As a health IT startup, we at Cognitive Medical Systems are often asked about the size of the market. We know that it’s BIG, but the truth is we have never been able to find a straightforward answer as to how big it actually is. Data is often proprietary, and segmented such that it’s difficult to compare. Therefore the estimates currently out there can at best be used to orient us:
- In 2009, marketresearch.com predicted the total market would be worth $53.8 billion by 2014.1
- Research and Markets predicted the health IT market would be worth $31.3 billion in 2017.2
- Markets and Markets currently predicts the market will reach $104 billion by 2020.3
If we adjust these figures as needed for 2017 using the 13.5% compound annual growth rate (CAGR) Markets and Markets predicts through 2020, our bounds are between $31 billion and $148 billion.3 Hardly a satisfying answer. So we set out to posit a well-reasoned estimate for ourselves. We don’t intend for this to be authoritative; rather we’d like to start a conversation that leads to a more complete holistic valuation.
Methodology & Results
To get a complete picture of the market, we included health IT spending by Federal agencies, commercial and non-profit hospitals, large healthcare systems, private practices, payers, and consumers.
Federal numbers can be gleaned from budgets and spending reports, but are generally reported by project, making it difficult to tease out costs by function. Estimates for 2017 have fluctuated but we were able to arrive at reliable numbers using reports from a couple different research firms.
In 2011, Deltek predicted federal health IT spending would reach $6.5 billion by 2016.4 A Govini report put 2015 actuals at that same number,5 indicating an upward trend. If we extrapolate using Deltek’s 2.2% CAGR6 projection we get an estimate of $6.7 billion for 2017.
Given VA and DOD’s efforts to modernize their EHRs, including DOD’s acquisition of Cerner’s Millennium product to replace its AHLTA system—valued at $11 billion all told6—this seems to be an extremely conservative estimate. Also driving growth in the federal market is demand for big data analytics, clinical decision support, telehealth, storage, and cloud solutions.7
Hospitals & Large Health Systems
EHRs have been the biggest market driver in recent years, but that is changing as they reach saturation and replacement purchases are poised to overtake first-time purchases. With the near ubiquity of EHRs and as organizations work to further customize their systems, health groups are seeking to better leverage their EHR data with analytics, business intelligence, and clinical decision support. Also, as SAAS and cloud solutions become more accepted, application spend will shift to operations.8
The Healthcare Information and Management Systems Society (HIMSS) regularly publishes its HIT forecast model for hospitals and integrated delivery systems (IDS). HIMSS reported that in 2014 hospital and IDS IT expenses ran between $37.8 billion and $51.5 billion.8 For our purposes we’ve averaged this to $45 billion. Without a hospital-specific CAGR, we will use the Markets and Markets CAGR to augment this number for 2017, giving us $66 billion.
Clinics & Private Practices
There is scant published data specifically addressing individual physicians and physician groups as they represent a much smaller funding pool, but we attempted to quantify the market value for the IT products used specifically by small and independent practices: ambulatory EHRs and clinical practice management software.
IDC Health Insights predicted ambulatory EHR spending would reach $1.4 billion in 2015 at a 14.2% CAGR.9 It has been widely reported that new EHR procurement will slow as adoption reaches saturation, and by January 2015 8 in 10 office-based physicians had already adopted an EHR.10 Since this group is unlikely to participate in early adoption of analytics platforms—which is where EHR funding will transition—we used this last known estimate.
A global estimate of the practice management system market predicted $247.1 million in spending by 2018 but did not provide a breakout by country, so we rounded up our figure for this category to $1.5 billion as U.S. spending in this area surely amounts to at least $1 million.11
Growth in health insurance IT spending will come from a shift toward analytics platforms as payers strive to leverage data for greater efficiency and decreased risk. Although the industry is still acclimating to the regulatory and compliance requirements of the Affordable Care Act, it has largely accommodated the spike of newly insured individuals. Finally, just as federal payers are experimenting with alternative reimbursement models that emphasize quality, private payers will begin tweaking their models in response to the new information available.
In 2010, before the HITECH and Affordable Care Act’s technology-driven health reforms were fully realized, McKinsey reported that health insurance payers paid $13 billion for IT annually.12 Frost & Sullivan predicts the U.S. Health Insurance IT market will grow at a compound annual growth rate of 5.5% between 2015 and 2020.13 It’s a bit disingenuous to apply this CAGR to the earlier period, but 5.5% is most likely conservative. This gives us a 2017 estimate of $19 billion.
