2009 APAC Healthcare Information Technology Outlook

2

Agenda

1. Introduction

2. Overview of Global Economy

3. Economic Crises – Impact on Healthcare Information Technology Industry

4. Healthcare Information Technology Trends

5. APAC Healthcare Information Technology Outlook

6. CIO & CFO Healthcare Information Technology Survey

3

Introduction

• The adoption of Information and Communication Technologies (ICT) is essential for modern healthcare delivery systems if they are to gain greater efficiency, reduce overall healthcare costs and improve patient safety.

• In recent years, the acquisition of computer technologies by healthcare organizations has increased substantially with the spending showing upward tendency placing the industry as one of the major consumer of ICT products and services.

• In 2007, spending on Healthcare information system in Asia Pacific was valued at $15.50 billion. This accounted for 1.5 to 2.3 percent of total healthcare expenditure. By 2012, it is estimated that healthcare spending will almost double.

• The HIT adoption trend by healthcare organisations is unstoppable, however there is expected to be a backlash in view of the current financial crisis. We are already seeing negative impact on the growth of the HIT industry as hospitals and health systems are taking measured but deliberate action by delaying capital projects, cutting capital and operating budgets, and laying off workers.

4

Overview of Global Economy

Agenda

5

Global Economic Crisis – What? When? How?

The NBER (US) has declared December 2007 as the beginning of recession in US. Soon the rest of the world followed.

Unlike the 1997 – 1998 recession, which was mostly confined to Asia, the current slowdown has global implications. The global pull stems from the failing of the world’s largest economy engine – the US with weakening USD and decreased demand for imports being the main factors.

Although the signs of recession are not so pronounced in APAC region, the early hints are already visible as the regions is predominantly dependant on exports to US. This has been cushioned, to a certain degree, by redirection of trade to China. The effect, however is temporary as China’s economy is likewise an export oriented and the local demand is already stagnating.

Considerable uncertainty about likely duration & depth of current economic crises makes any predictions difficult as most economies/corporations correct their forecasts on a monthly basis

December 2007 - ????; External to APAC

•Credit crunch - shortage of finance•High Interest Rates resulting from underestimation of property sector•Initially, overvalued property sector followed by sharp drop in house prices - related to shortage of mortgages and credit crunch•Cost push inflation squeezing incomes and reducing disposable income•Secondary – fall in demand and industrial output, deflation, and unemployment.

July 1997 – March 1999; Internal to APAC

•Excessive Growth with Asset's price inflation and imbalanced BOP.•Vulnerable Banking System due to rapid credit growth, large capital inflows and over-valued exchange rate.

March 2001 – November 2001; External to APAC

•Dot.Com bubble burst – overvaluation of technology companies.•High interest rates.•9/11 terrorist attack •High fuel prices

6

Economic Crises: Impact on Different Industry Sectors

• The effects of the downturn has disproportionately affected different segments of the economy

• The healthcare sector has outperformed the broader market

• This implies that investors expect that, while the healthcare sector will be affected by the downturn, it will still out-perform the general economy

US Market Indices

4,000

6,000

8,000

10,000

12,000

14,000

16,000

Dec-07 Feb-08 Mar-08 May-08 Jul-08 Aug-08 Oct-08 Nov-08

Ind

ice

s v

alu

e (

un

its

)

Dow Jones Industrial Average NasDaq Biotech

NasDaq Financials NASDAQ Transportation

S&P HEALTHCARE INDEX PHLX SEMICONDUCTOR SECTOR INDEX

Healthcare Indices, while declining, have still outperformed the broader market

7

Global Response: Massive Government Stimulus

Global Response • Governments infusing capital into financial institutions• Globally coordinated interest rate cuts• IMF offers bridge loan to meet foreign exchange requirements• Discussions, coordinated efforts (G20 summit)

China: Interest rate cuts; $586 billion stimulus (infrastructure, rural)India: Interest rate cuts; $4 billion stimulus package (infrastructure, exports, textiles)

Japan:Interest rate cuts; $51 billion stimulus package

South Korea:Interest rate cuts and efforts to keep currency stable; $11 billion stimulus package

