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March 3, 2008

Overseas Transcription — Is India Still the Low-Cost Option?
By Selena Chavis
For The Record
Vol. 20 No. 5 P. 10

The dollar’s decline coupled with the rupee’s rise has changed the economics of doing business offshore.

Like many business-minded professionals aligned with the transcription field in the late 1990s, business owner Terry Peteete saw an opportunity. Research, statistics, and other factors were consistently pointing to high and sustainable growth in the U.S. transcription industry, and his company wanted to be part of it.

Alongside a growing need for transcription services, he recognized patterns developing in overseas markets that would lend to the widespread adoption and incorporation of labor in the transcription field outside the United States—specifically India.

“I’ve been involved in international business my entire career. Our company is always on the lookout for new development in industries,” Peteete says, noting that conditions in markets such as India and the Philippines lent themselves to good business strategy. “In 1996 and 1997, the Indian government was encouraging Indian companies to form and start transcription services. We were involved in making this happen.”

Like many opportunistic business ventures of the late ‘90s concerning the transcription field, Peteete’s company—Kansas-based Sail Investments—found success incorporating overseas talent into its transcription staffing portfolio along with the use of U.S. talent. Peteete says sophisticated labor pools were forming in India that could be hired at a fraction of the cost, while in the United States “there is a concerted, constant effort to drive the cost of medical services down.”

It made good business sense then, but with today’s rapidly changing market conditions, is that still the case?

Faced with a deflating dollar value and a rise in India’s currency, many industry analysts wonder if India will remain a low-cost option for transcription services. And while the question is raised about the future of overseas transcription ventures, a number of industry professionals are quick to say that there is more to the story than just cost.

Ian Wilson, chief financial officer with New York-based SPi, chose to use a combination of onshore delivery from within the United States and offshore delivery because of numerous benefits associated with offshore markets. Pointing out that lower cost was a key driver, he emphasizes that it was not the only one.

“For offshore delivery, there are a number of benefits that have been established over the years to meet the requirements of certain customers. For example, the larger population of potential medical language specialists within the vicinity of our offshore facilities can support a faster scaling and easier training of these medical language specialists for a customer. The controlled environment of a dedicated delivery center can also provide improved adherence to quality standards and turnaround time,” he says. “Naturally, there are benefits associated with the labor rate differential between onshore and offshore delivery, but pricing has not been the only reason for healthcare institutions working with offshore transcription companies.”

And the trend continues to evolve. Industry statistics vary regarding what percentage of transcription services are currently conducted in overseas markets, with the range falling anywhere between 15% and 40%. However, David Iwinski, Jr, CEO of Pennsylvania-based Acusis, believes the percentage is much higher. “I would estimate that the offshore market is much higher than the official estimates,” he suggests, adding that some companies “quietly” outsource and say they are based in the United States. “I think a very significant part of this market goes overseas; companies just don’t admit it.”

Rise of the Rupee — What Does That Mean?
Devaluations, narrowing exchange rates, rupee vs. dollar—it sounds like something out of an economist’s report. In a nutshell, though, the rise of India’s rupee and the devaluation of the U.S. dollar translates to higher labor costs and tighter profit margins for companies that have benefited from low-cost labor pools from India in the past.
In December 2007, The Economist reported that the exchange rate for the dollar against the Indian rupee equated to less than 40 rupees and that India’s currency had strengthened by approximately 15% against the dollar over the past year. Consider that the U.S. dollar weighed in at more than 49 rupees in 2002, and it becomes clear what the drop means to the widespread use of Indian labor.

Because SPi uses an employee model in India vs. a subcontractor model, Wilson acknowledges that the dollar’s deflated value will produce a cost burden for the company that some competitors may not feel. “We feel our model gives us the ability to control and provide the training and quality our customers are looking for,” he says, adding that the current exchange rate movements represent one of several commercial and operating variables that affect this model. “The currency movements are presently moving against offshore service centers like ours, but through our continuous process improvements and increased automation initiatives, we have been able to offset the foreign exchange situation in our facilities both in India and the Philippines.”

While currency exchange rates are certainly a factor affecting business operations in India, Peteete notes that companies “can still be competitive even with the devaluation of the dollar against the rupee” because India has developed such a strong transcription infrastructure during the last decade. If the rupee had risen against the dollar five years ago, the development in India probably would not have occurred.

Peteete is quick to note that the cost is still lower than in the United States. “A U.S. transcriptionist working full time might produce $50,000 to $60,000 [per year] in gross revenue,” he explains. “The cost of that transcriptionist is at least $30,000 a year and probably more than that.”

Peteete adds that India also offers a pool of highly educated science and technology graduates at a fraction of the cost of their American counterparts. For example, he points out that Indian professionals with medical degrees typically would make $10,000 working for the Indian government and are open to salaries that equate to much less than what a U.S.-based physician would require. “We have [Indian] doctors on our staff who work in our quality control and management areas, and we pay them significantly more than they could make working for the government,” he says.

