IBM Viewpoint: Reforming Healthcare: A Key Emerging Market For The 21st Century

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Armonk, NY - 07 Feb 2006: Healthcare is becoming as important to the vitality of businesses, governments and nations as it is to the well being of individuals. Soaring healthcare bills add $1,500 to the cost of every car made by General Motors, for example, compared to $200 per car for the company's nearest foreign competitor.

In fact, higher healthcare spending does not guarantee better delivery or outcomes. America spends 16 percent of its GDP on healthcare - the highest in the world - but ranks only 37th in the overall performance of its healthcare system by the World Health Organization. Moreover, more than 100,000 Americans die each year from preventable medical errors. This adds up to more fatalities than from AIDS, homicides, and traffic accidents combined. Meanwhile, 45 million Americans have no healthcare insurance and 15 million are under-insured.

Many factors contribute to this healthcare crisis, from changing demographics to the spread of "diseases of affluence" and chronic illnesses. But perhaps the most treatable disorder is underinvestment in healthcare information technology. Lifesaving medical advances have not come accompanied by improvements in the way members of the healthcare ecosystem (from public and private payers, to providers, researchers and consumers) use IT to work with one another. As a result, the "system," such as it is, functions much like a fragmented cottage industry. This IT failure has been well documented in a recent study by the Rand Corporation, which concludes that a modern healthcare IT infrastructure could save up to $165 billion per year by reducing hospital stays, encouraging tests and early treatment, and cutting administrative costs.(1)

The Rand study is part of a growing consensus that the healthcare crisis has reached a tipping point. Governments, businesses and patients can no longer tolerate the system's spiraling costs. There is broad agreement that building a modern information infrastructure that ties together the healthcare ecosystem is the most readily available means to control healthcare inflation and improve delivery.

At the moment, healthcare IT spending averages just two-to-three percent of overall healthcare spending. This compares with as much as 12-15 percent in other information-intensive industries, such as financial services. Analysts forecast that, as countries address this massive underinvestment, healthcare IT spending will grow at a faster pace than overall IT spending. Gartner estimates that worldwide healthcare IT spending will surpass $100 billion in 2006, and grow at a compound annual rate of 6.6 percent between 2004 and 2009, lead by business process outsourcing (BPO), IT outsourcing (ITO), consulting, and IT development and integration.

This extra investment in healthcare IT is already well underway. America has launched a 10-year effort to build a healthcare IT infrastructure that will save billions of dollars. Similar long-term projects are underway in Europe. These include Britain's Connecting for Health program, and the European Commission's e-Health Initiative.

IBM is well positioned to capture this increased healthcare IT spending. Thanks to IBM's combination of industry insight and leading information technologies and services, IBM has the expertise and the relationships to motivate and align system participants and build the infrastructure and processes which will connect them.

IBM's acquisition in April 2005 of Healthlink Incorporated, America's foremost healthcare process improvement and IT consulting-services firm, enriches IBM with healthcare domain expertise, business process knowledge, and proprietary methodologies. Healthlink has practice areas in hospital applications, strong relationships with independent software vendors and more than 2,000 clients, including the U.S. Department of Defense and Department of Veterans Affairs.

IBM is leading a worldwide effort to help business and public-sector organizations put in place key components of the roadmap for 21st century healthcare.

Healthcare reform has reached a point of inflection. Affordable, high-quality healthcare is no longer simply a social goal. It has become an economic imperative, for businesses and governments alike. Together with its healthcare partners, IBM has the strategy, specialized systems integration expertise and track record of client success to capture growth in this emerging marketplace.

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1 Hillestad, Richard; James Bigelow; Anthony Bower; Federico Girosi; Robin Meili; Richard Scoville; and Roger Taylor, "Can Electronic Medical Record Systems Transform Health Care? Potential Health Benefits, Savings, and Costs," Health Affairs, September/October 2005.