IT, policy

German government initiatives to boost use of IT in healthcare

5 February 2006

Expenditure on healthcare IT in Germany represents a paltry 0.5% of total healthcare outlays — an extremely low proportion compared to other developed countries. However, the pursuit of a more integrated healthcare IT policy, government initiatives and new reimbursement structures are set to boost demand for healthcare IT in Germany.

Only 15-20% of German hospitals currently follow an integrated healthcare IT strategy that embraces the hospital-based, in-patient sector and the ambulatory, out-patient sector. This low penetration rate has been attributed to a variety of reasons — the absence of coherent federal initiatives towards eHealth, the decentralised healthcare administration which has resulted in varying levels of IT development in the different Lander, restricted hospital IT budgets and the lack of an articulated enterprise-wide IT strategy.

However, new integrated-care approaches and disease-management programmes are now aiming to integrate and co-ordinate ambulatory and hospital care. This is set to trigger increased demand for healthcare IT solutions creating, in particular, strong growth potential for clinical systems in the outpatient arena. As a result, exciting investment opportunities are emerging in Germany's healthcare IT sector.

After 2005-2006, government initiatives and the launch of a new hospital billing system under the diagnosis-related groups (DRGs) is poised to accelerate market growth. Recent healthcare reform acts have prioritised healthcare IT with Federal initiatives encompassing electronic patient cards, healthcare professional cards, e-prescription and electronic patient records.

"Whereas previously healthcare IT was initiated at Lander level, and often implemented in the form of pilot projects, a nation-wide approach is planned as stated in the Health Ministry's master plan 'Information Technology Society Germany 2006,'" notes Siddharth Saha, Programme Manager, Healthcare IT at Frost & Sullivan.

Legislation requiring the transmission of all patient and procedure data to the sickness funds for reimbursement purposes in electronic form and new reimbursement regulations introduced for in-patient treatment following the establishment of DRGs, has compelled hospitals to invest in the necessary IT systems to achieve regulatory conformity.

In addition to hospitals having to comply with regulatory requirements (DRGs, procedural coding etc), greater awareness of the role IT systems play in improving work-flows, controlling costs and increasing cost-efficiency are also set to expand the German healthcare IT market.

Market value

The total German healthcare IT market including clinical and administrative systems (hardware, software, services and maintenance contracts) targeting both hospital and ambulatory sectors has been estimated at €1.2 billion in 2003. Segments with the highest potential include picture archiving and communications systems/radiology information systems (PACS/RIS), electronic medical records (EMR), decision support tools and data management systems.

Initially, healthcare IT was dominated mainly by administrative systems that facilitated patient data administration and financial reporting/purchasing. However, even as the market for administrative systems has become increasingly saturated, the demand for clinical systems has been rising. In keeping with these trends, a steady annual growth rate of 5.7% is estimated for administrative systems and 15-20% for clinical systems up to 2006. This indicates expanding market opportunities for suppliers of clinical systems.

Formidable barriers await competitors wishing to enter the increasingly attractive German healthcare IT market. Existing barriers include an already high level of competition, a price driven market where purchasing decisions tend to focus on price and the lack of quick return on investment.

To facilitate their market entry, new competitors could contemplate either acquiring or entering into partnership/alliances with a German company. Ultimately, the key factors for success will include relationship building and focusing on optimising service provision.

"It is vital for suppliers to build and maintain relationships with key personnel in hospitals/clinics," says Mr. Saha. "Also, hospitals operate 24/7 and therefore need high service levels and reliability. Hospitals value sufficient support that is still affordable. Accordingly, suppliers must constantly strive to enhance their service provision component."

Source: Frost & Sullivan

Further information:
Email: Radhika Menon Theodore

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