This applications market sizing report analyzes the 2009 performance of the top 10 applications vendors in the healthcare vertical, which presents considerable growth opportunities for technology providers because of government subsidies and demographic shifts that favor continuous investment in healthcare-specific solutions to boost quality of medical care in rich and poor countries alike.
Electronic health records, coupled with health information exchanges for clinical data connectivity, have begun to revolutionize how healthcare service is being delivered and information is aggregated and disseminated to the key stakeholders. Applications vendors in turn are jockeying for the best position to capitalize on such opportunities that in many cases are manifesting themselves globally with increased collaboration among governments and healthcare providers.
Top Line and Bottom Line
On the top line, as aging population becomes the norm in industrialized nations, healthcare spending has skyrocketed. United States, with the most lavish healthcare spending in the world, already spends about 17% of its GDP on healthcare. Japan, with the oldest population among developed countries, could be spending 18.2% of its GDP on healthcare by 2050, compared with less than 10% currently.
Disease control, preventive care, home-based healthcare have emerged as the new paradigm shifts to contain healthcare spending, while both government and private-sector organizations from hospitals to insurance carriers have made electronic connectivity the centerpiece of next-generation healthcare services. The US government is dangling billions of dollars in front of physicians as incentives and subsidies as long as they put healthcare information technology into meaningful use.
All these initiatives will have far-reaching implications for the healthcare industry and the applications vendors are gearing up for their share of the bonanza.
The bottom line is that structural changes may be sweeping across the healthcare vertical, which remains labor intensive and hidebound to a fault(judging from the number of paper forms a patient has to fill out before receiving care). In other cases, it is fraught with administrative and business process challenges because of the life-and-death as well as the legal risks involved. If only half of these changes from electronic health record to universal healthcare coverage is carried out, the amount of cost-saving and quality boost for healthcare providers and recipients could be staggering.
The market for applications for the healthcare vertical rose 4% in 2009 as healthcare providers and physicians switched from indecision to action against the backdrop of the passing of the landmark legislation on healthcare reform into law in the United States.
The promise of the long-awaited healthcare reform might have already sowed the seeds of a series of IT initiatives that hospitals and physicians have been contemplating and the passage of the bill simply made their decision-making process much more deliberate.
Applications vendors have been preparing for a significant increase in their sales over the next few years as the American Recovery and Reinvestment Act, which helps fund the expanded use of healthcare information technology, begins to open up the spigot.
For example, Compugroup, which until recently was selling healthcare-specific applications to hospitals and physicians in Europe, expanded into the US market by paying €8.6 million for the majority stake in Noteworthy Medical Systems for its ambulatory healthcare applications in America.
Similarly iSoft and Quality have expanded rapidly through acquisitions with the former establishing a credible presence among hospitals and physicians in Latin America and the Middle East and the latter setting its sights on small and rural healthcare facilities in the US.
The rolling of Misys Healthcare into Allscripts in 2008 also paved way for the combined firm to leverage each other’s strengths to create end-to-end solutions for hospitals and physicians. The strategy appears to be working by combining Allscripts’ electronic health record offerings with Misys’ physician practices applications, along with connectivity support that integrates the two to streamline workflow and optimize revenue management for providers. In the first quarter of 2010, Allscripts saw a 39% jump in earnings on a 12% rise in sales.
The blockbuster merger between Allscripts and Eclipsys – announced in June 2010 – underscores the fierce battle among the key healthcare applications vendors all vying to dethrone McKesson and Cerner through high-stakes mergers and acquisitions.
The good news comes at a time when global economic recovery is still tentative at best, suggesting that the healthcare vertical may well become one of the most dependable areas for applications vendors to exploit new and untapped opportunities.
Implications Of The Great Recession of 2008-2009
The passage of the healthcare reform legislation signaled the willingness of the public to consider an alternative to the quagmire that prevented millions of uninsured Americans from getting healthcare coverage, which in itself was a major milestone.
From that standpoint alone, the number of future customers(or patients in this case) could explode, resulting in additional revenues for healthcare providers. Major healthcare providers such as Tenet and HCA are expected to be leading the charge to capture such opportunities, which may require them to make incremental investments to handle the extra workload. Already HCA has announced its plan to go public in order to raise $4.6 billion.
