The

Soter Group

December 2012 Issue #3

Perspectives 2013 Presidents Budget Federal Health IT Funding

Introduction Health information technology (IT) has certainly become a hot topic across the Federal government community over the last several years. In February 2009, as part of the American Recovery and Reinvestment Act of 2009, the Health Information Technology for Economic and Clinical Health (HITECH) Act was enacted; this legislation designated over $20 billion (B) towards Federal health IT investments and incentive payments through grants, loans, and other vehicles. The Administrations focus on healthcare (e.g., the Affordable Care Act) and this apparent influx of money for investment signaled a new market opportunity for many private sector contractors. The term health IT has undoubtedly shown up on numerous corporate websites and capabilities briefings alongside other ill-defined terms and catch-phrases such as cyber, big data, cloud, and mobile perhaps without a strong grasp of what the Federal health IT market really is. Total IT Spending by Key Federal Health IT Agencies The primary organizations in the Federal health IT market are the Departments of Health and Human Services (HHS), Veterans Affairs (VA), Defense (DoD), Agriculture (USDA), Commerce (DOC), the Social Security Administration (SSA), and the Office of Personnel Management (OPM). These seven organizations are also the key participants in the Federal Health IT Task Force initially proposed in February 2010 to coordinate health IT policies and activities across the Federal government. In aggregate, these seven Federal agencies are estimated to spend nearly $49.6B on IT in FY13. This represents approximately two-thirds of the total FY13 Federal IT budget request of $74.1B. For FY13, within the core health IT organizations, approximately 28.9%, or $14.3B, of the IT budget is designated for development, modernization, and enhancement (DME) activities slightly higher than the total Federal government figure of only 26.7% for DME.
Federal IT Budget, by Agency Group and Investment Stage
Billions $80 $70 $60 $50 $40 $30 $20 $10 $- FY11 (Actual) FY12 (Enacted) FY13 (Requested) Government Fiscal Year 32.2% 31.6% 28.9% 29.7% 29.1% 26.7% DME (Health IT Agencies) O&M (Health IT Agencies) DME (All Federal Agencies) O&M (All Federal Agencies)

1100 North Glebe Road, Suite 1010, Arlington, VA 22201 | Tel: 703.224.4407 | Fax: 703.224.8001 | info@thesotergroup.com 2012 The Soter Group. All Rights Reserved.

 The Soter Group

December 2012 Issue #3

While organizations such as HHS and VA have missions that are closely aligned with the health and medical fields, the others agencies are much more diverse in nature; only very select IT investments at these agencies are truly health-related. Even within HHS and VA, certain IT investments are certainly health-related or medical in nature, while others are business-oriented and support the general corporate infrastructure. For example, each of these agencies makes corporate-level investments in IT security systems and personnel to secure their corporate infrastructure which may, in part, support and enable the operation of critical health IT programs and systems. In fact, these seven core Federal agencies are expected to spend an estimated $10.4B on IT security in FY13 or approximately 21% of total IT spending of $49.6B. However, each individual health IT investment may make a separate investment in IT security to support that specific program. Consequently, IT security spending specifically relevant to health IT is a mere fraction of this $10.4B. Understanding the macro-level trends in Federal IT is certainly important, but filtering down to a more narrowly defined Federal health IT market is more useful for budgeting, strategy, and business development purposes. Federal Health IT Funding The boundaries of the Federal health IT enterprise still remain relatively amorphous; some interpretations of the various definitions of health IT are overly inclusive while others appear to be a bit too restrictive. Leveraging the Federal Enterprise Architectures (FEA) Federal Standard Segments and Business Reference Model (BRM) assists in categorizing some of the thousands of government IT investments into health-related functions (e.g., Health Care Delivery Services), but the reliance on agencies self-categorization is incomplete. Moreover, an analysis prompted by the Federal Health Architecture Program discovered that billions of dollars in IT investments were misclassified as health IT; likewise, hundreds of millions of dollars in investments that should have been classified as health IT were not designated as such.
The term health information technology m eans hardware, software, integrated technologies or related licenses, intellectual property, upgrades, or packaged solutions sold as services that are designed for or support the use by health care entities or patients for the e lectronic creation, maintenance, access, or exchange of health information. Health Information Technology for Economic and Clinical Health (HITECH) Act, P.L. 111-5 The technologies collectively known as health information technology (health IT) share a common attribute: they enable the secure collection and exchange of vast amounts of health data about individuals. Federal Health Information Technology Strategic Plan: 2011-2015

The Soter Group analysis of over 7,200 Federal IT investments isolated more than 125 investments that closely align with the definitions of health IT shown above. These investments fund Federal systems and programs that enable the creation, storage, maintenance, access, and exchange of individual health records and related information. This definition excludes grants and incentive payments to state and local governments and other health organizations funding streams that ultimately result in non- Federal spending. These investments are certainly not inconsequential and could be a source for variation in competing Federal health IT funding estimates. For example, the Centers for Medicare and
1100 North Glebe Road, Suite 1010, Arlington, VA 22201 | Tel: 703.224.4407 | Fax: 703.224.8001 | info@thesotergroup.com 2012 The Soter Group. All Rights Reserved.

