Contents:

Introduction - Objectives of the Report - Research Methodologies - The HIMSS Analytics Database - Executive Overview - Market Overview - Key Vendors - Healthcare Consulting Companies Five-Year Forecasted Spend - The Forecasting Model Ambulatory Applications Ancillary Clinical Systems Cardiology PACS Document Management Electronic Medical Records (Shared Medical Records) The EMR (SEHR) Adoption Model Financial Decision Support Financial Management Health Information Management Human Resources Nursing Revenue Cycle Management Radiology PACS Industry Signposts

Summary:

Executive Overview The year 2006 was a period of significant clamoring about the need for electronic healthcare records (EHRs) by the Bush administration—though a funding mechanism to help deliver on the rhetoric did not emerge. Many hospitals feel that the government is driving an unfunded mandate to force higher adoption of EHRs without providing direction or any clear indications about how healthcare organizations are to pay for it. Critical access hospitals are one example of where a change in reimbursement has ignited a segment of the market to evaluate and select more sophisticated IT solutions. Payers are experimenting with pay-for-performance models that require hospitals to be able to report on improved patient outcomes. This model may help to drive adoption of more sophisticated levels of EHR capabilities. Hospital capital spending for IT application solutions in 2007 is projected to be 44 to 48 percent of their total capital budgets. This percentage of IT application spending is projected to increase to between 49 and 56 percent of the total capital spend rate in 2011. Several market drivers will continue to increase hospital IT spending. Health Insurance Portability and Accountability Act (HIPAA) claims-attachment regulations will drive hospitals to more effectively integrate their financial and clinical IT solutions. Regulations ranging from recovery audit contractors, severity-adjusted DRGs, and ICD-10-CM conversions will force hospitals to critically assess their revenue cycle management and health information management IT applications for compliance capabilities. Ongoing government and employer pressures will continue to drive hospitals to evaluate their quality and outcomes measures, reporting and management. New regulations impacting the revenue cycle management environment and the need to improve outcomes and quality management in care delivery environments will force extreme budgeting competition between financial and clinical applications over the next five years. The prioritization of IT budgets by hospitals will be polarizing events for many of the organizations and their cultures. Key healthcare IT vendors and consulting companies will continue to consolidate the market over the next five years. Key acquisitions over the last year include: - Eastman Kodak’s PACS division by Onex - Per-Se Technologies by McKesson Provider Technologies - SoftMed Systems by 3M - A4 Health Systems by Allscripts Healthcare Solutions - GEAC by Extensity - Neoforma by Global Healthcare Exchange - FileNet Corporation by IBM - Avega Health Systems by MedAssets - Shared Services Healthcare by MedAssets - Dictaphone by Nuance Communications Inc. - NDC Health by Per-Se Technologies - Witt Biomedical Corporation by Philips Medical Systems - Solucient by The MedStat Group (a Thomson Company) - Mercury MD, Inc. by Thomson Micromedex - Siebel Systems by Oracle Corporation The healthcare IT market will continue to consolidate and the pace will be quickest in the ambulatory market over the next five years. The applications with a projected compounded annual growth rate of 10 percent or greater in the 2007-2011 time frame are ambulatory EMR; dictation with speech recognition; document management—business office; ADT/registration; electronic medication administration; eligibility; encoder (driven by new regulations); enterprise EMR; nursing documentation; outcomes/quality management; and patient billing. An evaluation of the EMR Adoption Model scores over 2006 shows that hospitals are continuing to advance the care delivery capabilities of their EMR environments. But, will this advance be marked by budget shortfalls or competition with other IT applications over the next five years? Stay tuned. Market Overview Key Vendors The key vendors in the hospital IT market are multi-national companies with large portfolios of IT solutions that cover most operating environments for healthcare delivery systems. These vendors are referred to as “enterprise vendors.” The portfolio of solutions ranges from financial solutions to EMR environments, to solutions that are used in ancillary departments. An emerging strategy for the large enterprise vendors that also provide medical devices used in healthcare