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Sep 2016 - Insights Presentation - Doc # US41813016

U.S. Healthcare Payer IT Services Market Overview: Growth and Restructuring

By: Sven Lohse

On-line Presentation


This IDC Presentation provides an overview of the U.S. healthcare payer IT services market growth and restructuring. Post-reform era budget priorities among U.S. healthcare payers are driving demand for external IT service vendors. We see spotty but overall reasonably strong demand for external IT services. This is particularly true for IT consulting (contracts of less than 1 year and of less than $100,000 value) being in the double digits through 2019. Demand for systems integration work (contracts of greater than $100,000 and for less than one year) is less strong, about 6% through 2019, but in the context of the overall economy, this is still very positive. Demand for IT outsourcing continues to be quite inconsistent, but overall some larger contracts are forcing the overall average higher and we predict growth in this market at about 12% through 2019. Key drivers for the increasing workloads being assigned to external IT service vendors include consumer engagement, clinical analytics, patient-centered medical homes (PCMHs), and privacy and security as well as participation in public/private health insurance exchanges.

Meanwhile, as the pie for external IT services spending grows, we anticipate that it will be cut quite differently among the vendors contending for the business. Several key drivers are at play among the two dozen largest vendors in this marketplace: cost pressure from clients, adaptation to the variety of value-based care business models, sharing of contract risk with clients, and the vendors' use of analytics to increase the productivity of their workforces. At the level of the individual client account, expect significant restructuring of the IT services vendors within individual payers, especially within the top two dozen payers that control over 50% of commercial premium. Many of the smaller and more marginal vendors will find themselves without a chair when the music stops, and this will force a round of hard decisions at the industry level. Through the medium term, we expect consolidation and divestiture of the least prosperous IT consulting and IT outsourcing practices that serve healthcare payers.

Larger vendors with deeper, established relationships will be the beneficiaries of efforts by payers to consolidate and optimize their portfolios of external IT services providers. These vendors will be the best suited to serve the payers that require greater degrees of strategic partnership and demonstrate the expertise and capabilities required to share a greater degree of risk (embedded in SLAs and project outcomes). Sharing risk is going to become a dominant component of these deeper, more strategic partnerships. The alignment of incentives between the payers and their IT service vendors will parallel the adoption of value-based care and the alignment of incentives between payers and providers.


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