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 healthcaredelivery systems if they are to gain greater efficiency, reduce overall healthcare costs and improve patientsafety.

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

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

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

4

Overview of Global Economy

Agenda

5

Global Economic Crisis – What? When? How?

-10

-8

-6

-4

-2

0

2

4

6

8

10

1980198119821983198419851986198719881989199019911992199319941995199619971998199920002001200220032004200520062007200820092010201120122013

ASEAN-5 World Major advanced economies (G7) United States

The NBER (US) has declared December 2007 as thebeginning of recession in US. Soon the rest of the worldfollowed.

Unlike the 1997 – 1998 recession, which was mostly confinedto Asia, the current slowdown has global implications. Theglobal pull stems from the failing of the world’s largesteconomy engine – the US with weakening USD and decreaseddemand for imports being the main factors.

Although the signs of recession are not so pronounced inAPAC region, the early hints are already visible as the regionsis predominantly dependant on exports to US. This has beencushioned, to a certain degree, by redirection of trade to China.The effect, however is temporary as China’s economy islikewise an export oriented and the local demand is alreadystagnating.

Considerable uncertainty about likely duration & depth ofcurrent economic crises makes any predictions difficult asmost economies/corporations correct their forecasts on amonthly 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

Indi

ces

valu

e (u

nits

)

Dow Jones Industrial Average NasDaq BiotechNasDaq Financials NASDAQ TransportationS&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

10

• 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 aspatients 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 ongoingprojects, 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 experiencecut 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

• Governments can play crucialrole by promoting the adoptionof HIT, setting standards andproviding financial help –example US’s USD 20 billionhealthcare IT package.

• Healthcare providers shouldnot take on conservativeapproaches in implementingHIT but rather leverage on itsinherent ability in reducingcosts and promoting efficiency

• Insurance industry will benefitfrom EDI, which could reducepaper workload , streamlineprocesses and speed upprocessing times.

• Vendors should look intoproviding affordablecommercial arrangements andreducing price.

12

Healthcare Information Technology Trends

Agenda

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

22

Opportunity Assessment on Emerging Market Segments

The paradigm shift of healthcare from provider to patient centric, centralized to decentralized, have pushed the standards ofhealthcare 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 PotentialLow 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

23

2.6%

2.2%

0.6%

2007

2005

2003

HIT Market Assessment - Malaysia

Key E-Health Players in MalaysiaCompany Country

of Origin Key Expertise

SPK Technology Malaysia

THIS, Electronic Medical Record, Patient Management, Physician Order

Management

IBA Health Group Australia Electronic 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 inhealth in 1995.

• In 2000, the country has embarked on Telehealth implementation thataimed at providing uniform HIT infrastructure across the entire nationfor creating single EMR and providing Subsequently in 2007, thegovernment increased its emphasis on E-Health with its strategy andvision to 2020 of the Multi-Media Super Corridor initiative and theTelemedicine Act 1997.

• The Multi-Media Super Corridor initiative was aimed to establish ahealth-care system which could leverage advanced information andmultimedia technologies to significantly enhance its healthcarestandards with telemedicine and medical informatics as the crucialcomponents.

• Government funds were also allocated to expand Tele-Health andTele-consultation services, to share health records and plans, to setup the National Health Informatics Centers and to implement hospitalinformation systems in selected hospitals and clinics, which providesa positive outlook for the E-Health industry.

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

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 & Sullivanestimates

24

HIT Market Assessment - Singapore

Overview of Singapore’s Healthcare IT

• Hospitals in Singapore are taking full advantage oftechnological advances in Healthcare IT to improveefficiency and speed up patient care

• Some examples of information technology playing a majorrole in revolutionizing healthcare delivery in Singaporeinclude: Hospital Information Systems (HIS), PictureArchiving and Communications Systems (PACS), ElectronicMedical Records (EMR), E-Health, wireless technology,radio frequency identification (RFID)

• Healthcare service providers in Singapore can boast ofbeing the leaders in technology adoption in the Asia Pacifichealthcare space

• Healthcare delivery in Singapore is made up of both publicand private systems. In 1999, there was a reorganization ofthe public healthcare delivery system into two verticallyintegrated networks, the NHG and SingHealth - to enable agreater degree of integration, cooperation, and collaborationamong the public sector healthcare providers

• Major private healthcare providers in Singapore are: TheParkway 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)

21.819.3

15.2

11.0 12.013.5

17.1

0

5

10

15

20

25

2003 2004 2005 2006 2007 2008 2009

US$

Mill

ion

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

CAGR % (2005-2009): 12.7%

25

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 furtherreinforce the government’s aim in utilizing technology for its keysectors, including healthcare and medical insurance.