Taiwan: $31 billion stimulus package (subsidies, tax cuts)

Malaysia: $2 billion stimulus package

8

Global Economy Crises

Impact on Healthcare Information Technology

Agenda

9

Impact on the Healthcare Sector

Symptoms of the Downturn

Downturn in capital markets

Increased cost and reduced availability of

debt

Decrease in govt revenues and sharp rise in expenditure

Sharp fall in discretionary

spending

Impact on Healthcare Companies in 2009

Development Stage Pharma/Biotech

Companies

Pharmaceutical and Biotechnology

Companies

Healthcare Services Providers

Medical Technology Companies

The economic downturn will impact the various segments of the healthcare sector differently in 2009

• Operational decline • Reduced corporate deals

• Reimbursement pressures

• Decline in consumer spending

• Reduced corporate deals

• Reimbursement pressures

• Decline in consumer spending

• Working capital constraints

• Reimbursement pressures

• Decline in consumer spending

Common Factor: Reduced Access to Capital and Higher Interest Costs

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• Decline in revenues - the economic downturn will affect the discretionary spending of patients. Although the life-saving procedures will feel lees impact the elective and complementary services will decline due to lower demand as patients will have less disposable income to spend with tendencies to increase their savings.

• Constrains in procuring debt for financing operational activities will have negative impact on capital expenditure. Healthcare providers will look for means to reduce spending on HIS components by extending the timeline of ongoing projects, negotiations with vendors commercial arrangements and delaying new projects.

• Budgetary shortage will result in cutting non-essential, non-revenue generating spending .

• HIT expenditure will be affected. In most optimistic scenario it will remain the same but in majority will experience cut backs.

• HIT vendors will be affected by a mixture of the above and factors originating from capital market :

– Loss of revenue due to decline in demand– Defaults of payment on ongoing projects– Assets write-offs– Reduced access to debt

• HIT vendors corrective actions:

– Lay-offs– Virtualisation of activities– Outsourcing– Price Reduction (probably deflation)

Impact on Healthcare Information Technology Industry

Demand

11

Warding Off The Troubles - Recommendations

• Governments can play crucial role by promoting the adoption of HIT, setting standards and providing financial help –example US’s USD 20 billion healthcare IT package.

• Healthcare providers should not take on conservative approaches in implementing HIT but rather leverage on its inherent ability in reducing costs and promoting efficiency

• Insurance industry will benefit from EDI, which could reduce paper workload , streamline processes and speed up processing times.

• Vendors should look into providing affordable commercial arrangements and reducing price.

12

Healthcare Information Technology Trends

Agenda

13

Healthcare Technology Hype Cycle (2007)

14

Healthcare Applications Hype Cycle (2007)

15

Shift in Healthcare Information Technologies

16

Major EHR Trends: Global View

17

Shift Towards Integrated and Patient Centered Healthcare Delivery -APAC

18

Top Ten Trends in Healthcare Information Systems: APAC

Healthcare Information Systems: Top Ten Trends in APAC (2007)

19

Highest Growth Potential in APAC: Clinical Information Systems and EMR

20

APACHealthcare Information Technology Market Outlook

Agenda

21

The Asian Healthcare Sector

In 2009 we anticipate the healthcare sector in Asia will grow by 5-10%

Medical Devices21.2%

Medical Imaging1.5%

Clinical Diagnostics

2.1%

Biotechnology6.7%

HIT2.1%

Pharmaceuticals66.2%

Healthcare Market Revenue (Asia Pacific), 2008

Total: US$ 239.9 billion

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Opportunity Assessment on Emerging Market Segments

The paradigm shift of healthcare from provider to patient centric, centralized to decentralized, have pushed the standards of healthcare in terms of quality and efficiency to a higher level. Hence, value added components, such Health Information Technology, Health BPO and private health insurance are likely to play significant roles in the transition process.

