Report: State and local health care market booming

Spending on information technology for state and local government health care will increase by 50 percent over the next five years, according to a new study, growing from roughly $6 billion in fiscal 2005 to more than $9 billion in fiscal 2009.

Market research firm Input Inc. reports the sharp increase is driven by requirements for greater inefficiencies in health care administration, as well as continued investments in Medicaid Management Information Systems. The advancement of electronics record management also will fuel more health care IT expenditures.

Medicaid is still the primary market driver, the report said. "Double digit state and local health care spending has continued unabated for the past 10 years," said James Krouse, state and local market analysis manager for Reston, Va.-based Input. "This number represents administrative charges plus benefit allotments."

Krouse said as state and local governments are being forced to manage such costs more stringently, they are looking to cut costs by consolidating and centralizing operations and systems.

Another key market driver is the movement toward electronic records. The Health and Human Services Department recently announced a new program to research costs and resources associated with transforming paper-based medical records into digital computer-based records. As the program matures, it will contribute significantly to growth in the health care arena, with initial efforts likely to be seen as early as fiscal 2006.

Input expects that during the next three years, state and local governments will outsource a considerable chunk of work associated with consolidation, records management and federal compliance issues to the private sector.

"The cost vs. benefit decision definitely favors transferring systems and direct administration responsibilities to private-sector partners under long-term contracts," Krouse said.

The outsourcing trend should remain strong through fiscal 2007, when budgetary pressures eventually constrain the Medicaid program and curtail spending increases. But right now, "there is an excellent opportunity for industry to reap the benefits of state and local health care IT outsourcing," Krouse said.

To download a summary of the report, go to http://healthcare.input.com.