A sputtering information systems market sprang to life in the fourth quarter of 1993, giving vendors hope that all the talk about healthcare reform finally was converting into sales.
But the industry observer who monitored that turnaround said he's not ready to forecast a boom in computer contract revenues yet.
Ron Johnson, president of R.L. Johnson and Associates, Danville, Calif., said total projected revenues from orders placed in 1993 was just over $3.3 billion, an increase of 22% over 1992. The increase was 13% higher than the $2.9 billion forecast in his 1992 survey of information systems market trends, but it took a strong fourth quarter that accounted for as much as 40% of the year's sales, Mr. Johnson said. "The magnitude of the increase surprised everyone," he said.
Leading the way was a 35% increase in revenues from patient-care systems compared with the 1992 forecast. Also strong was radiology, increasing 21% over projections made in 1992.
Despite the unexpected splurge at the end of 1993, Mr. Johnson forecast declining revenues from sales of financial, patient-care, laboratory and pharmacy systems during the next five years (See charts). "The number of financial systems, for all practical purposes, has reached saturation, with the patient-care, laboratory and pharmacy segments close behind," he said.
Sales in those areas will rely on the replacement market and upgrades in clinical-care capability, Mr. Johnson said. Most first-time sales represent smaller hospitals, so the contract size is less and vendors are harder pressed to maintain current revenue levels.
The effect of healthcare reform's pressure to integrate information systems within a network is tough to quantify, Mr. Johnson said. Electronic data interchange, system integration, home healthcare systems and initiatives to gear up transmission and retrieval of data at the point of care are all among the emerging market opportunities the annual trends survey is beginning to monitor.
But 1993 sales in the emerging market categories totaled only $286 million combined. Although that segment is forecast to more than double by 1998, to $615 million, it barely replaces the projected decline in financial and patient-care systems.
Despite these projections, interest in the healthcare information technology business by companies outside the field is growing. Corporations as diverse as American Airlines, AT&T, Hughes Aircraft and Motorola have shown an interest in applying their existing technology to healthcare, Mr. Johnson said.
He said some prospectors may be disappointed. "There's a feeding frenzy, but I don't think there's enough bait there to satisfy all the fish," he said. He compared it to the California gold rush of 1849, where thousands got into the act, "but only a few got rich."
Within the pool of about 100 current software vendors for which Mr. Johnson's survey keeps figures, sales are concentrated among a handful of vendors at a time when hospitals are looking for complex integration solutions backed by good odds of continued solvency and commitment to research and development.
The top 19 vendors, or 20% of the total, posted 84% of the contract revenues reported to the survey firm in 1993. And the five largest vendors-First Data Corp., HBO & Co., IBAX, Meditech and Shared Medical Systems-had nearly 58% of the business.
That means 80% of the vendor lineup is chasing less than 20% of the market for information systems. Many of these companies are offering a single product. "There's a high degree of vulnerability here," Mr. Johnson said. "It doesn't take much of a hiccup for these small companies to have financial problems."
The increasing complexity of healthcare system integration could lead hospitals and health networks to stay with vendors offering a range of products. That's why single-product vendors are seeking to fit into the larger picture of major vendors (Feb. 21, p. 12). "They realize if they're going to be a major player in the industry, it's extremely difficult to be a single-system vendor."
Of the 94 vendors represented in the survey, 19 had revenues of $1 million or less, for a total of $11.7 million in combined revenues. Another 23 vendors had revenues from $1 million to $5 million, for a combined total of $48.1 million.
In other trends documented by the survey:
Replacement sales of financial information systems declined 7% to 659 last year from 708 in 1992. Meanwhile, replacements of patient-care systems increased 42% over 1992, to 594 from 417. Replacement sales more than doubled the 290 recorded for patient-care systems in 1991.
Radiology system sales continued a modest climb, increasing 12% to 346 from 309 new sales in 1992. Replacement sales sustained the momentum registered in 1992, when they increased more than 50%, to 67, from 43 in 1991. Radiology replacements increased another 10% in 1993, to 74.
After a slow 1992, replacement sales of laboratory systems rebounded, increasing 40% to 132 in 1993 from 94 in the previous year. But the lab system replacement market still hasn't approached the 1991 level of 177 sales.