• In a recent survey conducted by the National Statistical Office,Thailand, the hospital segment accounted for about 0.2% ICTcoverage in terms of the number of establishments, out of the total820,137 establishments in 2007 (a majority 82.67% of the totalhospital population.

• Furthermore, in contrast with the other industries, the hospitalsegment creates more ICT job opportunities, whereby 55.2% of theestablishments employ 51 to 200 persons for their ICT activities, andis 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 TransportetcBusiness TradeServicesConstruction

Hospital

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

26

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

2.892.48

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

Expe

nditu

re (U

S$ B

n)

HIT Market Assessment - Australia

Growing Importance of Health IT

• It is estimated that the healthcare IT market in Australia isworth US$2.89 billion in 2007-08, growing by CAGR of16.6% since 2001.

• In an effort to resolve the implications caused by thePrivacy Act on the development of Healthcareinformation, the Australia government amended thelegislation in 2004 to allow for legitimate operations ofhealth IT.

• The nationwide implementation of “HealthConnect”National Information Network was also announced by theAustralian government in the same year, demonstratingAustralia’s commitment to expanding the health ITindustry.

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

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

• In 2008, approximately 90% of the General Practitionersin 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 235.6 Electronic Health Record, Medication Management,

Patient Management, Electronic Health Claims

Health Communication Network

19.58 Practice Management, Patient Management, Clinical Information Sharing, Health fund management

Meditech Global Limited 5.46 Electronic Health Management, Personal Patient

Monitoring, Clinical Information Sharing

ICSGlobal Limited 1.19 Transaction Health Exchange Linking Multiple

Applications (Thelma)

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

27

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 insustaining the economy’s national health insurance system

• Currently, all hospitals and most clinics are connected to the Bureau ofNational 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

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 (andfunding) of Taiwan’s successful health smart card

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

Challenges• Interoperability

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

• PrivacyMedical data is sensitive and “proprietary”. Many are concerned thatde-identification is not sufficient to protect privacy as practicepatterns, medication use, and outcome variations are all sensitiveinformation

98.7%

89.8%

2006

2002

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

28

HIT Market Assessment - India

India HCIT Framework

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

• The Ministry of Health, of Family Welfare, of Communication andInformation Technology, state government, and the Indian SpaceResearch Organization (ISRO) are those who have playedsignificant roles in the development e-Health in India

• The major fields of e-Health more rapidly developing in Indiainvolves 2 main aspects: (1) Total Hospital Information Systemand (2) Telemedicine

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

Total Hospital Information System (THIS) & Telemedicine

• The hospital segment is undergoing an evolution since the early1990s, with the rising requirement for automation.

• Although a large number of HIS services providers are available inthe 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 thedevelopment of the first HIS solution in collaboration withSGPGIMS 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

Rev

enue

(US$

Mil)

0100200300400500600700800

Wor

kfor

ce re

quire

d in

H

CIT

Indu

stry

('00

0)Revenue Workforce

Company/ Institution Sector Key Involvements

ISRO Public GRAMSAT project – Develop telemedicine application through aerospace technologies

DIT Public 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; Lucknowprovides 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

29

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 arerequired to increase investment in building digitized hospitals. Thisrequirement is expected to accelerate the growth of China’s HIT marketby about 25-30% a year during 2006-2010

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

• The market size is expected to expand to approximately RMB 15 billionin 2010. The development of China’s HIT industry is generallyconsidered to be at a preliminary stage, resembling that of westerncountries 20 years ago. Nevertheless, as they learn more aboutavailable and emerging technologies, they now have the opportunity toleapfrog ahead

• In 2007, 380 domestic companies in China have developed HISsolutions in response to the healthcare industry’s rapid growth andgovernment 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)

None32%

Partial41%

Complete27%

Complete

Partial

None

Hospital Clilnic Information System (HCISImplementation Level (2006)

None99%

Partial1%

Partial

None

Health IT Market Size by Expenditure US$ Million (2001-06)

0

100200

300400

500600

700

2001 2002 2003 2004 2005 2006

Expe

nditu

re (U

S$

Mill

ion)

30

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

RestraintsFinancial 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

ChallengesThe 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 andanalysis, development of data bank, health profiles andpresentation of information for different purpose,development of network and information sharing amonginformation users as well as development of methods for theuse 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 extentFully utilizing HIS

31

CIO & CFO Healthcare Information Technology SurveyConducted in US in November 2008 by

• College of Healthcare Information Management Executives (CHIME),

• The National Alliance for Health Information Technology (NAHIT)

• AHA Solutions, Inc.

