U.S. health IT spending continues to rise. Source: Arizona Public Interest Research Group

SState and local governments' investments in Medicaid Management Information Systems (MMIS) as well as health IT innovation, will drive vertical growth for health IT spending from $6.9 billion in 2007 to $10.8 billion in 2012, according to a December 2007 report published by market research firm Input.

According to Input, the MMIS market will hit $4.1 billion in 2012, accounting for $2.6 billion of the annual growth in the health IT market of $3.9 billion. The firm expects the overall health IT market to expand at 8.6 percent annually.

“The rubber meets the road with MMIS,” said Chris Dixon, manager of state and local industry analysis for Input. “Medicaid spending is one of the two or three biggest ticket items in a state budget and it’s been the fastest growing pain point for states for some time. If you add in the sort of rolling budget crises that are popping up in states right now, it’s pretty clear that the first place they’re going to look to contain costs is Medicaid.”

Dixon noted that even though MMIS is not purely a health IT play, using IT to modernize the complex systems is likely to be the centerpiece of healthcare reforms at the state and local level. MMIS are a collection of both computerized and manual claims processing and information retrieval systems that most states are required to develop to manage and distribute Medicaid funds.

In 2007, the Centers for Medicare & Medicaid Services (CMS) awarded $150 million in “Medicaid Transformation Grants” to several states. Three health IT categories—e-prescribing, health IT and quality and health outcomes—accounted for 79 percent of the funding awarded.

“We think that indicates the CMS has turned a corner in a pretty sudden and visible way towards health IT being almost synonymous with what they’re looking for in the way of Medicaid transformation,” Dixon said.

Twenty-nine of 36 vendor-operated MMIS systems are coming up for re-compete between now and 2012, according to Input. The remaining 15 states currently running the systems themselves could decide to outsource.

Health IT should be viewed as more than simply an EMR system or an approach to cost containment, Dixon said. In the future, he said states will begin to explore ways to use business intelligence systems to analyze and manage healthcare costs and treatments more effectively.