 The Soter Group

December 2012 Issue #3

Medicaid Services (CMS) is expected to provide $2.3B in grants in FY13 to support state Medicaid systems; they have also allocated $98 million in incentive payments to promote the adoption of electronic health records (EHRs) by health providers. Ultimately, this analysis of Federal health IT funding suggests total budget authority (BA) of approximately $4.1B in FY13, a modest decline from the FY12 enacted budget of $4.2B. Not surprisingly, the three lead partners of the Federal Health Architecture (FHA) receive the largest amounts of funding within the Federal health IT market. The VA, HHS, and DoD are expected to account for over 98% of the $4.1B in FY13 funds. While the FY13 budget requests for HHS and DoDs health IT investments show slight decreases from FY12 levels, the VAs $2.2B budget request represents a 7.6% increase over the FY12 enacted budget of just under $2.1B.
Federal Health IT Funding, by Agency
Billions $4.5 $4.0 $3.5 $3.0 $2.5 $2.0 $1.5 $1.0 $0.5 $- FY11 (Actual) FY12 (Enacted) Government Fiscal Year FY13 (Requested) Other DoD HHS VA

Ultimately, properly defining a target market and understanding the macro trends are vital for strategy development and prioritization; equally important, however, is identifying and understanding specific programs of interest and the associated customers, competitors, and contracts. Example: Theater Medical Information Program Joint (TMIP-J) One major program within the Federal health IT market is DoDs TMIP-J. This DoD investment, as described in its FY13 Exhibit 300, integrates components of the Military Health System sustaining base systems and the Services medical information systems to ensure timely interoperable medical support for mobilization, deployment and sustainment of all Theater and deployed forces. The FY13 Presidents Budget requests a sizeable increase of over 30% in funding for this IT investment. Of the $94.6B budget request for FY13, an estimated $40.7B, or 43%, is slated for DME activities.
Investment TMIP-J FY11 FY12 FY13 Total BA Total BA Total BA $59.3 $71.8 $94.6 FY11 DME $23.8 FY12 DME $25.9 FY13 DME $40.7 FY11 % DME 40% FY12 % DME 36% FY13 % DME 43%

(in $ millions)

1100 North Glebe Road, Suite 1010, Arlington, VA 22201 | Tel: 703.224.4407 | Fax: 703.224.8001 | info@thesotergroup.com 2012 The Soter Group. All Rights Reserved.

 The Soter Group

December 2012 Issue #3

No fewer than eight prime contractors support TMIP-J via at least a dozen separate contracts that expire or are up for re-compete between now and the end of FY15. Full insight into this competitive and opportunity landscape enables contractors and vendors to inform their business development and partnership strategies.
Contractor Akimeka (VSE Corporation) Deloitte Deloitte General Dynamics MSGI Corporation Planned Systems International SAIC TMIP-J Requirement Joint Medical Workstation (JMeWS) / Theater Medical Data Store (TMDS) Consolidation Theater Program Support Defense Health Information Management System (DHIMS) and Defense Health Services Systems (DHSS) Developmental Test and Evaluation (DT&E) Program Management and Engineering Support Blood & Radiographic Imaging Theater Train the Trainer Armed Forces Health Longitudinal Technology Application (AHLTA) Theater Sustainment Integration and Sustainment Est. Contract Completion Date Q4FY12 Q1FY13 Q1FY13 Q1FY13 Q1FY13 Q1FY13 Q1FY13 Q1FY13 Q1FY14 Q1FY14 Q1FY14 Q4FY15

Vangent (General Single-Sign-On (SSO) and Context Management (CM) Capability Dynamics) Base Technologies Deployed Tele-Radiology System (DTRS) / Theater Imaging Repository (CA Technologies) (TIR) Development and Support Operations Deloitte SAIC Irving Burton Associates DHIMS Program Management and Information Assurance Support Composite Health Care System (CHCS) / Cache 2 (TC2) Development and Sustainment Medical Situational Awareness Theater (MSAT) Support Services

Conclusion The Federal Health IT market should continue to be an area of focus for the foreseeable future given the prominence of healthcare in the current political and Seven Core Federal Health IT Agencies legislative environments. Progress in the health IT arena o Total F Y13 IT Budget: $49.6B will inherently catalyze attention to cyber threats, the o Est. FY13 IT Security Budget: $10.4B vulnerability of health IT systems, and the cyber security Total F ederal Health IT Funding Across measures required to secure health-related data Ten Agencies: $4.1B ultimately creating opportunities for contractors with cross-cutting capabilities. Despite the focus on health IT, the potential for sequestration in early-2013 and the Office of Management and Budgets (OMB) instructions for agencies to achieve a 10% reduction in IT spending in FY14 introduce a significant amount of uncertainty about funding for Federal health IT activities in the near future. In this environment of tightening budgets and increasing competition, it is
1100 North Glebe Road, Suite 1010, Arlington, VA 22201 | Tel: 703.224.4407 | Fax: 703.224.8001 | info@thesotergroup.com 2012 The Soter Group. All Rights Reserved.

 The Soter Group

December 2012 Issue #3

imperative that contractors and vendors seeking to enter or grow in the Federal health IT arena have a comprehensive understanding of the market from the definition to the budgets, customers, competitors, and contracts/opportunities. About The Soter Group The Soter Group provides services to both the Federal government and the commercial entities that support it. Our Commercial Services Division provides market research and strategic advisory services to commercial clients seeking to enter or grow in the Federal government security market. Justin Taft, President & CEO, and Peter Wong, Associate, authored these perspectives. The Soter Group welcomes the opportunity for our research to be cited in third-party reports. To learn more, please visit www.TheSoterGroup.com and/or email info@TheSoterGroup.com. Report December 2012: Perspectives 2013 Presidents Budget Federal Health IT Funding

1100 North Glebe Road, Suite 1010, Arlington, VA 22201 | Tel: 703.224.4407 | Fax: 703.224.8001 | info@thesotergroup.com 2012 The Soter Group. All Rights Reserved.