Healthy Choice

From the frenetic clatter of a code-blue response to the reassuring thrum of an infant cardiac monitor, technology has become the heartbeat and the lifeblood of modern health care. And the growing vertical opportunities in public hospitals and public-service agencies are helping to breathe new life into flat-lined sales of VARs that sell to the public sector, according to a GovernmentVAR survey.

In GovernmentVAR's first State of the Government Market (SOGM) survey, solution providers indicated growing optimism toward the opportunities available in health care. The survey polled 260 VARs on buying trends in government and education, and how those trends affect selling strategies. On the whole, respondents concluded that today's government arena has fewer windfalls but more long-term opportunities to offer those capable of being primary influencers and trusted advisers. And nowhere are those roles more vital than in the health-care sector (read "Advocates For Efficiency).

According to industry experts, VARs' optimistic take on public health is well-founded. Health care makes up nearly one-seventh of the U.S. economy, and much of it is funded, in whole or in part, by government agencies and programs. Phoenix Health Systems' Healthcare Information and Management Systems Society (HIMSS) survey, published in February, revealed that 22 percent of health-care providers are implementing return-on-investment initiatives related to such issues as federal HIPAA privacy mandates and security standards. Nearly 90 percent of those providers expect to expand their use of standard electronic transactions, computerized practitioner order-entry and conversion to electronic medical records.

In the security realm alone, 55 percent of the HIMSS survey's 324 respondents said they are now compliant with HIPAA security requirements. The majority of those who have yet to comply said they anticipate full implementation of the security standards within six months. Much of the compliance work requires technology investments.

And if HIPAA compliance issues aren't motivation enough, the Bush Administration in 2004 set a goal of having all patient medical records handled electronically within 10 years.

At GeminiTech LLC, a Waipahu, Hawaii-based VAR that focuses on technology solutions for education, and state and local government, public health-care customers are appearing on the radar.

"We'll definitely be expanding the work we do to provide [such things as] tablet-PC mobility solutions within the health-care industry," says GeminiTech CEO Karen James. "We see this as an attractive business strategy because it focuses a significant portion of the revenue on value-added services such as software customization, business-process-re-engineering consulting and training."

Like GeminiTech, some four in 10 VARs that sell to the public sector say they are already selling into the health-care market, according to the SOGM survey. Those that are said they get slightly more than 12 percent of their total revenue from the health industry. And like James, 42 percent of VAR respondents currently involved with health care said they plan to increase their focus on that sector. About half said they will maintain their current efforts in that vertical, while only 8 percent said they expect less health-care business in the future.

"The health-care industry is coming off of what was a long period of reactive decision-making because of HIPAA and all of the IT complexities that it generated," James says. "We are seeing more health-care providers, both large and small, be proactive, especially in the use of mobility solutions now that the infrastructure has stabilized."

James' observations match those of other VARs.

"HIPAA has opened up opportunities in the health-care segment in the areas of security, identity management, storage and communications, all of which play to our strengths," says Art Sands, COO of AC Technology in Dulles, Va. "Many organizations will be upgrading their current infrastructure to comply with HIPAA, and that is what makes it a very attractive market."

Robert Deitz, president of Government Technology Solutions (GTS) in Shingle Springs, Calif., says he's "increasing efforts in state and local government, as budgets are now on an upswing after being down the last three-plus years."

While GTS won't be focusing on health-care sales, Deitz says he thinks technologies that improve security and privacy will generate the most interest in the health-care vertical. "Identity management is a big area," he adds.

NEXT: Health-care customers with the most potential for growth.

Public-sector health care covers a broad spectrum, according to SOGM respondents. Nearly three-quarters of VAR respondents said they get the majority of their revenue in that space from publicly owned hospitals. Health- and human-services organizations ranked second in the survey for current revenue, followed by research institutions, public-health clinics, veterans-affairs offices, Medicaid, Medicare and nonprofit charities.

Asked to rank the public health-care segments for revenue growth potential, the SOGM respondents kept the list in the same order, with public hospitals outpacing the rest by a wide margin.