delivery is to tightly couple the IT applications with their medical devices. Representative examples of where this strategy is being deployed by vendors follows: - GE Healthcare; integration of cardiology applications with cardiology devices; the integration of operating room management applications with medical devices used in the operating room environment; and the integration of their PACS environment with their radiology information system. - Siemens Medical Systems; integration of their PACS environment with - the radiology information system. - McKesson Information Solutions; integration of their robotic and medication dispensing cabinets with their patient safety software (CPOE, pharmacy and eMAR); and integration of their PACS environment with their radiology information system. This emerging IT application/medical device integration strategy is not lost on other players in the market. Philips Medical Systems tried a partnership with Epic Systems and is now looking for other solutions to extend its offerings to an enterprise level. Overall, the top enterprise healthcare IT vendors—with respect to IT application market share for the U.S. hospital market—are: - McKesson Information Solutions (MCK: NYSE) - Siemens Medical Systems (SI: NYSE) - GE Healthcare (GE: NYSE); acquired IDX Systems - Cerner Corporation (CERN: Nasdaq) - Medical Information Technology, Incorporated (MEDITECH - private) - Eclipsys Corporation (ECLP: Nasdaq) - Epic Systems Corporation (private) - QuadraMed Corporation (QD: AMEX) - Misys PLC (MUSU.S.JF.PK: PNK) - Computer Programs and Systems, Inc. (CPSI: Nasdaq) - Keane Healthcare Services (NYSE: KEA) - Dairyland Healthcare Solutions (private) - Healthcare Management Systems (private) Through the course of this overview we will provide the 2004 respective market shares of these companies in major application segments. Niche vendors that specialize in applications for ancillary departments or departmental systems continue to play major roles in some application segments. Representative niche vendors within specialty environments include: - Soft Computing Corporation; laboratory, radiology, pharmacy; - Unibased System Architecture; enterprise scheduling - Surgical Information Systems; operating room management; - Picis/MSM; operating room management; ICU applications - Mediware; pharmacy, blood bank - ADP; payroll services - Kronos; time and attendance systems Healthcare Consulting Companies The IT consulting market to U.S. hospitals has been significantly disrupted with acquisitions (e.g. Accenture/Cap Gemini Healthcare, ACS/Superior, IBM/Healthlink) that will redefine market dynamics for standard consulting engagements (e.g. strategic planning, vendor selection, implementation) or outsourcing services. Obviously, a consolidation of solely focused healthcare consulting companies by larger consulting entities is taking place and will result in broader and more integrated healthcare service offerings by the acquiring companies. The challenges of the acquiring companies are keeping the talent and cultures intact in the acquired companies, and some are struggling in this effort. These acquisitions will drive the emergence of new consulting companies from people who depart the acquired companies or who depart the consulting companies being cleaned up for sale. Emerging companies will come from other large consulting companies who want to play in this market; they will hire experienced consultants who have departed acquired companies to build their offerings. Or, some consultants will create boutique firms that specialize in niche consulting models, and if successful will then be acquired again in the continuous cycle of healthcare consulting. Top firms providing standard consulting service engagements to hospitals are: - Accenture - Deloitte - CSC - Perot Systems Corporation - Siemens Medical Solutions - IBM/Healthlink - First Consulting Group - Cerner Corporation - ACS - McKesson Provider Technologies - PriceWaterhouseCoopers (PwC) - BearingPoint Top firms providing outsourcing services to hospitals are: - First Consulting Group - CSC - Perot Systems Corporation - Siemens Medical Solutions - McKesson Provider Technologies - Eclipsys Corporation - ACS - CareTech Solutions, Inc. - IBM Siemens Medical Solutions, McKesson Provider Technologies and Cerner Corporation are representative of enterprise vendors that expanded the scope of their service offerings for consulting and outsourcing solutions. These service units are becoming significant revenue streams for these companies. This focus by the multi-industry consulting firms on other healthcare segments (e.g. pharmaceutical/biotech, payers) has provided opportunities for several small and regional consulting companies (boutique firms) to increase their consulting service market share.