4 strategies focused on health IT

Acquisitions and other strategic moves position the largest government contractors for growing health-IT opportunities. Are you working to capture this market?

When General Dynamics acquired Vangent Inc. last summer, the company not only gained new technical capabilities and a portfolio of contracts in the government health information technology space, it landed a top-tier executive with health IT expertise to guide its growing presence in that slice of the market.

7.5 percent growth predicted

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Kerry Weems, who headed Vangent’s health solutions division, moved over to General Dynamics Information Technology after the merger and became vice president of General Dynamics IT’s Health Solutions Sector. Prior to his tenure Vangent, Weems spent 28 years with the federal government and was administrator of the Center for Medicare and Medicaid Services and vice chairman of the American Health Information Community. During that time, he implemented the Medicare e-prescribing program, started pilot projects in electronic health records and personal health records and implemented landmark payment reforms, including non-payment for certain medical errors.

The Vangent acquisition “extends GDIT’s reach and capability across the full range of the health market,” Weems told Washington Technology. Vangent brought to General Dynamics IT proficiency in health informatics and information exchange, electronic health records and data analytics. And it supported health customers at the Centers for Medicare and Medicaid Services, the Food and Drug Administration and the Centers for Disease Control, among others.

From a broader perspective, General Dynamics’ purchase of Vangent represents a case study in the strategic market positioning that is occurring among large government contractors as patterns of federal spending undergo dramatic changes.

While deep cuts in Pentagon budgets lie ahead — President Obama in January announced a new military strategy that will reduce defense spending by hundreds of billions of dollars over the next decade -- government investments in health care IT are soaring.

A recent GovWin IQ study released by Deltek Inc. predicted that federal outlays on health IT will reach $6.5 billion by 2016 compared to $4.5 billion last year, representing an annual compound growth rate of 7.5 percent. By contrast, government spending on non-health-related IT for the same five-year period is expected to be about 1.1 percent, according to the report.

The principal drivers of the intensification in government health IT spending include funding for in electronic health record programs, IT infrastructure modernization and transformation of payment systems, all of which buttress government goals of increasing efficiencies in the health care system while reducing costs.

For large defense contractors, buying a company that specializes in health IT is a way of quickly breaking into the government health market. ManTech Corp., for example, in January acquired Evolvent Technologies Inc., a health care systems integrator with a customer base in the departments of Health and Human Services, Defense and Veterans Affairs.

ManTech has historically used acquisitions to extend its offerings to new customers in its strategic plans. “Over the years, we have moved into a few major markets as the government shifts investment priorities,” said Terry Ryan, president and chief operating officer of ManTech’s systems engineering and advanced technology group. “Over the past couple of years we have actually double-downed on our expansion efforts to secure new capabilities around cyber, security and systems integration. These acquisitions have expanded our core in defense priority programs.”

Ryan added that the company is “keenly aware of the impact that defense cuts will have on our sector but we have been monitoring HCIT commercial and federal spaces for some time and waited for the right time and right platform company.”

“Across the company, we will continue to acquire key assets that help us achieve new positions in emerging markets,” he added. “Today we are assessing candidate HCIT companies that offer new customer relationships and new capabilities that can expand the base of Evolvent platform.”

Lockheed Martin Co., the largest federal contractor and a 20-year veteran in the government health sector, is still enhancing its position in health care through strategic acquisitions. Last August, Lockheed Martin acquired QTC Holdings Inc., a major provider of medical evaluation services to the federal government and the Veterans Affairs Department. Lockheed Martin officials described QTC’s IT-enabled case management services and health care expertise as “a perfect fit” with the company’s information systems and global solutions business.

“Acquisitions are an important tool in any strategy,” said Glenn Kurowski, vice president of health and life sciences at Lockheed Martin. “We will continually be scanning and continuously be selective in assessing targets that can help us serve those customers. Clearly, QTC was part of a strategy that we’ve had in place for a number of years…for us to expand in the markets that make sense for our business model and expertise.”

Kurowski said that Lockheed Martin’s expansion in the health IT market is not a response to impending cutbacks in government spending on defense and aerospace systems, which constitute a significant portion of the company’s business.

“We’re a global security company,” he said. “We focus on national imperatives. Health is one. The focus on health in our culture has become much more intense. The imperative to reduce overall spending health is the factor in why we’re focused [on health]. We have done decades worth of work with this customer set but now as a country we have a more heightened focus on it, which puts the limelight on us a little more.”

Northrop Grumman, another large federal contractor, is also an established player in the government health IT segment, especially in the area of electronic health records systems and interoperability. Nonetheless, company officials are seeking elevate its health IT brand.

“We’re being more out there with what we’re doing,” said Amy Caro, vice president of health IT programs at Northrop Grumman. “Health has been part of the DNA of Northrop because we’ve been in [the health] business for 20 years. So we’re just trying to get the name out there, what Northrop is doing with the business. Our customers know it but new, potential customers do not.”

Moving forward, a big part of Northrop Grumman’s strategy in the health sector is “advancing and innovating the future of health care,” Caro said. “We’re looking ahead five years: how can we bring in new technologies [such as] mobile technologies and big data analytics? We do big data elsewhere for customers so how can we bring that into the health space? Because we do the full spectrum of things as a systems integrator, we’re looking at where [the opportunities] are and where we can drive the value and satisfy customer challenges.”

In this regard, the large, multi-capability, multi-part technology companies have an advantage over smaller firms in building their health IT businesses because they can leverage expertise from other divisions of the corporation, sources said.

Northrop Grumman is prime example. “We’ve always looked forward in advancing the future of health care and in bringing new technologies into this space—some of it from other parts of the business,” Caro said. Leveraging expertise from other parts of the company also gives Northrop Grumman the ability and agility to move quickly on new contracts. “With these tight timeframes and tight budgets going on right now we’ve been able to successfully deliver,” Caro said.

No matter what strategies companies are deploying to solidify or expand their operations in the health sector, they have to make sure they’re bringing cost-effective innovation to their health IT projects and programs to achieve success.

“The time frames are extremely tight and you have to make sure you’re delivering on those timeframes,” she said. “You always have to bring your ‘A’ game for your implementations because performance is a must-have to grow in this business.”