More Medicaid IT outsourcing?

State governments will spend $6 billion on outsourced Medicaid Management Information Systems (MMIS) by fiscal 2008, a 20 percent increase, according to a report released last week by a Virginia-based market research firm.

State officials must handle decreasing federal financial assistance for Medicaid and increasing scrutiny on their costs, according to Input analysts. They are being forced to outsource the development and maintenance of state-operated systems to control spending, the report stated.

"Without complying with new, more stringent federal regulations that are on the horizon, state health care agencies are in jeopardy of losing federal funding," said Pepe Thupthien, Input's state and local market analyst, in a press release. "This fear has caused 20 states to re-evaluate the efficiency of their current MMIS structure and look for ways to save money. Without a clear timeline for when cuts may occur, there is a sense of urgency to update, and even overhaul when necessary, entire MMIS structures."

In fiscal 2005, Input analysts estimate that state officials spend $5.1 billion on outsourced MMIS development and maintenance, which will increase during the next three years to $6 billion. At the same time, they estimate that about $4.1 billion worth of contracts will be up for competition.

Thupthien added that there is room for more players in this market. He said nearly a quarter of state systems will be managed by a different vendor within the next three years.