VAR Checkup: Health-Care IT Market Booms
"It's like a land grab," said Richard Taylor, national sales manager at ScImage, which expects sales growth of as much as 40 percent this year. "More and more hospitals are getting rid of film altogether and going to digital storage and online management of images. We've passed the inflection point where it's cheaper to go all digital vs. [standard] film, causing the whole business opportunity to explode."
Taylor says ScImage, Los Altos, Calif., and competitors are moving quickly to get in front of buyers ready to embrace health-care digital imaging technology. "Everyone is running as fast as they can because they know once a customer buys a solution they're not going to consider taking it out or replacing it for at least four or five years," he said.
Solution providers say that in the medical imaging arena, where radiologists, cardiologists and orthopedic physicians are demanding the use of digital images rather than labor-intensive X-ray-based systems, it's a perfect storm. The return on investment for medical imaging solutions is as little as a year when the cost savings associated with standard X-rays are included, said Taylor. The operational efficiencies gained from moving to an imaging solution are as much as 30 percent. And the return on investment doesn't include the improved ability for diagnoses, given the use of high-speed scanners that can generate sharper and clearer images.
ScImage's sanguine outlook for 2007 is not unusual in the health-care vertical. Health-care-focused solution providers say they expect to see double-digit growth in sales with healthy margins in a business that is booming in areas as diverse as digitization of X-rays and medical records to voice-capture systems. They say the vertical requires a significant investment but pays off in good margins and less competition than in the corporate marketplace. And the future looks bright well beyond this year.
BCC Research expects the U.S. health-care IT market to grow from $18.5 billion in 2006 to $34.7 billion in 2011, a 13.4 percent average annual growth rate. The firm also says less than one-third of U.S. hospitals and less than 20 percent of physicians have any electronic-data-handling capability.
One reason for the surging market is solutions that were at one time multimillion-dollar investments have come down in cost and are now being embraced by smaller community hospitals and medical care groups. And with the cost of once-high-priced storage systems plummeting, hospitals are moving to complete digital solutions, said Taylor. One sign of the times: a push by all the major storage vendors into the SMB market with entries from the likes of EMC, Network Appliance, Hewlett-Packard and even IBM, which in January unveiled the System Storage DS3000. That low-priced storage offering is making digital solutions more economical in smaller hospitals and health-care organizations.
Taylor said products like the IBM DS3000 are helping to break open the health-care imaging market. "That's hugely important," he said. "If you can get 3 Tbytes of RAID 5.0 data storage for under $15,000, that is a very attractive price point," he said. That low-priced storage is critical since the next big move is to have all of the medical images available in an online environment accessible in an instant from a handheld or a PC.
With this comes a big opportunity for solution providers: disaster-recovery services aimed at securing and protecting those images and medical data. Taylor says clients that do not use ScImage's disaster-recovery service are not diligent about backing up data and several times a year end up losing some data that is irretrievable.
Although the health-care imaging market is exploding, solution providers say there is still a lot of work to be done to make electronic medical records instantly available, due to the lack of standards for sharing data among doctors and hospitals.
One of the most overlooked aspects of the Health Insurance Portability and Accountability Act (HIPAA) of 1996 is the national drive toward the portability of medical records, said Brian Deeley, manager of Graymar Business Solutions, a Timonium, Md.-based solution provider focusing on the health-care market. "Everyone thinks of HIPAA as locking down medical records," he said. "No one thinks of the portability of medical records. Locking down records is only one part of the act." Sometimes having those medical records available instantly can mean the difference between life and death, said Deeley.
And there is still a long way to go before the portability of medical records is a reality, say solution providers. "We are nowhere near where we should be yet," Deeley said. "There is still a lot of opportunity."
Graymar is attacking portability with a voice-capture solution that is priced anywhere from $400,000 to $1 million for a complete end-to-end offering that allows doctors to dictate reports, integrating them into the standard phone system and making them instantly available. The return on investment for a hospital or medical group is huge: A radiologist reading X-rays can go from writing six or seven reports an hour to dictating as many as 12 to 15 an hour, said Deeley. "Because of the reduction in employee costs, it's not hard to see a complete return on investment in as little as 18 months," he said.
That ability to increase efficiency by as much as 50 percent is paying off. This year, Graymar expects to double sales of its voice-capture solution. "We're very optimistic," Deeley said of the 2007 outlook. "Portability of health records is a hot issue, and having voice capture and transcription makes it easier for the portability of those records."
The market has come a long way from 10 years ago when Graymar first got into it, said Deeley. "This is no longer a niche market," he said. "It's no longer 'Star Wars.' Doctors are comfortable with using the technology. It's definitely getting easier to make the sale. There's much greater awareness of the technology solutions for health care." Because the purchases usually come from a capital budget outlay, the typical sales cycle, though, runs from eight to 14 months, he said.
Deeley says the biggest obstacle in closing a deal is getting all the appropriate parties to sign off—from the doctors to the IT staff to the hospital administrators. Many hospitals are still looking at information technology as a service, like building maintenance, rather than as a profit center to drive increased efficiency in operations, said Deeley.
Deeley says that having a health care business made all the difference during the dot-com meltdown when a number of solution providers closed their doors. "We really didn't have that concern," he said. "We had vertical businesses like health care that sustained us."