UnitedHealth Group Inc., the biggest U.S. insurer with operations in Hartford, and McKesson Corp., the largest drug distributor, are vying for billions of dollars in added sales by bulking up their information-technology units, Bloomberg News reports.
The companies are expanding beyond their core business to help insurers cope with the health overhaul, which threatens to swamp industry computer systems, said Joanne Galimi, a Boston-based analyst for technology researcher Gartner Inc.
Bracing for added taxes and regulations, insurers are upgrading long-neglected systems used to enroll members, track care and process claims, Galimi said. They also face a 2013 switch to a new government-mandated system for classifying diseases.
As a result, insurer spending on data technology will jump 24 percent by 2013, to $11.3 billion, according to a March report by IDC Health Insights, of Framingham, Mass.
“Every health-care payer in the world needs an upgrade,” said Stephen Krupa, a founder of Psilos Group Managers LLC, a venture capital fund with $580 million invested in Click4Care and other medical companies. “You or I are talking about getting an iPad. They are still getting off mainframes.”
Insurers are seeking savings to offset costs from the legislation signed by President Barack Obama in March. The law calls for $240 billion in taxes and Medicare cuts on insurers over the next decade, while adding as many as 32 million customers. It also caps the amount of premiums spent on administrative costs, and bans denials of coverage based on preexisting medical conditions.
The technology push may spur acquisitions of a growing crop of software vendors catering to the industry, among them Click4Care Inc. and ZeOmega, Galimi said.
UnitedHealth, based in Minnetonka, Minnesota, bought two closely held software companies during the last five weeks to expand its Ingenix data unit. For McKesson, technology sales are likely to be the San Francisco-based company’s biggest growth area over the next four years, said Helene Wolk, an analyst at Sanford C. Bernstein & Co. in New York.
Insurers lag behind the banking industry, where customers routinely track accounts and make transactions online, Galimi said. That’s partly because many of the 1,300 U.S. health plans are nonprofits that haven’t had the resources to stay current, the analyst said. Consolidation has also left companies with multiple, often redundant systems, she said.
“So many health insurers have manual processes, workarounds, paper-based records,” Galimi said in a telephone interview. “The very big ones are doing better because they have dollars to spend, but they’ve also had more acquisitions under their belts, so they have more siloed systems.”
Health plans are also retooling to comply with ICD-10, a federally mandated system for classifying patients’ medical conditions. The change will add thousands of disease codes as of Oct. 1, 2013, said Maureen O’Neil, another Gartner analyst. Installing and testing software may take insurers as long as 2½ years, she said.
“Virtually every core application is going to need to be changed,” O’Neil said in a telephone interview.
That’s created a niche for entrepreneurs like Krupa, the venture capitalist, who sees a market in using information- technology to streamline a U.S. health system that spends $2.5 trillion annually.
Krupa’s Psilos fund sold ActiveHealth Management and its care-coordination software to Hartford-based Aetna Inc., the third-largest U.S. insurer, for $400 million in 2005. New York-based Psilos has investments in about 18 health-care companies today, among them Click4Care and Burlington, Mass.-based HealthEdge Software Inc., vendors that analyze patient data and organize benefits.
The companies have seen “unprecedented growth” in sales this year, said Robert Gillette, CEO at both. Click4Care, based in Powell, Ohio, makes software that sifts through prescriptions, electronic medical records, claims data and other information to identify patients at risk of developing a particular illness.
