Saurabh Gupta — President, Research and Advisory Services, HFS Research[00:00]
Welcome everyone. Welcome to today’s edition of HFS Unfiltered. And today we are going to talk about everything in what’s happening in the US healthcare. You know, it’s a fascinating space. On one hand, the US healthcare administration is almost a trillion-dollar drag on the US economy. The payer MLR pressure is brutal right now. The provider margins are thin. And you know, on the other hand, the age-old BPO and the outsourcing world of more FTEs, lower cost is plateauing, and as we coined services as software in 2024, that whole market of AI-enabled solutions is starting to kick in. So to discuss all the headwinds and tailwinds, I thought who better than to talk to the CEO of Sagility, one of the biggest pure play healthcare business services companies, Ramesh Gopalan, on what his thesis is on the healthcare market, what Sagility is doing, and really deliberate on the services as software economy and their bet on what they’re calling Synchrony. So, Ramesh, welcome to the show.
Ramesh Gopalan — Group CEO and Managing Director, Sagility[01:08]
Thank you, Saurabh, good to see you.
Saurabh Gupta — President, Research and Advisory Services, HFS Research[01:10]
So Ramesh, let me start by asking you, what do you think is the single biggest operational failure point that you’re hearing from the CXOs of both payer and provider clients that you’re talking to?
Ramesh Gopalan — Group CEO and Managing Director, Sagility[01:24]
Sure, to just give you a context, and you alluded to some of this in your opening remarks. US healthcare is going through a very tough period, if I may say that, right? So there is a huge profitability pressure both on the payers and the providers. MLR, like you spoke about, is pretty high for most of the payers, especially those who operate in the government sponsored plan space, and it’s something that’s a big worry for all the healthcare participants, both payers and providers, right? So that’s something that CXOs are trying their best to wrap their arms around, and the bigger participants, as you know, have done traditional outsourcing for a number of years. I mean, we’ve had clients who’ve been with us since 2000. So the larger players have done this for 20-25 years. They’re pretty mature outsourcers. They’ve taken advantage of all that labor arbitrage could give them, but now they need more. So it’s that which is a struggle, and the whole promise of AI and what it can give is something that everybody is keen to explore, but at the same time, they’ve just scratched the surface, and some of them who’ve run pilots, they feel that they’re not getting the ROI that people promised them. And so we are at that stage where there is a promise of AI, people are desperately looking to take cost out of the system, and still trying to figure out what’s the best way to do that.
Saurabh Gupta — President, Research and Advisory Services, HFS Research[03:05]
Yeah, Ramesh, you’re so right about the whole conversation on pilots. I often joke that AI is going through a death by a thousand POCs right now, where everybody is running a POC in one nook and corner of their organization, but very few of these POCs are scaling up. I know you’re making a big bet on AI-led solutions or what we call services as software with Sagility Synchrony. Tell us a little bit about what that does in a typical healthcare workflow and how is it different, and how does it address some of these problems of scaling AI?
Ramesh Gopalan — Group CEO and Managing Director, Sagility[03:45]
Good question, Saurabh. So if you look at the reason why some of these pilots have not proven successful, it’s because healthcare is complex, right? So it’s very fragmented, and there are multiple workflows, all of which use multiple systems, pretty disparate decision making. And so if you attempt to use AI to just automate steps in a process, that’s a journey that’s not going to yield the ROI that you require. So when we looked at these fragmented workflows, and we’ve been in this business for 25 years, we have deep domain expertise on the US healthcare side. And so we are looking at the critical workflows, for example the whole front-end enrollment, sales and enrollment workflow, or the prior authorization workflow, and we are looking at some of these broken fragmented workflows, and we’re trying to see how do you do an orchestration using AI with domain rules and workflow automation, all bundled in with human expertise also on the same operational layer. And that’s what we are calling Synchrony. For example, if you take the sales and enrollment along with partner platforms, we are looking at the whole value chain starting from bid generation, document submission to CMS, followed by broker and sales management, and then compliant enrollment and billing and so on. How do I look at that overall workflow and how do I bring in, like I said, domain rules and AI intelligence and humans on the same operational layer so that you’re no longer looking at activities and automating distinct steps in the process, but you’re looking at an end-to-end workflow and you’re trying to optimize the outcomes. In this case we think you can easily get a 30-40% reduction in both technology and operational cost, but more than that, the more important metric is how do you improve the revenue uplift, right? So if you can enroll people more compliantly, you reduce the capitation timing loss, you have a better RAF score, lower premium billing errors, all of this adds up significantly, right? So that’s the way we’re looking at Synchrony. And what it also does in a relationship between a payer and a service provider like us, is payers no longer have to pay for activities, right? So the traditional outsourcing model, you give a piece of work, it’s all kind of orchestrated in the systems of the payer, and they pay you by effort. Either it’s an FTE rate or a transaction rate, and that was the traditional model, whereas here you pay for outcomes. So the outcomes in most cases you can price on a per member per month. So it’s a pretty variable cost for the period. And so they know exactly what it is that they are spending. And as a service provider, we tried to optimize by reducing reworks, by reducing the number of touches, and basically using the power of AI to drive some of these end-to-end workflows.