"Everything that applies to the private sector applies to public hospitals in terms of need. The difference is that public hospitals have lower margins and, therefore, less money to invest in things such as technology. That's the nub of the problem," says Betsy Carrier, vice president of education and operations at the National Association of Public Hospitals and Health Systems (NAPH) in Washington. "Those things that offer a quick return on investment get the most attention and are implemented first."

Carrier says the NAPH last year completed a report that shows its member hospitals have made progress implementing clinical applications in radiology and lab-management information systems, but were lagging behind their private-sector counterparts in the larger and more important areas of electronic medical records (EMRs), clinical data repositories (CDRs), and picture archiving and communication systems (PACS). While 90 percent of NAPH members ranked EMRs, CDRs or PACS as highly important technologies, only half had either installed or were in the process of installing EMRs in the inpatient, ambulatory and emergency-department settings.

"It is a little early in the year for a good analysis, but I believe there are more health-care facilities coming to solution providers at a greater rate than other verticals because the health-care industry is much farther behind in technology than other segments as a whole," Sands says. "They need more assistance in implementing complex enterprisewide solutions like new security policies, identity management, access controls, etc."

James certainly sees public hospitals as the sweet spot in health care. "I believe that public-sector hospitals will be making the next significant investment within the health-care segment," she says. "Where private facilities had to prioritize technological automation to increase profit in the wake of HIPAA, public hospitals tend to take a 'make due' position due to lack of funding. Now, however, with commercial, off-the-shelf solutions coming down in price and into the mainstream, I believe that public hospitals will be taking a second look at the more successful commercial installations and attempting to seek public support for their funding."

"I believe that public hospitals, health clinics and research institutions are the sweet spots now," Sands says. "The dollars in this segment will come from the need to comply with HIPAA, which will be reflected in the increased acquisition budgets of their IT departments."

NEXT: Why public funding is vital.

The NAPH says public funding is vital, especially with regard to President Bush's electronic-records mandate. Public hospitals will require targeted funding to help them keep pace with IT investments being made in the rest of the hospital industry. With average operating margins of just 0.4 percent, public hospitals often lack the working capital to reinvest in infrastructure and technology with government subsidies.

Dr. David Brailer, named by Bush in 2004 as the National Coordinator for Health Information Technology specifically to oversee the 10-year electronic-records initiative, has said that funding for such health IT rollouts needs to be a public-private partnership. His department's request for $50 million for regional initiatives was cut out of the omnibus spending package approved by Congress last year. Brailer resigned last month, but before he left office, the Health IT czar said he remains confident in the administration's commitment to improving health care through technology.

"We have seen many industries have long-term conversions to new ways of doing business by using IT, and much of the sustained productivity improvements in our economy come from the dividends we're reaping from that," Brailer told the House Ways and Means Committee. "Health care has lagged behind."

Industry insiders praised Brailer's leadership and vision for a national health-information network.

"Dr. Brailer's strong advocacy in Washington for a market-based approach to creating health-information-exchange networks, and his pioneering work on the Santa Barbara Care Data Exchange project, all played an important role in motivating California's health-care leaders to come together just over a year ago to create and provide initial funding for [the California Regional Health Information Organization]," says Jo Ellen Hylind Ross, CalRHIO board chair and president and CEO of Lumetra.

The SOGM survey shows that the ratio of new-customer revenue to existing-customer revenue is greater in health care than in VARs' overall public-sector business. New customers make up 41 percent of health-care revenue, while traditional government and education sales are attracting only 37 percent of their revenue from new engagements.

But those new health-care engagements often require no small amount of hand-holding, as many VARs are discovering. Experts say it's fear that tends to keep the medical community on the technology sidelines even when the players know they have to get in the game.

HIMSS analytics vice-president Jack Price recently told the House Committee on Small Business that physicians are skittish about technology being expensive and difficult.

"We conducted a random sampling of 2,500 physician-group practices across the country," Price said. "When asked if the practice had a Practice Management System for billing, 100 percent answered yes. But when asked if the practice had an Electronic Medical Record System/Electronic Health Record, only 26 percent said yes. We then asked the 74 percent who do not have an EMR-EHR if they plan to purchase [one] in the next 24 months; 75 percent said no."

Price also said that health-care organizations are most concerned about the cost of software, hardware, implementation, training and support. The amount of work associated with implementations can be daunting and disruptive to the practice as well, he added.