Key Focused Market Segments & Geographies

High

Market Penetration

Rate

Low

Growth Potential

Low High

HCIT

Australia, China,

Taiwan, India

HCIT

Indonesia

TPA

India, Australia, Malaysia

TPA

Taiwan, Thailan

d

PHI

Taiwan, Thailan

d

TPA

Singapore,

Indonesia, China

PHI

Singapore,

Malaysia, India

HCIT

Thailand, Malaysia, Singapore

Least Worthy

Challenging

Competitive

High Priority

PHI

Australia, China

Centralized/Traditional Healthcare Management

Non-applicable to all 8 Countries – Traditional

Healthcare management lacks patient care effectiveness, operational efficiency and

market attractiveness

PHI = Private Health Insurance, TPA = Third Party Administration, HCIT = Healthcare Information Technology

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2.6%

2.2%

0.6%

2007

2005

2003

HIT Market Assessment - Malaysia

Key E-Health Players in Malaysia

Company Country of Origin

Key Expertise

SPK Technology Malaysia

THIS, Electronic Medical Record, Patient Management, Physician Order

Management

IBA Health Group

AustraliaElectronic Health Record, Patient

Management, Electronic Health Claims

Kompakar Malaysia THIS

Worldcare Health Malaysia

TeleRadiology, Patient Management, TeleCardiology, TeleDermatology,

TelePathology

Profdoc (under CompuGroup) Sweden

Patient Administration, Electronic Medical Record, Care Planning,

Hospital & Laboratory Management

Peransang Jati Malaysia Personal Health Management, THIS

AHIS Austria THIS – penetrated KPJ Healthcare

Malaysian HIT Background

• Malaysia implemented its national plan for the development of ICT in health in 1995.

• In 2000, the country has embarked on Telehealth implementation that aimed at providing uniform HIT infrastructure across the entire nation for creating single EMR and providing Subsequently in 2007, the government increased its emphasis on E-Health with its strategy and vision to 2020 of the Multi-Media Super Corridor initiative and the Telemedicine Act 1997.

• The Multi-Media Super Corridor initiative was aimed to establish a health-care system which could leverage advanced information and multimedia technologies to significantly enhance its healthcare standards with telemedicine and medical informatics as the crucial components.

• Government funds were also allocated to expand Tele-Health and Tele-consultation services, to share health records and plans, to set up the National Health Informatics Centers and to implement hospital information systems in selected hospitals and clinics, which provides a positive outlook for the E-Health industry.

• Malaysia is planning to introduce National Health Insurance Scheme which will include developing Casemix System to facilitate reimbursements.

Percentage of ICT Spending / Total Healthcare Expenditure

US$ 23m

US$ 113m

US$ 171m

Source : The Association of Computer & Multimedia Industry of Malaysia (PIKOM), National Information Technology Council Malaysia, Frost & Sullivan

estimates

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HIT Market Assessment - Singapore

Overview of Singapore’s Healthcare IT

• Hospitals in Singapore are taking full advantage of technological advances in Healthcare IT to improve efficiency and speed up patient care

• Some examples of information technology playing a major role in revolutionizing healthcare delivery in Singapore include: Hospital Information Systems (HIS), Picture Archiving and Communications Systems (PACS), Electronic Medical Records (EMR), E-Health, wireless technology, radio frequency identification (RFID)

• Healthcare service providers in Singapore can boast of being the leaders in technology adoption in the Asia Pacific healthcare space

• Healthcare delivery in Singapore is made up of both public and private systems. In 1999, there was a reorganization of the public healthcare delivery system into two vertically integratednetworks, the NHG and SingHealth - to enable a greater degree of integration, cooperation, and collaboration among the public sector healthcare providers

• Major private healthcare providers in Singapore are: The Parkway Group and Raffles Medical Group

Source : Frost & Sullivan; E-Health in Asia and the Pacific, United Nations ESCAP

Healthcare IT Systems Market: Market Life Cycle for Selected APAC Countries (2004)

21.8

19.3

15.2

11.012.0

13.5

17.1

0

5

10

15

20

25

2003 2004 2005 2006 2007 2008 2009

US

$ M

illi

on

Singapore’s HIS Market: Revenue Forecast (2003-09)

CAGR % (2005-2009): 12.7%

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HIT Market Assessment - Indonesia

Drivers

� NHIS Policy and Strategies and a decree on Hospital Information System (Oct, 2003) have been developed and adequate health centers has been set up by the government

