Health Care IT Spending Will Climb In Next Five YearsHealth Care IT Spending Will Climb In Next Five Years

After decades of lagging other industries, IT spending in the health care sector will surge in coming years, according to two studies.

A big portion of the health-IT spending growth will come from state and local governments, especially as the majority of them over the next five years overhaul their Medicaid management systems. State and local health-IT spending will climb to $10.8 billion in 2012 from only $6.9 billion in 2007, according to a report released Monday by research firm Input.

"States are dealing with major financial crises, and managing their Medicaid programs more efficiently and effectively can help," said Chris Dixon, manager of state and local industry analysis at Input and author of the report.

Medicaid is the program funded by states and the federal government that pays for health care services for disabled and low-income people. On average, 21% of states' overall budgets are spent on Medicaid programs, Dixon said.

Within the next five years, 29 out of 35 states plus Washington, D.C., that outsource the operations of their Medicaid management systems will have those contracts up for review, said Dixon. Meanwhile, many of the 15 states that operate their own Medicaid management systems will also be looking for ways to improve those systems, including the possibility of outsourcing those operations, he said.

Currently, management of Medicaid systems includes a mix of computerized systems and manual processes. As states look to advance those systems, they will look at vendors that can implement technologies to improve the administrative side of Medicaid -- such as claims processing and patient eligibility confirmation -- and also leverage "volumes of data" to improve quality of care, wellness, and preventative care, he said.

"Business intelligence will help state and local governments take a more holistic view, transitioning from a focus on fighting Medicaid waste, abuse, and fraud to also improving wellness of diabetic patients, preventative care for children," and others issues that can help rein in costs, Dixon said.

The "generational overhaul" of Medicaid systems could also include state and local governments finding new ways to leverage quality-of-care data from health care providers to encouraging providers to adopt e-prescription systems and other technologies that can reduce medical mistakes, he said.

In addition to Input's study, a report from research firm Datamonitor predicts that widespread adoption of electronic health record systems in North America and Europe will boost e-health record spending in those regions from $4.4 billion in 2007 to $13 billion in 2012. That's a compounded annual growth rate of 23.8%.