32

Key Findings

• Over half of the CFOs/VPs Finance (55%) report experiencing slight or significant delays in accessingcapital 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 lengtheningtimeframes 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 reducingspending on outsourced IT services (34%).

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

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

33

Tighter Access To Capital Is Forcing Project Delays

0% 10% 20% 30% 40% 50% 60% 70% 80%

Across the board cuts

Reductions in specific departments’ budgets

Delaying facility/facility upgrade investments or lengthening timeframes for completion

Delaying equipment purchases

Delaying health IT initiatives or lengthening timeframes for completion

Selective layoffs due to utilization reductions

Increases in charges

More aggressive negotiations with payers

More oversight on charity/uncompensated care

CFOs/VPs Finance: Response to Financial Crisis • More than half (52%) report slight or significant delaysin accessing capital and expect the financial crisis tolast another one to two years.

• 74% CFOs/VPs Finance are dealing with budgetarypressures by delaying or lengthening development ofnew facilities, facility renovations and health ITinitiatives.

• 33% reported cutting budgets,

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

• Those who reported an increase in their IT capitalbudgets (11%) are finding ways to reduce costs bymore aggressively negotiating with payers or providingincreased oversight on charity/uncompensated care.

• 52% of CFOs/VPs Finance reported delaying or cuttingEMR rollouts and 43% pushing back or reducingCPOE implementations.

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

Capital projects will be delayed or

dropped 39%

Investigating other

approaches to funding capital

expenses 15%

Making other budget

adjustments to keep capital

projects on track 4%

Tapping into foundation,

endowment and other funds to meet capital

expenses 8%

No organizational strategy has been

outlined. 34%

CFO/VPs Finance: Impact on 2009 Projects

34

Decreases In 2009 IT Capital Spending Will Affect Hospital IT Vendors

Increase2%

Decrease36%

Stay the same 52%

Don't know10%

CIOs: 2009 Organization Overall Capital Budgets Increase

5%

Decrease49%

Stay the same 36%

Don't know10%

CIOs: 2009 IT Department Capital Budgets

Increase11%

Decrease44%

Stay the same 33%

Don't know12%

CFOs/VPs Finance: 2009 IT Capital Budgets • More than half (52%) of CIOs reported that their organization’s

capital budget will remain the same in 2009 while 36% said itwould decrease. Just 2% expected their organizations’ capitalbudgets to rise.

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

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

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

35

0% 10% 20% 30% 40% 50% 60% 70%

Servers

Storage

Applications/Software

IT services (Outsourced e.g. consultants)

Networking

Across the board cuts

21%

11%

63%

34%

12%

6%

CIOs: Decrease in IT Capital Budget, Areas with the Biggest Cuts

2009 Operating Budgets Target Outsourced Services For Cutbacks

0% 10% 20% 30% 40% 50% 60%

IT staff

IT services (Outsourced e.g. consultants)

Hardware

Networking

Applications/software

Across the board

30%

59%

8%

3%

27%

2%

CIOs: IT Operating Budget, Areas with the Biggest Cuts

30%

64%26%

13%4%

26%

CFOs/VPs Finance: IT Operating Budget, Areas with the Biggest Cuts

time of existing projects

Delay or reduce slate of new projects

Reduce staff/implement hiring freeze

Across the board

Re-negotiate service contracts

• 67% of CFOs/VPs Finance say their organization’s operating budgets will increase or stay thesame 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 budgetswill be lower in 2009. 65% say the annual budgets for running their departments will increase orstay 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.

36

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

50%

36%

14%

21%

CFOs/VPs Finance: Clinical Initiatives with Planned Reduction or Delay in Funding Support

EHR/EMR

CPOE

Medication Management

Other

52%

43%

32%

CIOs: Clinical Initiatives with Planned Reduction or Delay in Funding Support

EHR/EMR

CPOE

Medication Management

Major clinical IT initiatives show the biggest dichotomy among respondents. Half (50%) of CFOs/VPs Finance and 52% ofCIOs 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. Manyof their counterparts, however, are moving head with these types of efforts.

37

Conclusion

Going into 2009 and possibly some or all of 2010 will be challenging years for hospitals. Beforeeconomic turmoil hit, hospitals had shown important progress in health IT adoption, and for now, manyof these initiatives are funded and moving forward. But a prolonged or deeper economic slowdown willinevitably be met by further reductions in IT capital and operating budgets, so even those health ITinitiatives 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, higherquality and more cost-effective care, thus enabling hospitals to stay competitive. Some hospitalsexecutives surveyed see this as the time to invest in IT initiatives that will deliver direct andquantifiable savings to their organizations.

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

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