Saurabh Gupta — President, Research and Advisory Services, HFS Research[07:02]
So Ramesh, that’s very exciting, and there are two things that caught my attention. One was, it’s not just about cost. Yes, cost has to be a big driver of it, but you’re also looking at the revenue uplift angle, which is fantastic, because you know costs at the end of the day will be a diminishing return. You know how much lower can you ultimately get. And the other thing that caught my attention was the whole outcome-based pricing model, which practically is another one of those enigmas where everybody promises outcome-based and nobody’s able to deliver on that. But I think what you’re talking about, Sagility Synchrony, seems like a completely different operating model as well. So it’s not just some AI solution, but it feels like you’ll need to rethink your sales motions, your delivery organization, how you price deals. You know the whole narrative around Sagility needs to change. It’s not just some new tool that’s out there. It’s a big shift. Is that a fair observation, Ramesh?
Ramesh Gopalan — Group CEO and Managing Director, Sagility[08:11]
Absolutely right. So it requires change all through the organization. You’re absolutely right. So look, we’ve done the healthcare services business for 25 years. We’ve gained the domain expertise. But if you historically look at how did that expertise manifest itself in the value that we deliver for clients, it’s process improvement. So again, piece by piece, you take a process, you try and optimize it, you do business transformation by optimizing the process, you introduce automation in steps of the journey, and then you also have point solutions, right? These were the traditional ways by which you brought your expertise and added value to the client. But today we are not looking at it as a single or a few steps in a process. When you look at end-to-end workflow, it’s no longer task execution, but it’s more a workflow execution. So that requires a different way that you bring the delivery folks to the table. That’s a different way you apply the domain intelligence to the outcomes. And also the sales motion, you’re absolutely right. How you go to the market, how you position the whole Synchrony value offering, and how you price those deals, all of that needs to change. And so, all of those changes while it’s happening, we are investing a lot in building the Synchrony suite of solutions. It’s reusable IP, but it’s not just done by us alone. So we are dependent on a partner ecosystem. We’re working with some platform players who are also trying to introduce agentic workflows in their software solutions. So it’s a whole change in the way we go to market, in the way we craft these solutions, and also the delivery organization that’s going to stand behind it and deliver the outcomes.
Saurabh Gupta — President, Research and Advisory Services, HFS Research[10:09]
Yeah. So, Ramesh, let’s now flip this. So you talked very eloquently about how your operating model needs to change and is changing. I think the buyers, or your client’s operating model, will also have to change, right? Otherwise, the issue becomes it will be restricted to yet another POC and a pilot, which doesn’t scale, unless they change their operating model as well. So imagine if, let’s say, there is a healthcare payer COO listening to this conversation who has a $200-300 million IT outsourcing BPO portfolio of vendors, hopefully Sagility included in it. What’s your advice to them? What’s the one thing that they should start doing, and what’s the one thing that they should stop doing?
Ramesh Gopalan — Group CEO and Managing Director, Sagility[10:56]
So that’s a good question. While I spoke about how we are changing, I also want to say that look, you can’t be the same to every client. So there are large clients who still want to do some of this internally. So our positioning to them is, hey, let’s be your AI enablement partner. We understand the process. Let’s redesign your workflows. Let’s help you build the business case, and let’s help you implement these solutions. Maybe they won’t transition overnight to a fully outcome model, but at least we can help you through the journey of redesign of workflows. But then when you look at the mid-market and so on, Synchrony as a full suite of solutions may be more applicable to some of those clients. So we’re also looking at it differently for different sets of clients. And to the other question you asked, I mean typically the same conversation that we had around pilots. So our recommendation to client is, don’t just go about trying to apply AI to every problem. Take a look at workflows. All players have these workflows, be it around prior authorization, be it around claims, be it around enrollment. Look at the workflows where you have the most leakage, right? Number of touches, avoidable cost, and identify those workflows, and try and implement a Synchrony kind of a solution. Look at it end to end, use AI-based orchestration, try and identify what are the metrics that you’re going to impact, and then bring in the domain expertise and the humans in the loop, and try that out. Don’t just try to automate steps in a process. Yes, you will get some benefit, but it’s nowhere near the same ROI that you’re expecting. And the other thing is, I mean don’t go about replacing one large platform with another, because that’s not going to solve your problem. So that’s something that we talk to our clients. But then again, like I said, I mean different clients have different approaches, and so our hope is we can be a partner to them either in the design and help them implement, or if they want us to take control of a workflow end to end, we can be the ones taking ownership and being accountable for the outcomes.
