TECHNOLOGY: How much is really being spent on IT?

A recent spate of studies is out on health care IT spending. iHealthbeat had an article about Forrester Research’s report on health care IT spending, which they think will be $61 billion in 2004. Their estimate is that 3.7% of health care revenues are spent on IT, while for hospitals it’s 5.5% of revenues. Interestingly Forrester says that the rate of increase for hospital spending on IT is less than 2% a year, which sounds dubious to me, but maybe the big increases were earlier in the decade.

This all somewhat contradicts an earlier June 8 iHealthbeat story which bundled together several different studies, including those from Datamonitor and the (newly bought by HIMSS) Dorenfest organization. All these studies showed that the rate of growth in the health care IT market was pretty strong:

    The most recent survey from analyst firm Datamonitor found that 66% of U.S. health care providers plan to increase their IT budgets by more than 10% by 2006. In addition, analyst firm Gartner predicted that IT spending would grow to $47.9 billion in 2006, up from $34.1 billion in 2001. Research firm Sheldon I. Dorenfest & Associates predicted that the growth in health care IT spending would outpace that of other industries, growing from $23.6 billion in 2003 to $30.5 billion in 2006.

While all of these totals somewhat disagree and are all measuring somewhat different things, my rule of thumb was that the total health care IT vendor market back in the late 1990s was around $20 billion (or 2% of the total $1 trillion spent). $65 billion out of $1.6 billion is only 4% of all spending (still way less than the oft-quoted 10% spent in other information intensive industries like financial services) but it’s not a small number.

How true that number is can be debated. Last week at Healthtech one CIO told the group that his system was spending 3.8% of revenues on IT, a number he claimed was much higher than average, and no one argued with him. Some others indicated that they didn’t much trust the traditional surveys (and didn’t participate in them).

However, the number is clearly bigger than it was 5 years ago and as the denominator (i.e. overall health spending) is much bigger too, the total spent on IT is increasing. However, the question is what will be done with the money? In the UK, IT spending was relatively low in advance of the recent infusion of roughly $20 billion over 10 years for the new IT contracts. But even that money is less than 3% of all health care spending, and yet the UK has already got almost all of its primary care practices computerized before the big bang approach that’s now being taken to link the whole nation together. In the US, we haven’t got anywhere close to that level of daily clinical computerization use, and apparently we’ve been spending way more than the Brits (2-3% of 14% of a bigger GDP per head, as compared to 1-2% of 7% of a much smaller GDP per head).

Hopefully good old American know-how allied to the emerging demands of government and payers will get us there. The CIOs at the Healthtech meeting believed that they had to act in the next 5 years to survive in their markets. It may be that fear which finally pushes us towards the real use of computing in the clinical setting. But of course predicting the imminence of EMRs has been the graveyard of many a futurist, and may still be.

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