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2019 Healthcare IT Demand SurveyDigital and AI aretop priorities in2019, EHR systemscontinue todominate IT spend

The changing landscape and blurring lines of capabilities and competition inHealthcare IT 2019In our 3rd annual survey on the healthcare IT demandin these areas are not very mature. They are confused by the buzz aroundenvironment, we find that the more things change, the“AI” and “digital”, the changing landscape of who is playing what role and themore they stay the same. As we have seen in previousblurred lines of capabilities and competition.years, technology vendors face continued strugglesPaddy Padmanabhanwith long sales cycles. For the second year in a row,Health systems are firmly committed to their EHR vendors. Despite thethe rise of non-traditional players such as Amazonmany shortcomings, EHR systems appear to be the primary choice for digitaland Google is seen as having a strong impact on theinitiatives among health systems at this stage.competitive environment among technology vendors.Damo Consulting’s annual survey continues to provide important insightsinto the demand environment for healthcare IT. For the first time, the reportThis year, we also included healthcare enterprise executives to ourcompares how technology vendors and healthcare executives see 2019respondent pool and they share many of the same observations as theshaping up. I hope you find the report useful. As always, I would love to heartechnology vendors. For this group, the main IT priorities for 2019 areaccelerating digital health initiatives and investing in advanced analytics andartificial intelligence. This aligns with the vendor view on the top spendingpriorities for healthcare IT in 2019. Healthcare executives are also morefrom you.Sincerely,upbeat about overall IT spend growth than their vendors.Paddy Padmanabhan, CEO, Damo Consulting Inc.However, while technology vendors are aggressively marketing “digital”paddy@damoconsulting.netand “AI”, healthcare executives note that the currently available solutionsJanuary 10, 2019by Damo Consultingwww.damoconsulting.net2 2019 Damo Consulting Inc.2info@damoconsulting.net

I pay 1,000 per month for a PPO plan for me and my son. For most people this is not affordable.Affordability, while retaining quality care, seems key. — survey respondantby Damo Consultingwww.damoconsulting.net3 2019 Damo Consulting Inc.3info@damoconsulting.net

Introduction and MethodologyThis report showcases the results from our 3rd annual survey on thedemand environment for healthcare IT. For this year’s survey, wenot only collected responses from technology and service providerexecutives, but also from healthcare enterprise executives. The survey examines a range of topics ranging from digitaltransformation and where that currently stands to how healthcareIT will look in 2019 to how spending will change or stay the sameover the next year in the healthcare IT environment. In total, 64 executives responded to our survey with 40 whoare technology and service provider executives and 24 who arehealthcare enterprise executives. The survey responses werecollected in October and November, 2018. Please note that due to rounding or multiple responses beingallowed, percentages may not add up to 100%. by Damo Consultingwww.damoconsulting.net4 2019 Damo Consulting Inc.4info@damoconsulting.net

HighlightsThe top spending priorities for healthcare executives are digital, advanced analytics and AI. EHR systems will dominate technology spending budgets,even as the focus turns to digital and analytics.IT budgets are expected to grow by 20% or more. Healthcare executives are more upbeat about IT spend growth than vendors.Healthcare executives say they are confused by the buzz around AI and digital. They are also struggling to make sense of the changing landscape ofwho is playing what role and the blurred lines of capabilities and competition.Cybersecurity issues are a challenge for 2019 in the healthcare sector, but not the biggest driver of technology spending or the top area of focus forhealth systems in 2019.The CIO remains the most important buyer for technology vendors, however IT budgets are now sitting with multiple stakeholders.The biggest challenge for technology vendors is long cycles, along with product/service differentiation and brand visibility.The rise of non-traditional players, such as Amazon, Apple and Google will have a strong impact on the competitive healthcare technologyenvironment. Deeply entrenched EHR vendors such as Epic and Cerner will grow in dominance.by Damo Consultingwww.damoconsulting.net5 2019 Damo Consulting Inc.5info@damoconsulting.net

The top spending priorities for healthcare executives are digital, advanced analytics and AI.Accelerating digital health initiatives is clearly the number one priority for healthcare, howevermodernizing IT infrastructure and optimizing EHR systems are also significant 0%(the big challenge is) Dealing withElectronic Health Records.0%AcceleratedigitalhealthinitiativesInvest in advanced Modernize ITanalytics andinfrastructureartificial intelligencecapabilitiesOptimizeElectronicHealth Records(EHR) systemOtherHealthcare enterprises: What are your biggest IT priorities in 2019?by Damo Consultingwww.damoconsulting.net6 2019 Damo Consulting Inc.6info@damoconsulting.net

Technology vendors also see AI, advanced analytics and digital transformation as the top areas offocus for next year among italRecordandtransformation(EHR) ityandransomwareM&AintegrationThe macro issues will remainthe same but it’s to be seen howmany players effectively adopt andgrow in the digital transformationjourney.OtherTechnology & service providers: Which of the following are your company’s top areas of focus in 2019?by Damo Consultingwww.damoconsulting.net7 2019 Damo Consulting Inc.7info@damoconsulting.net

