Health Care: Big Health Care IT vendors benefit from Stimulus Dollars

In 2005, RAND researchers estimated that replacing paper records with digital ones for health care would result in savings exceeding $80 billion over the course of a decade.  Similar studies in the same time period concluded that there were additional benefits beyond monetary that could come from the use of digital health care that include better preventive care and management of chronic disease.

Not much activity happened in the area of health care until 2009 when President Obama signed into law the American Recovery and Reinvestment Act (ARRA).  The entire package includes total stimulus funding of $787 billion.   Part of the bill, the Health Information Technology for Economic and Clinical Health Act or HITECH act, included an earmark of $30 billion for health care which later was reduced to $19.2 billion.  President Obama promised to spend $50 billion on health care over five years, of which $17 billion  was designated to be made available to providers and physicians through Medicare and Medicaid.

HITECH act stimulus funds have been a boon to vendors in the health care IT space — at least for some vendors.

Julie Creswell, reports in a New York Times article that some vendors have done very well indeed, but breaking into the health care space isn’t easy.  For example, at the company Allscripts, sales have nearly tripled from $548 millino in 2009 to $1.44 billion in 2012.  As another example, at Cerner Corporation, sales rose 60 percent.  Creswell comments that “with money pouring in, top executives are enjoying Wall Street-style paydays.”  But some question the fairness of the spending distributions.  The Times article cites information from OpenSecrets, that Cerner, for example, spent in excess of $400,000 in government lobbying, and their spending on lobbying has been steadily increasing.  Creswell writes that “Executives at smaller records companies say the legislation cemented the established companies’ leading positions in the field, making it difficult for others to break into the business and innovate.”

But startups are certainly giving it a try to break into the health care IT space.  In 2012, there were more than 163 venture capital deals totaled to more than $1.2 billion.  That’s up from $480 million and 49 deals in 2011 and $211 million with 22 deals for 2010.

Raj Prabhu, managing director of Mercom, said that “There’s a lot of money going into health IT, especially the technologies that are consumer-focused: telehealth, personal health, social health, mobile health.  The majority of the money still goes toward health care provider-centric technologies. But it’s almost balanced 50-50 now.”