Government health IT market shows steady growth

Sector has experienced feverish pace of contract award and acquisition activities

In recent weeks, the action in the federal health information technology market can only be described as feverish — new multibillion-dollar acquisitions announced, millions of dollars in task orders awarded, companies gobbling up health IT developers, and federal health regulators churning out new rules, standards and guidelines at a breathless pace.

Preparing for the coming health IT spending, companies went on a small shopping spree. Smartronix Inc., better known for its cybersecurity and network operations for Defense Department customers than its health IT practice, bought Cogon Systems Inc., which, not coincidentally, developed the virtual health network platform for health information sharing that DOD uses.

The growing government health IT market was a significant driver in Vangent Inc.’s $65 million acquisition of IT infrastructure and analytics developer Buccaneer Computer Systems and Service Inc. Even strong players in the market, such as UnitedHealth Group subsidiary Ingenix Inc., are feeling the draw. In the past month, Ingenix swept up three health IT providers: Axolotl Corp., Executive Health Resources and Picis Inc.

But perhaps the biggest acknowledgment of the burgeoning market was CGI Group Inc.’s $1.1 billion, all-cash deal for Stanley Inc., which more than doubles the size of CGI’s U.S. government business and, for the first time, gets CGI into the defense market on a large scale. Health care is one segment of the market in which the combined government businesses will have broader opportunities than CGI or Stanley could tackle on its own, said George Schindler, president of CGI Federal.

Spend, Spend, Spend

Both CGI and Stanley have collected government health IT contract awards in the past month. Through the National Institutes of Health’s Chief Information Officers Solutions and Partners 2 governmentwide acquisition contract, Stanley won two time-and-materials contracts from the Health and Human Services Department to upgrade the Nationwide Health Information Network (NHIN). A third award from HHS, to help enroll participants in the NHIN Exchange, brought the total value to $21 million.

In August, Montreal-based CGI Group picked up a $46.2 million award from eHealth Ontario, an agency of the provincial government, to help improve diabetes care.

Vangent won a nine-month, $2.4 million award to develop Block 3 of the Electronic System for the Early Notification of Community-based Epidemics for the Defense Health Services Systems Program Office in support of the Military Health System.

More federal spending on health IT is in the works. NIH released a presolicitation Aug. 17 for its $40 billion new GWAC, CIO-SP 3, a follow-on to the $20 billion CIO-SP 2. The announcement followed months of suspense as to whether the Office of Management and Budget would extend the agency’s designation as a GWAC host. OMB gave the agency the nod in July, based on agencies' needs with health-related responsibilities, including those affected by the new health care law that is revamping the health care system.

However, not everyone is completely thrilled at the prospect of CIO-SP 3. NIH “never hit the ceiling on their last contract, so it’s hard to say how big those contracts are,” said Amy King, vice president of health IT programs at Northrop Grumman Corp. The contract did a little better in the first quarter of 2010, collecting more than $100 million in orders for CIO-SP 2.

Many agencies also issue their own indefinite-delivery, indefinite-quantity contracts for health IT, King said. That means contractors must prepare proposals and bids for individual task orders, a time-consuming and expensive operation. Those costs inevitably are passed on in some form to taxpayers. “Why does everyone need their own?” King asked. “Why can’t HHS have one and have all its [subagencies] use it?”

The Veterans Affairs Department will have its own health IT acquisition vehicle, to be known as Transformation Twenty-One Total Technology. Seven of the 15 prime contracts will be reserved for veteran-owned small businesses to open opportunities for them to support VA. T4 will be worth as much as $12 billion over five years.

The agency also will decide by year’s end how it will modernize its Veterans Health Information Systems and Technology Architecture (VistA) record system, which could be a huge IT undertaking. VA canceled the $400 million project in July.

However, not all funding is so direct. HHS has been doling out $2 billion to 60 regional health IT centers and state health information exchanges that are tasked with helping primary care providers and hospitals — as many as 100,000 during the next two years. The bulk of the total awards, $17 billion, will go to doctors and hospitals who buy and meaningfully use the digital systems.

In July, the Centers for Medicare and Medicaid Services (CMS) released the final rule on the electronic health record incentive programs and definition of meaningful use. That money will start to flow to hospitals in October and doctors in January.

The rules, including those that the Office of the National Coordinator for Health IT released for a temporary health IT technology certification program, will change when the office issues the final rule on the permanent certification program, scheduled to begin operation in 2012, as provided by the Health Information Technology for Economic and Clinical Health Act.

“Depending on the day, there are all kinds of things going on, at ONC, at CMS, at NIH,” King said. And don’t forget the states. “They have to have a lot of changes to their systems in place by 2014, and some of them haven’t even started planning, let alone put out requests for proposals. There’s a lot that’s going to be going on.”

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