The choice to stick to a niche like health-tech was therefore a conscious one.

Today, that has become a blessing in disguise — a $400 billion opportunity globally, expected to touch $495 billion by 2022, as per estimates by PwC.

“Medical spends in the US alone have been growing at 10% and the rate of growth offshore to onshore is growing at double of that. How many sectors can boast of that?” asks Jimmy Mahtani, managing director of Baring PE Asia, who led the transaction from Singapore.

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Healthy interventions
Mapping and moving clinical data have always been challenging.

Nudged by the Hi-Tech Act in 2010 that forced US medical records to get digitised, this is now a global trend across Europe and pockets of Asia, throwing open new business opportunities for tech providers.

“90% of data in the US is now sitting in software systems. Others are catching up,” says Moorjani, the firm’s chief operating officer, who chose technology over textiles, his family business.

Be that as it may, for a country where the industry generated $2.8 trillion, the industry is highly inefficient for the three key stakeholders – patients, insurers and hospitals.

So, mechanisation and the associated “evolutions result in new business needs and that translate to technology needs.”

Much like CitiusTech, there are platform and solutions providers like Medocity, GE Healthcare, Apervita, Epic and Nuance which provide different kinds of emerging technologies that may eventually crowd the market, according to analysts, as the need for specialist vendors goes up exponentially.

With Amazon and Apple opening clinics, and Uber launching a medical transit programme, even Silicon Valley poster boys see potential in improving the user experience using disruptive technologies.

Just last week, Google’s parent Alphabet Inc announced the acquisition of Fitbit for $2.1 billion to take the battle straight to Apple in the market for health and fitness tracking and wearables.

Still, traditional service providers – from IBM, DXC and Wipro — are trying to ramp up and gain a foothold in the digital transformation services market.

IBM, for example, has been using its ‘Watson’ service to drive its AI capabilities in healthcare. DXC has built AI, data curation and digital health products, while Wipro is supporting such products with health management solutions and other enabling technologies.

“Over the next three to five years, the evolution of healthcare will be characterized by a reengineering of clinical care and operations around the real-time use of data and advanced analytics. Healthcare will learn how to optimize the digital capabilities (data collection) implemented over the past decade to effectively fix physician burnout and bend the healthcare cost curve,” argues DD Mishra, Senior Director Analyst – Gartner. IoT in hospitals, Real-Time Location Systems, Eldercare-Assistive Robots and Critical Condition Surveillance Systems are already an integral part of the tech evolution that is taking place in the United States, the largest market.

Specialised solutions
For CitiusTech, too, 80% of revenues are currently US-centric, though a gradual geographic diversification is in process.

With a 3,500-strong workforce, the company manages between 200-250 projects on average for its 110 clients, which are mostly US-based hospital networks and healthcare organizations. The average deal size stands at $3-3.5 million per 12-18 month project. The deal value will double from this figure in the next three years, the founders say, targeting revenue of $500 million by 2024, aided in part by acquisitions.

“We are doing 20-25% per year growth and believe that it is sustainable over the next few years ...the average customer revenue can go to $5-$7 million over the next 3-5 years - that itself can boost our revenues quite significantly,” Koita points out.

So far, the company has been able to charge a 10-20% premium for its services, compared to traditional IT services providers, because of its deep expertise, according to the management. Some of these services include engineering new generation, enterprise applications for US-based healthcare organisations, and technology platforms that help with integration and interoperability of clinical data of patients across hospital networks.

Data analytics has also turned into a growing business avenue for the company, as hospitals in the US deal with increasingly complex, ‘value-based’ contracts with insurance companies, according to Moorjani. Employing data science tools to manage and derive insights from large chunks of disparate medical data has helped hospitals and healthcare providers reduce costs, he says.

For traditional IT services companies, large healthcare contracts are expected to splinter and shrink in the coming years, driving them to co-exist and compete with specialised, born-in-the Cloud companies, according to analysts. In this scenario, vertical specialised companies like CitiusTech may be better poised to secure AI-driven, digital deals which larger companies have not been able to tap aggressively so far, they say.

“For contract sizes less than $10 million, there are mostly specialized vendors or large SaaS providers for ERP, cloud and data analytics solutions. These small-sized deals mostly have small niche providers and very few examples where large providers like IBM and Atos provide analytics and AI based services,” said Mrinal Rai, Principal Analyst at technology consulting firm ISG.

With the risk-reward system between hospitals and payers changing fast in US, newer prospects are opening up.

Compared to ‘fee-for-service’ systems, where hospitals were paid retrospectively by insurers on the basis of the medical bills, value-based care is a form of reimbursement system where insurers reward hospitals for efficiency and effectiveness (non-recurrence of health problems in patients) in delivering care.

CitiusTech’s US revenues have grown faster than India revenues with cloud-based healthcare spending showing an uptick in the second half of 2019, data from ISG show.

Also, compared to traditional IT service companies, 75% of CitiusTech’s business comes from digital deals, compared to an average of 30% for companies like Infosys, Cognizant and TCS.

Given its strategic digital positioning, the founders also believe that they may be able to explore IPO opportunities for the company in future. Several global peers have successfully done that in the US.

Earlier this year, Salt Lake Citybased unicorn, Health Catalyst, and Livongo Health had debuted on the Nasdaq, while technology-based primary care provider One Medical is also rumoured to be gearing up for one.

Alluding to one of the company’s key strengths, Koita says that an early mover advantage in building products from scratch for healthcare companies has helped it stand out, as traditional software companies are only now building competencies in the area.

“When we started in 2005, our main focus was product engineering. Today, if you see what the important themes are that are driving valuation in IT services, product engineering is one of them, because it’s a very different skillset than building custom software. We actually started off with product engineering work for healthcare, building enterprise grade healthcare applications,” he says.

“There was no way that a Citius could have competed with a Cognizant in offering legacy solutions. But in their specialised areas they can take on any of the bigger peers today,” says Mahtani of Baring, who has already hit the ground running helping the leadership in organisational design, board compositions and C-suite hiring. “Just the understanding of scaling up large IT services business is going to be a very critical success factor for us. They have seen that movie play out many times before. Now, we want to work with them to institutionalise the company and make it board-run,” says Koita.
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