Contractors, Technology Companies Zero In On Federal Health IT

With the Pentagon set to award a massive health IT contract and more work expected across the federal government, government contractors and technology companies alike are increasingly ramping up their focus on the field.

This week, government services contractor ManTech International, which has moved into health IT through several recent acquisitions, said it has hired Stephen Comber, who headed Leidos Health, to manage its health unit.

And on Thursday, PricewaterhouseCoopers announced it has added Google to its team pursuing the Pentagon's $11 billion program to modernize its healthcare system, known as the Defense Healthcare Management System Modernization or DHMSM.

IBM, among PwC's competitors, said last week that it is so determined to win the work that it is already running a version of its software and has put together an advisory board.

It is all adding up to a highly competitive market, one in which traditional contractors as well as technology businesses like IBM and Google are pursuing a key role.

Contracting executives say the heightened competition is driven in part by declining budgets in other areas.

"All the federal space still has sequestration and all the budget challenges out there," Dan Keefe, who oversees the unit that includes ManTech Health, told InsideDefense.com. "But there's no question in our mind that from medical records to the Affordable Care Act, there's certainly opportunity."

Deltek, a company that analyzes the government contracting market, estimates that federal health IT spending will reach $4.8 billion in 2019, up from the $4.3 billion spent in 2014.

Deltek particularly anticipates a fiscal year 2016 spike, driven by the Pentagon and the Department of Veterans Affairs, which are both preparing electronic health records modernization efforts.

The Pentagon alone has budgeted about $1 billion for health technology initiatives in FY-15, including spending on the existing electronic health record system and on the new one planned for award later this year, according to Deltek. That figure also includes the salaries and benefits of government health IT employees.

The VA has set aside $1.9 billion for health IT in FY-15, which represents nearly half of the agency's total IT budget. Deltek estimates that $1.2 billion will go to medical IT support work, including modernization and operations of information systems as well as network infrastructure.

Booz Allen Hamilton has long had work in health IT but has made two acquisitions this year to bolster its offerings. The contractor bought Boston-based Epidemico, which provides health informatics, and the 40-employee, Baltimore, MD-based healthcare unit of Genova Technologies, meant to expand Booz Allen's work with the Centers for Medicare and Medicaid Services.

"We are seeing new players enter into the market," Kristine Martin Anderson, an executive in Booz Allen's civil health business, told InsideDefense.com. "This started at least three years ago as the slowdown started to happen in defense spending."

Leidos Health, like PricewaterhouseCoopers, is competing for the Pentagon's DHMSM program. The company, which has pursued government health work for decades, has beefed up its commercial health IT work in recent years, acquiring MaxIT Healthcare Holdings and Vitalize Consulting Solutions.

Jerry Hogge, deputy group president for Leidos Health, told InsideDefense.com that the DHMSM program's size and immediacy make it an attractive target for many companies.

"Competitive pressures in the federal marketplace . . . are always intense, but particularly over the past few years in a sequester environment, top line budgets are tight for all the federal agencies," he said. "That just increases competitive intensity on those programs that do get awarded."

In this particular program, competitors are continuing to make announcements, even though bids have been submitted. IBM said last week that the company is running the software now so that it would be immediately ready to act if its bid was successful.

Scott McIntyre, who leads PwC's global and U.S. public sector business, said in a Thursday announcement that Google's addition to its team would be a significant help because of its expertise "in innovative, secure and open technologies, and the power of Internet scale." -- Marjorie Censer