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A Healthy Prognosis for Federal HIT M&A

In August, Deltek released a report titled “Federal Health Information Technology Market, 2014-2019,” detailing how investment in Healthcare Information Technology (“HIT”) systems and services by Federal government agencies is expected to increase from $4.3 billion in 2014 to $4.8 billion in 2019, representing a compound annual growth rate (“CAGR”) of 2.2%.  The anticipated increase is driven by a number of factors across the HIT Promoter, Provider, and Payer market segments:

  • Promoter: Collecting and aggregating real-time information targeted towards the improvement of public health
    • Select System Focus Areas: registries; compliance, risk, and immunization tracking systems; clinical data and grants management; enterprise analytics
  • Provider: Delivering healthcare services to citizens, including veterans and military families, through public facilities
    • Select System Focus Areas: electronic health records (“EHR”); resource and patient management system (“RPMS”); computerized physician order entry (“CPOE”); archive and decision support systems
  • Payer: Managing national healthcare expenditures for citizens through programs such as Medicare, Medicaid, and Children’s Health Insurance Programs (“CHIP”)
    • Select System Focus Areas: claims processing; coordination of benefits; program integrity / fraud, waste, and abuse analysis; document management

While a number of Federal departments fall within each of these market segments, there are certain influencers that drive much of the activity.  HHS dictates much of the Promoter segment spending as agencies such as CMS, CDC, FDA, NIH, and NCI require big data analytics products and services.  In the Provider segment, the DoD and VA play a vital role through EHR and interoperability efforts as well as the high profile initiative of improving veteran access to care.  Finally, CMS controls much of the Payer segment due to Medicare, Medicaid, and CHIP, and will require solutions focused on data management, analytics, cloud adoption, privacy, security, and storage.

The increasing / sustaining funding levels and requisite demand for technology capabilities to support these HIT missions creates a ripe environment for innovate companies to flourish.  Moreover, the next generation of contract vehicles such as T4NG and ESD II will provide access to these HIT opportunities.  Thus, we anticipate continued strong M&A activity and valuations in the Federal HIT space for those companies that have deep penetration within one or more of the promoter, provider, and payer agencies for the foreseeable future.

Source: GovWin from Deltek: “Federal Health Information Technology Market, 2014-2019”