� Cooperation and assistance from both public and private sectors as well as from international bodies like the World Bank, UNDP and JICA to support NHIS initiatives

� Rapid development of IT in the region

Restraints

� Financial support for HIS maintenance is considered the least priority in the national budgetary

� Lack of Health Information Technology personnel in Indonesia to manage the HIS network. Currently almost all HIS centers are staffed with medical personnel with limited IT/IS background

� HIS spending in Indonesia is primarily done by the private sector, most of the times focusing on private healthcare centers in cities like Jakarta, Bandung and Denpasar, Bali.

� Fragmented health IT and IS infrastructures

� No comprehensive data exist that covers the entire nation, except for certain diseases like Tuberculosis and AIDS/HIV

Challenges

� The geographical outlook of Indonesia and its population distribution

� The current state of decentralized health services and administration makes HIS implementation much more complex. The decentralization and lack of central authority help to further breaking down of the routine HIS

National Health Information Systems (NHIS)

• The NHIS Policy and Strategy has been developed in support of the decentralization on health to achieve Healthy Indonesia by the year 2010. The presence of reliable and valid information is hoped to accelerate the achievement the national program

� Mission of NHIS include development of data management , which includes data collection, storage, retrieval and analysis,development of data bank, health profiles and presentation of information for different purpose, development of network and information sharing among information users as well as development of methods for the use of health information

Source : WHO – Indonesia Country Health Profile (2008), Biskom Indonesia

(2008)

Percentage of IndonesianHealth Providers

Utilizing HIS for Daily Operations (2007)

92%

5% 3%

Not utilizing HIS

Utilizing HIS tosome extent

Fully utilizing HIS

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HIT Market Assessment - Thailand

Establishment Coverage % by size (number of persons engaged) & Economic Activity

Modernization of Thailand through ICT

• Globalization effect has triggered Thailand’s emphasis on E-Health, and subsequently, the “Modernization of Thailand” project further reinforce the government’s aim in utilizing technology for its key sectors, including healthcare and medical insurance.

• In a recent survey conducted by the National Statistical Office, Thailand, the hospital segment accounted for about 0.2% ICT coverage in terms of the number of establishments, out of the total 820,137 establishments in 2007 (a majority 82.67% of the total hospital population.

• Furthermore, in contrast with the other industries, the hospital segment creates more ICT job opportunities, whereby 55.2% of the establishments employ 51 to 200 persons for their ICT activities, and is highly active in terms of internet usage (95%).

Percentage of Establishments with Internet Usage

0%

20%

40%

60%

80%

100%

2004 2005 2006 2007

Total

Manufacturing

Other Land Transport

etc

Business Trade

Services

Construction

Hospital

Source : National Health Statistical Office, Thailand: Information and Communication Technology Survey 2007, United Nations: E-Health in Asia and

the Pacific

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Health IT Market Size by Expenditure US$ Bn (2001-07)

2.89

2.48

1.82

1.151.32

1.44

2.12

0

0.5

1

1.5

2

2.5

3

3.5

2001-02 2002-03 2003-04 2004-05 2005-06E 2006-07E 2007-08E

Ex

pe

nd

itu

re (

US

$ B

n)

HIT Market Assessment - Australia

Growing Importance of Health IT

• It is estimated that the healthcare IT market in Australia is worth US$2.89 billion in 2007-08, growing by CAGR of 16.6% since 2001.

• In an effort to resolve the implications caused by the Privacy Act on the development of Healthcare information, the Australia government amended the legislation in 2004 to allow for legitimate operations of health IT.

• The nationwide implementation of “HealthConnect” National Information Network was also announced by the Australian government in the same year, demonstrating Australia’s commitment to expanding the health IT industry.

• The Health IT industry gained further momentum with the creation of the National E-Health Transition Authority (NEHTA) in 2005, in which the government committed US$85 million funding in 2006.

• The extent of health operating budget invested in IT varies greatly amongst different health organizations, ranging from 1% to over 10% - with public hospitals spending an average of 1.5% of their total budget on IT.