Saurabh Gupta — President, Research and Advisory Services, HFS Research[13:30]
Yeah, you’re so right. I think with every technology intervention, and I’ve seen this throughout the 30 years that I’ve been in this industry, you know, a new technology comes in and we use the technology to do the same thing maybe slightly faster, slightly cheaper, and then we say where is the transformation? And unless we resolve some of the process debts that you articulated around the workflows, whether it’s AI or some other magic bullet, it’s not going to solve all your problems. We have to look at those. So I think we’ve talked a lot about scaling AI and outcome-based pricing, operating models, etc. One of the other big questions, Ramesh, that’s swirling around us is the impact on talent. You know at the end of the day our industry is a people industry. Services industry has always been a people industry, and I’ve seen all kinds of geometric shapes being thrown around now when it comes to the talent model. You know it’ll be a K-shaped model, it’ll be a T-shaped model, it’ll be a diamond shaped model, and all kinds of things. Where do you think we are headed as an industry from a talent perspective? If there’s a young guy or gal listening to us, what are their prospects in the future? Let’s say if Sagility Synchrony, I hope and wish it’s very successful and you meet your ambitions, if agentic systems are going to replace the human workflow, where do we go from a talent perspective?
Ramesh Gopalan — Group CEO and Managing Director, Sagility[15:11]
Like I said, healthcare is complex. So while we’re talking about agentic systems, we don’t think any of these workflows will be done purely by agentic systems. There’s always a place for human in the loop. There is judgment, there is clinical nuance, there is regulatory constraints. There are a number of reasons why by design you need to have human in the loop at different points in time. And when we design Synchrony, that’s a core part of the workflow design, trying to figure out what’s the right place for humans to intervene. And also, I mean these agentic workflows are not going to be cast in stone. So you need to constantly monitor the outcomes, and you need to constantly keep improving, which will again require human involvement. So the way we look at it is, look, domain expertise is going to be key, and so that’s what we tell our people. It’s no longer about following a set of instructions and doing things over and over again. It’s how do you bring domain intelligence into play, and how do you elevate your expertise with the help of AI to deliver exponential outcomes? So I think the roles will change, more expertise will have to find its place, but there’s always going to be humans in the workflow. And so we think there is still a place for domain experts and people who understand the industry.
Saurabh Gupta — President, Research and Advisory Services, HFS Research[16:46]
Well, that’s well said. I think it’s about elevating all our jobs and essentially solving the industry problems. It’s not about replacing people with AI. So Ramesh, this has been a fantastic conversation, but before I let you go, if I had the power to grant you one wish, and let’s keep it to the healthcare industry, and let’s just talk about one wish. What would be the one wish that you hope comes true this year?
Ramesh Gopalan — Group CEO and Managing Director, Sagility[17:17]
Look, there’s so much potential, right? And there’s so much promise of what AI can do. I just wish that the industry as a whole, both clients and us, are successful in implementing it, and getting the power that these agentic workflows can get. So I definitely think it’ll happen. I think it’s sometimes a question of in what time frame. So people wish it’ll happen in the next 3 to 6 months. I think given the complexity of the industry, it’s probably going to take longer. But I think in the next 3 to 5 years, I’m very hopeful that at least 50% plus of the workflows in any large healthcare organization will be orchestrated through agentic systems, and that’s the hope.
Saurabh Gupta — President, Research and Advisory Services, HFS Research[18:06]
Fantastic, Ramesh. With that wish and the hope, thank you again for spending some time with us. I really enjoyed this conversation, learned a lot about the healthcare industry, what Sagility is doing, and where we think we can move with realizing the promises of AI. So thanks a lot, Ramesh, for spending some time with us.
Ramesh Gopalan — Group CEO and Managing Director, Sagility[18:29]
Thanks, Saurabh. Thanks for having me on your show.