Mobile health (mHealth) has been on the rise in recent years thanks to increased use of wireless devices—everything from phones to fitness trackers to home diagnostic tools. With all of this data available, consumers are demanding providers make sense of it for use in provision of care. Specifically, monitoring for chronic disease management and diagnostic services are naturally facilitated by personal devices and are driving demand.
In 2013, PwC predicted the U.S. would make up 28% of a $23 billion mHealth market in 2017, putting it at about $6.5 billion.14 We expect this, Precision Medicine, and related initiatives to drive lots of opportunity in the public and private sectors.
All of these estimates add up to a $100 billion health IT market! Today we are figuring out how to house and harvest data but in the coming years we will need to figure out how to intelligently deploy and consume it. The drivers pushing the market over the last several years are winding down, but this is still just the dawn of the digital health transformation.
We promised an open conversation around our estimate, so now we want to know what you think. Are we close? Too low? Too high? Let us know at firstname.lastname@example.org.
- “Global Healthcare Information Technology (2009-2014) Industry Analysis Report.” Markets and Markets. August 2011. Accessed August 9, 2016. http://www.marketsandmarkets.com/Market-Reports/healthcare-information-technology-market-136.html
- “Big Growth Forecast for Health IT Market.” Healthcare IT News. December 30, 2013. Accessed August 9, 2016. http://www.healthcareitnews.com/news/big-growth-forecast-health-it-market
- “North American Health IT Market to Reach $104B by 2020.” HIT Consultant. October 15, 2015. Accessed August 9, 2016. http://hitconsultant.net/2015/10/15/north-american-health-it-market-to-reach-104b-by-2020/
- “Federal Health IT Market Set to Grow to $6.4B by 2016.” Healthcare IT News. December 20, 2011. Accessed August 9, 2016. http://www.healthcareitnews.com/news/federal-health-it-market-set-grow-65b-2016
- “Federal Health IT Spending Sees ‘Astonishing Growth’ Says New Report.” Healthcare IT News. July 21, 2016. Accessed August 9, 2016. http://www.healthcareitnews.com/news/federal-health-it-spending-sees-astonishing-growth-says-new-report
- “Leidos Wins DoD Healthcare Systems Modernization Contract.” Federal Times. July 30, 2016. Accessed August 9, 2016. http://www.federaltimes.com/story/government/it/health/2015/07/30/leidos-wins-dod-healthcare-systems-modernization-contract/30877027/
- “Deltek: Federal Government’s Spending on Health IT is One Area that is growing.” The Washington Post. October 26, 2014. Accessed August 9, 2016. https://www.washingtonpost.com/business/capitalbusiness/deltek-federal-governments-spending-on-health-it-is-one-area-that-is-growing/2014/10/24/ce671a02-5a2c-11e4-8264-deed989ae9a2_story.html
- HIMSS Analytics. “2015 Healthcare IT Spending Forecast Report.” April 2015.
- “IDC Forecasts Healthy EHR Sales Through 2015.” Healthcare Informatics. January 11, 2011. Accessed August 9, 2016. http://www.healthcare-informatics.com/article/idc-forecasts-healthy-ehr-sales-through-2015
- “Office-based Physician Electronic Health Record Adoption: 2004-2014.” Accessed August 9, 2016. http://dashboard.healthit.gov/quickstats/pages/physician-ehr-adoption-trends.php
- “Practice Management System Market Worth $247.1 Million by 2018.” Markets and Markets. Accessed August 9, 2016. http://www.marketsandmarkets.com/PressReleases/medical-practice-management-software.asp
- “The New IT Landscape for Health Insurers.” McKinsey & Company. August 2010. Accessed August 9, 2016. http://www.mckinsey.com/industries/healthcare-systems-and-services/our-insights/the-new-it-landscape-for-health-insurers
- Hit “Report: Health Insurers Fueling Digital Health Transformation.” HIT Consultant. November 24, 2015. Accessed August 9, 2016. http://hitconsultant.net/2015/11/24/report-health-insurers-accelerate-digital-health-transformation/
- “The Global mHealth Market Opportunity and Sustainable Reimbursement Models.” PwC. July 2013. Accessed August 9, 2016. http://www.pwc.com/gx/en/healthcare/mhealth/mhealth-insights/assets/pwc-mhealth-mobile-market-6.pdf
About Cognitive Medical Systems, Inc.
Cognitive Medical Systems is a fast growing company helping public and private organizations make the most of clinical decision support tools. They come to us because we’re able to draw from decades of operational experience in on-the-ground health delivery, informatics, and enterprise software. And we combine that with technical prowess in complex infrastructure, workflows and CDS systems integrations.