• In 2008, approximately 90% of the General Practitioners in the country are computerized.

CAGR % (2001-2007)

E-Health Expenditure: 16.6%

Key Australian Health IT Players

Company Revenue (US$ Mil)

Key Expertise

IBA Health Group Limited

235.6Electronic Health Record, Medication Management,

Patient Management, Electronic Health Claims

Health Communication Network

19.58Practice Management, Patient Management, Clinical

Information Sharing, Health fund management

Meditech Global Limited

5.46Electronic Health Management, Personal Patient

Monitoring, Clinical Information Sharing

ICSGlobal Limited

1.19Transaction Health Exchange Linking Multiple

Applications (Thelma)

Source : Fujitsu Australia: Achieving Benefits from Investments in Health IT, Frost & Sullivan analysis &

estimates

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HIT Market Assessment - Taiwan

Overview of Taiwan’s Healthcare IT

• Leaders in Taiwan acknowledge that HCIT not only helps to provide efficient and safe medical care but will also play a significant role in sustaining the economy’s national health insurance system

• Currently, all hospitals and most clinics are connected to the Bureau of National Health Insurance through (BNHI) a Virtue Private Network (VPN) for e-claim purposes

Source : Health Information Technology and Policy Lab

1989

1991-1993

1994-1996

1999

2001

HIT Adoption in Taiwan

Government-initiated decision to establish a National Health Information Network (HIN)

Pilot HIN tested in Hsinchu medical care region

HIN plan extended to other regions in Taiwan

Phase II of HIN begun with: bandwidth and VPN upgrades, local resources analysis, web-based application and standards development

BNHI introduced smart cards

Key Drivers

• The government is the key driver of an integrated island-wide health information system in Taiwan, and is responsible for the creation (and funding) of Taiwan’s successful health smart card

• Hospitals, too, have played an important role in integrating IT into the health sector and generally cover the costs of their individual HCIT systems

Challenges

• Interoperability

� Some hospitals treat health and medical data as their exclusive property and are unwilling to share patient data with other hospitals

• Privacy

� Medical data is sensitive and “proprietary”. Many are concerned that de-identification is not sufficient to protect privacy as practice patterns, medication use, and outcome variations are all sensitive information

98.7%

89.8%

2006

2002

Hospital Usage of Information Technologies in Taiwan (%) (2002-06)

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HIT Market Assessment - India

India HCIT Framework

• The rapid increasing and aging of population, gradual increase in disease burden, rural-urban healthcare coverage disparity, and manpower constraints in the healthcare sector, have magnified the importance of e-Health intervention on healthcare in both the public and private sectors.

• The Ministry of Health, of Family Welfare, of Communication and Information Technology, state government, and the Indian Space Research Organization (ISRO) are those who have played significant roles in the development e-Health in India

• The major fields of e-Health more rapidly developing in India involves 2 main aspects: (1) Total Hospital Information System and (2) Telemedicine

• To date, majority of e-Health development in India are outsourced from US service providers.

Total Hospital Information System (THIS) & Telemedicine

• The hospital segment is undergoing an evolution since the early 1990s, with the rising requirement for automation.

• Although a large number of HIS services providers are available in the market, the major players in the field include CDAC, Wipro, TCS, and Siemens Information System Ltd.

• The government-led CDAC, in particular, was the pioneer for the development of the first HIS solution in collaboration with SGPGIMS and Lucknow in 1997.

Implication on India HCIT market by US Service

Providing Penetration (2003-2010)

0

1000

2000

3000

4000

5000

2003 2004 2005 2006 2007 2008

Re

ve

nu

e (

US

$ M

il)

0

100

200

300

400

500

600

700

800

Wo

rkfo

rce

re

qu

ire

d in

H

CIT

In

du

str

y (

'00

0)

Revenue Workforce

Company/ Institution

Sector Key Involvements

ISROPublic

GRAMSAT project – Develop telemedicine application through aerospace technologies

DITPublic

Facilitator for development of technology, pilot scheme initialization, and co-ordination

Apollo Hospital Private

Pioneer in-house developer from the hospital segment with more than 45 telemedicine centers set up in the country

SGPGIMS, Lucknow

Public -Private

Co-development, whereby SGPGIMS is responsible for R&D and educational initiatives; Lucknow provides the platform for trial implementation.

