IDC: Health Care Most Attractive IT Solution Provider Opportunity7:24 PM EST Thu. Jun. 16, 2011
It's no wonder the health care vertical is such a hot opportunity for solution providers. In no other industry is there growth as explosive behind an opportunity so clearly telegraphed.
That was the message Thursday from Scott Lundstrom, vice president of research for IDC Health Insights, who said that the combination of stimulus funding, health care reform and the move to a post-reform marketplace of more efficiently deployed health care technology resources is creating a massive market opportunity. It's not only an opportunity for investment, Lundstrom noted, but thanks to government regulation, it's also a market opportunity where solution providers are able to say with certainty what customers will be buying and by when they'll need to have bought it.
"We have an evolving market," said Lundstrom, addressing a packed audience of VARs, integrators, vendors, CIOs and analysts at XChange Public Sector in Jacksonvile, Fla. "The requirements of that evolution are well understood and well documented and mandated by government regulation. We have significant investment. We have dramatic consolidation."
Both the payer side -- insurance companies -- and the health care provider side are in transition, Lundstrom noted. With the federal government pouring money into the participant segment of the health care market -- the HITECH bill within American Recovery and Reinvestment Act of 2009 (ARRA) calls for $20 billion in incentives -- both sets of health care organizations have to adapt their technology to meet cost pressures, address a rapidly growing aging population, address staff shortages, consider patient safety and comply with a laundry list of government regulations.
It won't be easy, Lundstrom said.
"Some of the vendors think they're on their way to the gold rush. Many are on their way to the Colosseum," he said, referring to competition in the segment. "This is a tough, tough market."
But the needs are obvious, said Lundstrom, who cited statistics that there are 1.5 million preventable adverse drug events every year that result in some 7,000 deaths of patients, and also an estimated $700 billion in wasted time, energy and resources poured into health care.
The health-care spend overall? Ballooning, Lundstrom said -- there's $2.7 trillion spent in the U.S. on health care, which is now 17 percent of GDP and rising.
A combination of stimulus funds, government regulations and other factors is catalyzing a transformation of health-care organizations into what Lundstrom described as accountable care organizations (ACO).
That transformation means payers have a sharpened focus on controlling spiraling health-care costs, and are dealing with market, product, process and technology fragmentation, and they must be more transparent in how they conduct business. It also means, Lundstrom said, that providers are under pressure to implement electronic health records (EHR), Health Information Exchanges (HIE) and computerized physician order entry (CPOE) systems, make those systems comply with the definition of meaningful use, and drive patient safety and quality initiatives that have penalties for failed performance.
"It's a different business model and it's shaking things up," Lundstrom said.
But the money is there. The total health-care IT provider spend on a global basis is $25.6 billion: a mix of hardware, software and services. Forty percent of that is in the U.S. and expected to be 53 percent by 2014, Lundstrom noted.
"The U.S. market for health care now, on a pure economic basis, is the most attractive single market in the U.S.," Lundstrom said.
Next: The Health Care Organizations To Invest In
Both the payer and provider sides are consolidating, with bigger players picking off smaller players, he said. Many smaller players prefer the acquisition/consolidation route to having to modernize their IT and invest heavily in infrastructure upgrades they may not have the time or money for.
Nearly half the hospitals in the U.S. have fewer than 100 beds, Lundstrom said. Many "don't have the capital to achieve the change [needed] in the necessary amount of time."
That means, he said, that solution providers should focus on the larger accounts and determine who the consolidators are going to be. The top 15 national hospital systems, Lundstrom noted, account for 29.3 percent of the total hospitals in the country, and 27.4 percent of the total beds.
"Any hospital that isn't in economic distress right now is investing heavily in IT, starting at the data center," said Lundstrom, adding that application rationalizing, virtualization and data center consolidation are leading the way for projects.
Many providers, Lundstrom said, have been able to recover about 30 percent of their overall IT budgets by optimizing their data centers and infrastructure -- freeing up money to invest in the CPOE, EHR and analytics systems required of them.
"Anyone who wants to survive is actively engaged in spending big money on IT projects right now," he said, noting that 43 percent of providers are accelerating their investment in EMR to qualify in time for stimulus incentives.
Those investments are heavily core technology- and application-based, from PACS imaging systems to inpatient EHR, business analytics and practice management systems, Lundstrom added.
Some of the best opportunities will come from Integrated Delivery Systems (IDS), essentially networks of health care organizations under a single parent organization that can combine payers and providers. IDSes, Lundstrom said, will be the dominant model for health care organizations in 10 years, and should be in the crosshairs of health care solution providers.
"They do the best, they get the biggest and they live the longest," he said.
Payers, too, have new incentive to make themselves more efficient. Unless President Obama's Patient Protection and Affordable Care Act (PPACA) is repealed, an additional 32 million Americans will in theory have health insurance by 2019, and insurance companies are required to pay out 85 percent of the revenue they take in premiums to actual patient care.
"They need to capture every dollar of savings they can on these transactions," Lundstrom noted.
All of which adds up to a golden opportunity for solution providers: they know what will be required of their customers over the next several years, and therefore know what technologies they need to invest in and how soon they need to acquire those technologies.
More specifically, Lundstrom said, they will be investing in meaningful use technologies for ARRA, including EHR, CPOE and Health Information Exchange. They'll be looking at care management, analytics and clinical decision support technologies, and consume, at a tremendous rate, virtualization -- including server and client technologies -- and turning toward service-based delivery of applications and storage.
It's a powerfully clear sales opportunity, he emphasized.
"Make more money talking to fewer customers with less uncertainty about [what is being] offered to them?" Lundstrom said. "Sign me up!"