Wilson concurs, noting that the costs of skilled labor in the United States is a constant challenge for SPi. “These costs are not going down, and other costs such as providing healthcare and other benefits to our U.S. employees continue to jump by double digits each year,” he says. “So our challenge is to constantly be assessing the cost variables that affect each of the countries in which we operate and to develop strategies to overcome them while still meeting the needs of our employees and our customers.”

According to Iwinski, “low-end” transcription service providers that are just entering overseas markets for low-cost labor are the ones that will suffer. “Whatever [labor cost] advantages people may have thought years ago about [entering overseas markets], those days are long gone,” he says, adding that for Acusis, the decision to be overseas is more about talent and labor pool. “India is an area where a significant amount of new research and technology initiatives are coming into play. Our software engineers are top notch,” Iwinski says. “That somewhat flies in the face of theories that companies are just there to make money.”

Staffing Conundrum
Industry professionals agree that the labor issue is a valid one. Current statistics suggest that the U.S. medical transcription industry’s workload is increasing by 20% annually and that manpower is decreasing by 10% annually, making the question of who will do the work a difficult one to answer.

“It’s the biggest problem in the industry right now,” says Linda Yaniszewski, CEO of New York-based ExecuScribe, Inc., a provider of strictly U.S.-based transcription services. She adds that when she made the choice to hire only homegrown transcriptionists back in 1989, there was plenty of labor available.

“We were getting a couple hundred resumes a month then. I feel differently now even though I’ve chosen not to outsource,” she acknowledges. “As the demand grows, that gap will widen. It’s concerning.”

The U.S. Department of Labor has recognized the industry shortage of U.S. transcriptionists and took action by recently declaring medical transcription to be an apprenticeable profession, which is the first step to establishing a national apprenticeship program. The Office of Apprenticeship Training, Employer and Labor Services approved the application for apprenticeability determination submitted by the Medical Transcription Industry Association along with the Association for Healthcare Documentation Integrity for qualifying graduates.

Yaniszewski plans to participate in these programs but recognizes that the lack of U.S. talent may be a “deal breaker” for her to remain exclusively on U.S. soil in the future.

According to Peteete, the field is suffering because it has lost its attractiveness as a profession due to low pay for the amount and intensity of the work. “It’s very difficult for a family to live on $30,000 a year,” he says.

Along with low pay, another issue is the ability of the field to attract diversity. Peteete notes that the current U.S. workforce is made up almost entirely of women, with a high percentage of those moving toward retirement age. In contrast, his operations in India employ an even split between women and men and encompass a variety of ages. “The aging workforce of U.S. transcriptionists has become a significant factor,” Peteete says. “The training supply is not keeping up with retirement.”

In light of the U.S. labor shortage, Iwinski suggests that India is a logical choice for a technology company. “The one thing that India still has in abundance are people who are highly educated and skilled in this market,” he says.

The Quality Factor
Most large transcription providers that use overseas talent also offer U.S.-based workers due to the fact that a number of healthcare providers prefer to work with North American transcriptionists.

It comes down to a perception about quality that many transcription providers believe is no longer accurate. Wilson suggests that while quality may have been an issue at the turn of the century, most well-established vendors in India are now matching U.S.-based providers.

“The offshore delivery model has certainly matured over time,” he says, adding that his company has witnessed a progressive trend for healthcare providers to use larger transcription centers instead of the smaller service providers in the overseas market. “These larger facilities naturally result in a more efficient arrangement for the provider than dealing with many smaller centers, and they also frequently offer improved quality due to the best practice approach normally found in larger facilities.”

While the choice to use only U.S.-based transcriptionists was a marketing differentiator for Yaniszewski in the beginning, she acknowledges that over time, the quality has improved in overseas markets. However, reaching that level of quality is more labor intensive than it would be in the United States, according to Yaniszewski, who says it requires the work of three personnel in overseas markets to equal the output of one American transcriptionist.

Pointing to the same ratio, Peteete says that “we won’t ever meet the productivity of U.S. transcriptionists,” noting that there are cultural, language, and work ethic differences at play in overseas markets.

Larger transcription providers are making it work, though. For example, Iwinski points out that Acusis has never lost a client on its India-based production. “No one would go overseas just to save a few pennies if the quality suffers,” he says. “Consumers are much more savvy … people are not going to put up with it.”

As healthcare organizations continue to expect lower costs from vendors, Wilson suggests that many customers are also realizing that a blended approach to production, both onshore and offshore, is a realistic approach to handling the volume of work. “They expect faster turnaround of their work, top-notch quality, and, of course, they are under pressure to reduce costs,” he says. “With the acknowledged shortage of U.S. [transcriptionists] and the rising costs of a U.S. employee model workforce, there is a definite need to explore and utilize qualified labor offshore in addition to U.S. sources.”

Yaniszewski believes that perceptions about the use of overseas labor and quality may continue to change as the decisions for contracts move out of the hands of mid-level staff. “Now, with more and more restraints being put on healthcare in general, more of the decisions are being made on the CEO level,” she says.

— Selena Chavis is a Florida-based freelance journalist whose writing appears regularly in various trade and consumer publications covering everything from corporate and managerial topics to healthcare and travel.