Key Contributors of Telemedicine

CAGR % (2003-2008)

Revenue : 82.10%

Workforce: 70.00%

Source : WHO: Mode 1 GATS Report India – Cross –Border Trade in Health Services (E-Health), United Nations: e-HEALTH in Asia and the Pacific,

SGPGIMS

ISRO = Indian Space Research Organization, DIT = Department of Information Technology, SHPGIMS = Sanjay Ghandi Postgraduate Institute of Medical Science

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Positive Negative

Strengths

Opportunities

Inte

rna

l F

orc

es

Ex

tern

al

Fo

rces

Weaknesses

Threats

• Manpower – High English proficiency, qualified, and techno savvy workforce

• Safe Electronic Environment – Official recognition for Digital Signatures and E-Transactions

• Competitive cost of human capital

• Strong & buoyant domestic healthcare industry – facilitates upgrading of skills and infrastructure

• Lack of international certification

• Poor Domain Skills

• Lack of grading of healthcare organizations –thus no incentive to standardize & benchmark

• Lack of international marketing capabilities

• Weak Legal framework

• Inadequate infrastructure

• HIPPA compliance of US Service Providers –thus provide ease of entrance of best-in-class service providers from the US.

• Remote Disease Management

• HIPPA compliance for Indian Service Providers

• Over dependence on US expertise

• Regional competition from other countries, who have also enhanced their information technology capabilities on healthcare, such as China, and key ASEAN countries.

Source : WHO: Mode 1 GATS Report India – Cross –Border Trade in Health Services (E-

Health)

HIT Market Assessment - India

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HIT Market Assessment - China

Source : CCID Consulting; China Ministry of Health; US Commercial Service

Growing Importance of Health IT

• Due to the Health Informatization Development Plan, all hospitals are required to increase investment in building digitized hospitals. This requirement is expected to accelerate the growth of China’s HIT market by about 25-30% a year during 2006-2010

• By the end of 2006, China’s investment in its healthcare information systems (HIS) had increased by nearly 16% to RMB 5.8 million, year-on-year. This amount accounts for approximately 0.5% of the country’s total healthcare expenditures of RMB 866 billion during the same period

• The market size is expected to expand to approximately RMB 15 billion in 2010. The development of China’s HIT industry is generally considered to be at a preliminary stage, resembling that of western countries 20 years ago. Nevertheless, as they learn more about available and emerging technologies, they now have the opportunity to leapfrog ahead

• In 2007, 380 domestic companies in China have developed HIS solutions in response to the healthcare industry’s rapid growth and government policy

2000 2001 2002

Entry into WTO• Modernized IS of

Chinese hospitals in order to compete with the market entry of foreign competitors

HC Reform• Elimination of

inefficient paper processes

Hospital IS Policy• Standardized

HIS development

Government Policy Driving Demand of Healthcare IT in China

Hospital Management Information System

(HMIS) Implementation Level (2006)

None

32%

Partial

41%

Complete

27%

Complete

Partial

None

Hospital Clilnic Information System (HCIS

Implementation Level (2006)

None

99%

Partial

1%

Partial

None

Health IT Market Size by Expenditure US$

Million (2001-06)

0

100

200

300

400

500

600

700

2001 2002 2003 2004 2005 2006

Ex

pe

nd

itu

re (

US

$

Millio

n)

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CIO & CFO Healthcare Information Technology Survey

Conducted in US in November 2008 by

•College of Healthcare Information Management Executives (CHIME),

•The National Alliance for Health Information Technology (NAHIT)

•AHA Solutions, Inc.

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Key Findings

•Over half of the CFOs/VPs Finance (55%) report experiencing slight or significant delays in accessing capital and expect the financial crisis to last another 12 to 24 months.

•For now, CFOs/VPs Finance are dealing with budgetary pressures by delaying or lengthening timeframes for completing new facilities or facility upgrades, (74%), deferring IT equipment purchases (57%) and delaying or lengthening timeframes for implementing health IT initiatives (52%).