The enlarged marketplace is likely to bode well for applications vendors even though such incremental investments may not be apparent for quite some time due to the slow pace of moving projects forward in a traditionally risk-averse industry.
Then there is the government fund that many expect could reshape how hospitals and physicians conduct their business through much of the decade.
The government subsidies offer anywhere from $44,000 to $64,000 per physician when adopting new healthcare information technology and putting it to meaning use. That alone could mean substantial revenues for applications vendors over the next few years, meeting the demands of the 800,000 US doctors, many of whom are still sitting on the sidelines when it comes to bringing electronic health records into their practice.
What that suggests is that the recession has resulted in a quiet revolution in the healthcare vertical, something that has been brewing for a long time and its impact on the applications market is expected to become much more apparent as technology use becomes standard practices among healthcare providers and physicians.
While the HCA and the like will be among the biggest spenders in new applications for their employees, smaller healthcare providers are also expected to ramp up their infrastructure investment in order to compete for business as industry consolidation is likely to be on the upswing.
Another major area of investment for hospitals may well be the healthcare supply chain because of the increased pressure to hold down the costs of supplies, pharmaceuticals and other indirect materials purchases. A greater emphasis on internal procurement applications could spark a wave of implementations among smaller and independent hospitals that need to find an alternative to using traditional group purchasing organizations such as Novation and Premier.
Around the world, applications implementations will be driven by fast-growing economies where quality healthcare is still lacking. The same applies to the increased popularity of medical tourism, which could spawn more investments on the part of these hospital facilities in remote places to improve their billing, customer care as well as mission-critical clinical systems.
Top 10 Applications Vendors In Vertical
The following table lists the 2009 shares of the top 10 applications vendors in the healthcare vertical and their 2008 to 2009 applications revenues(license, maintenance and subscription) from the vertical.
|Vendor||2009 Share(%)||2009 Applications Revenues From|
|2008 Applications Revenues From|
|Allscripts-Misys Healthcare Solutions||5.6%||396||400|
|GE Healthcare Technologies||5.1%||360||380|
|Quality Systems, Inc||2.5%||175||137|
Vendors To Watch
Even though software as a service represents a small part of the market, its growth is expected to accelerate with the increased acceptance of on-demand healthcare applications for everything from electronic health record to clinical systems and from billing to analytics from vendors such as Athenahealth, eClinicalworks and EMIS.
Other vendors worth watching include Aprima for its successes in selling EHR applications into independent and group practices, as well as Cegedim Dendrite for its dominance in certain markets such as France, which could serve as a springboard for its expansion throughout Europe.
Ambulatory care, or out-patient services, will become increasingly important for healthcare providers as a growing source of revenue as well as a differentiating factor aided by technology advances such as minimally invasive surgery procedures that render hospital stays discretionary. Demand for applications designed for ambulatory care facilities will rise as a result.
Another trend to watch is the home-based medical care market. For example, GE Healthcare struck a deal with Mayo Clinic and Intel to develop an in-home monitoring system for seniors by using a combination of technologies from clinical and video conferencing systems, extending the use of GE’s healthcare applications beyond the confines of hospitals. Both GE Healthcare and Intel plan to invest $250 million over the next five years for the research and product development of home-based healthcare technologies.
If that succeeds, it could presage the development of a new wave of healthcare applications that could have major ramifications for the entire industry.
As healthcare assumes a greater percentage of the global economic output, the debate will pivot around the quality of healthcare providers as well as the efficacy of healthcare information technology being used to achieve consistent results, both of which would mean greater use of analytics to determine how and where healthcare should be delivered. If home-based monitoring catches on, that could render many procedures being done at a hospital obsolete saving time and money for all the stakeholders involved.
On the upside, the healthcare vertical is reaching an inflection point where much of the growth will be based on how well these applications – ranging from EHR to on-demand clinical systems – meet the present and future requirements of hospitals and physicians. Once that critical mass is reached, it is difficult to fathom the size of the cumulative opportunity.
On the downside, many of the applications vendors are still waiting to get their systems certified for the meaning use clause in order to achieve the seal of approval from the Office of the National Coordinator, which is a part of US Department of Health and Human Services. Any delay in getting the certification could hamper their growth in the short run.
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Healthcare Market Report 2009-2014