Improving Medicaid Efficiency Will Drive 50% Hike In Health IT SpendingImproving Medicaid Efficiency Will Drive 50% Hike In Health IT Spending

State and local governments will increase their spending on health-care-related IT by 50% over the next five years, predicts a report released Wednesday by the research firm Input.

The largest chunk of that spending will be related to states trying to make more efficient their Medicaid programs, which pay for health-care services for lower income citizens. "Medicaid is the big gorilla," says James Krouse, Input state and local market analysis manager and author of the report. Krouse estimates that about 10% of states so far have made investments in IT to significantly improve the efficiency of their Medicaid programs, and that about 90% of states still depend heavily on paper-based work to run their Medicaid programs.

Health-care-related IT spending by states and local governments will rise about 10% compounded annually from $6 billion in fiscal 2005 to $9 billion in fiscal 2009, Input estimates.

Some states have outsourced the claims processing of their Medicaid programs, and Krouse believes that trend will continue to grow in the next several years, and will start to include more comprehensive outsourcing beyond processing. "Processes like eligibility will be outsourced" by many states, he says, as will the IT involved with running Medicaid programs. Compliance with federal Health Insurance Portability and Accountability Act regulations is also pushing states to hand over affected processes to outsourcing firms, he says. Also, Krouse expects states will begin to pay closer attention to uses of technology that can help catch fraud and inaccurate payments.

Another driver for increased health IT spending by states and local government is the federal government's push for widespread adoption of electronic health records systems and other IT by hospitals and providers nationwide over the next 10 years. States and local government spending on those systems at state- or municipal-run hospitals also will grow, he says.

Typically, states spend about 2% to 3% of their overall budgets on all IT expenditures annually, Krouse says, with health-care-related IT spending close to education.