•CIOs are responding by implementing longer timeframes for application projects (63%) and reducing spending on outsourced IT services (34%).

•One-third (33%) of CFOs/VPs Finance plan to or have cut budgets while one in four (26%) plan or have laid off staff or instituted a hiring freeze.

•Almost all respondents (94%) have cut IT budgets by extending implementation time of existing projects and delaying or reducing the slate of new projects.

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Tighter Access To Capital Is Forcing Project Delays

• More than half (52%) report slight or significant delays in accessing capital and expect the financial crisis to last another one to two years.

• 74% CFOs/VPs Finance are dealing with budgetary pressures by delaying or lengthening development of new facilities, facility renovations and health IT initiatives.

• 33% reported cutting budgets,

• 26% are planning or implementing staff layoffs or have instituted hiring freezes.

• Those who reported an increase in their IT capital budgets (11%) are finding ways to reduce costs by more aggressively negotiating with payers or providing increased oversight on charity/uncompensated care.

• 52% of CFOs/VPs Finance reported delaying or cutting EMR rollouts and 43% pushing back or reducing CPOE implementations.

• However, an equal or larger number plan to move full-speed ahead with these strategic clinical IT application projects.

35

Decreases In 2009 It Capital Spending Will Affect Hospital T Vendors

• More than half (52%) of CIOs reported that their organization’s capital budget will remain the same in 2009 while 36% said it would decrease. Just 2% expected their organizations’ capital budgets to rise.

• Nearly half (49%) of CIOs and 44% of CFOs/VPs Finance report that their organizations’ IT capital budgets will be lower in 2009.

• 36% of CIOs and 33% of CFOs/VPs Finance said they expect IT capital spending will remain the same.

• Both CFOs/VPs Finance and CIOs expecting capital IT budget cuts said reductions will impact applications, software and outsourced IT services such as consultants. Some also pointed to cuts in spending on servers, networking and storage.

36

2009 Operating Budgets Target Outsourced Services For Cutbacks

• 67% of CFOs/VPs Finance say their organization’s operating budgets will increase or stay the same vs. 26% of CFOs/VPs Finance reporting a decrease.

• 54% of CIOs report that their organization’s operating budgets will increase or stay the same vs. 39% of CIOs reporting a decrease.

• 49% of CIOs and 44% of CFOs/VPs Finance report that their organizations’ IT capital budgets will be lower in 2009. 65% say the annual budgets for running their departments will increase or stay the same in 2009 . 31% say their budgets will decrease.

• Of the CIOs who are cutting their 2009 operating budgets, 59% plan to reduce IT services, 30% will cut staff, and 27% will decrease new applications and other software.

• Applications, software and outsourced IT services to see the biggest cuts, followed by staff layoffs.

• 64% are delaying or reducing new projects. Outsourced IT services are the most common area targeted for cuts, and many also are looking at staffing reductions and decreased training and professional development to manage the operating budget constraints.

37

Health It Initiatives Are Strategic Imperatives But Delays In Funding Support Is Anticipated

Major clinical IT initiatives show the biggest dichotomy among respondents. Half (50%) of CFOs/VPs Finance and 52% of CIOs report reductions or delays in funding for EMRs.

Slightly fewer - 43% of CIOs and 36% of CFOs/VPs Finance - expect cuts or delays in funding for CPOE systems. Many of their counterparts, however, are moving head with these types of efforts.

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Conclusion

Going into 2009 and possibly some or all of 2010 will be challenging years for hospitals. Before economic turmoil hit, hospitals had shown important progress in health IT adoption, and for now, many of these initiatives are funded and moving forward. But a prolonged or deeper economic slowdown will inevitably be met by further reductions in IT capital and operating budgets, so even those health IT initiatives that have a demonstrated return on investment could become difficult to fund.

Health IT is no longer a “nice to have.”. It is a strategic priority for hospitals to deliver safer, higher quality and more cost-effective care, thus enabling hospitals to stay competitive. Some hospitals executives surveyed see this as the time to invest in IT initiatives that will deliver direct and quantifiable savings to their organizations.

...hard times are time to invest in the future

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