While vendors are overweight on digital and analytics, EHR system optimization and cyber securityare seen as significant drivers of technology ificialintelligence(AI)Electronichealthrecord &AintegrationFor best of breed solutions, (thechallenge is) attracting enoughmindshare and budget vs. EHRspends.OtherTechnology & service providers: Which of the following are the biggest drivers of technology spending in healthcare in 2019?by Damo Consultingwww.damoconsulting.net8 2019 Damo Consulting Inc.8info@damoconsulting.net

Healthcare executives see digital transformation to be primarily about reimagining patient andcaregiver 4%5%The biggest challenge for healthcarein 2019 will be navigating tighteningmargins and limited incentives toinvest in care redesign.0%Reimaginingpatient andcaregiverexperiencesAnalytics medicineOtherHealthcare enterprises: What does the term digital transformation mean to you?by Damo Consultingwww.damoconsulting.net9 2019 Damo Consulting Inc.9info@damoconsulting.net

Healthcare executives are divided on whether digital is primarily an IT-led initiative. They are alsodivided on whether technology-led innovation is dependent on the startup ecosystem.Data silos and lack of interoperability are the biggestchallenges to digital transformation79%The fee-for-service reimbursement model will remain thedominant payment model for the foreseeable future63%54%Technology and innovation is not dependent on digitalhealth startupsDigital transformation is mainly an IT-led initiative inhealthcare enterprises50%17%IT security and data breaches will not be a big threat in20190%10%20%30%40%50%60%70%80%90%% saying Strongly/ Somewhat agreeHealthcare enterprises: How strongly do you agree or disagree with the following statements?by Damo Consultingwww.damoconsulting.net10 2019 Damo Consulting Inc.10info@damoconsulting.net

The good news for technology vendors is that digital transformation is gaining momentum inhealthcare enterprises.Digital transformation initiatives are gaining momentumin healthcare enterprises100%There will be a significant (greater than 20%) growth inhealthcare IT spending in 201979%75%The rapid change in the healthcare IT landscape makestechnology spending decisions harderFederal government policies have provided a boost tohealthcare IT spend this past year71%There are plenty of viable and ready-to-deploysolutions available today in emerging technologiessuch as AI and digital health solutions58%0%20%40%60%80%100%120%% saying Strongly/ Somewhat agreeHealthcare enterprises: How strongly do you agree or disagree with the following statements?by Damo Consultingwww.damoconsulting.net11 2019 Damo Consulting Inc.11info@damoconsulting.net

However, digital initiatives compete for limited budgets with multiple priorities within arginpressuresat enterpriselevelLack ofalignmentaround digitaltransformationroadmapTechnicaldebt (fundingpriorities formodernizing ITinfrastructure)Cost optimization ofhealthcare, access to qualityhealthcare, data security (arethe big challenges).OtherHealthcare enterprises: What is your biggest obstacle when it comes to getting your digital transformation spend budgets approved?by Damo Consultingwww.damoconsulting.net12 2019 Damo Consulting Inc.12info@damoconsulting.net

Healthcare executives perceive a lack of maturity in technology solution choices for %0%Lack ofmaturity/risksassociatedwith newtechnologiesLack ofDatainternalmanagementcapabilities forandmanaging digital interoperabilitytransformationchallengesCyber securityand dataprivacyconcernsHIT architecture needs tosubstantially change fromlarge monolithic code sets toan API driven environment withmultiple competing apps.OtherHealthcare enterprises: What are the biggest technical obstacles for digital transformation?by Damo Consultingwww.damoconsulting.net13 2019 Damo Consulting Inc.13info@damoconsulting.net

Healthcare executives see data and interoperability as the biggest challenges to digitaltransformation. They also admit to being confused by the buzz around AI and digital in themarketplace.Data management and interoperability are the biggestchallenges for digital transformation75%We are committed as an organization to digitaltransformation but are constrained by our internalcapability and/or budgetary issues in making process71%We are confused by the buzz around artificial intelligenceand digital67%We are well on track and leading our peer group in thedigital transformation journey67%63%Data privacy and security are the biggest challengesfor digital transformation56%58%60%62%64%66%68%70%72%74%76%% saying Strongly/ Somewhat agreeHealthcare enterprises: How strongly do you agree or disagree with the following statements?by Damo Consultingwww.damoconsulting.net14 2019 Damo Consulting Inc.14info@damoconsulting.net

Healthcare executives look first to their own internal teams for implementing digital 17%20%15%8%10%5%(the challenge is understanding)The changing landscape of whois playing what role and theblurred lines of capabilities andcompetition.4%0%MyinternalIT andinnovationteamsMyelectronichealthrecord (EHR)vendorBoutiqueconsultingfirmsLargeglobaltech firmsOtherHealthcare enterprises: Who is your primary choice when you look for potential partners to help you with digital transformation?by Damo Consultingwww.damoconsulting.net15 2019 Damo Consulting Inc.15info@damoconsulting.net

Seven in ten healthcare executives say their healthcare IT spend for 2019 will grow, with three in tensaying it will grow more than 20%.71%35%30%29%25%25%21%17%20%15%8%10%5%0%Grow more than 20%Grow between 10% and 20%Grow less than 10%Stay the sameDeclineHealthcare enterprises: When you think about your healthcare IT spend for 2019, how will it change compared to your organization’s spend this year?by Damo Consultingwww.damoconsulting.net16 2019 Damo Consulting Inc.16info@damoconsulting.net