ASPs to burn bright in U.S. health care sector

Despite stunted growth and sagging fortunes in traditional IT market arenas, Gartner Dataquest Inc. Thursday said ASPs (application service providers) can expect strong growth in the outsourcing-hungry U.S. health care sector in the next four years.

In a research brief, Gartner Dataquest said the U.S. health care market for ASPs will climb from $125 million in 2000 to more than $500 million in 2005.

The reason for the steady interest is twofold, according to Suresh Gunasekaran, senior analyst at Gartner Dataquest IT services worldwide group in Mountain, View, Calif.

Gunasekaran said health care organizations are flocking to outsourcing in greater numbers because applications have reached the point where they can be Web-enabled and affordable. Also, many applications are being designed with third party integration in mind, a perfect vehicle for many e-business-oriented, claims processing and supply-chain management needs of the medical field.

"Many [early applications] were architected for a client/sever environment or [to reside] in the walls of an enterprise. A lot of [health care] organizations rightfully so were very distrustful [that] this [ASP] model could work from a technology standpoint," said Gunasekaran, author of the research brief. "[Third party] integration, this need to connect to the world as whole, is something an ASP can provide just as easily as you could do it in-house."

Still reeling from a Y2K expenditure hangover, health care organizations are struggling to get up to speed in order to comply with patient privacy regulations per the Health Insurance Portability and Accountability Act (HIPAA). These organizations also face growing concerns about security and must compensate for a lack of IT-trained personnel and technology-ready systems.

Gartner Dataquest sees the rapid consolidation of the once-hyped ASP market spilling into health care as well, predicting that by 2005 more than 50 percent of the ASP market share in health care will be owned by fewer than five companies. Major software players, such as PeopleSoft Inc., Microsoft Corp., and IBM Corp. already have begun to make noise in the wide-open market with targeted partnerships.

With defined benchmarks such as HIPAA established, ASPs looking to stake their claim in the health care frenzy will need to demonstrate competency, solid SLAs (service level agreements) and look toward traditional outsourcers for lessons on building customer relationship commitments beyond a one-way service delivery model, Gunasekaran added.

Bundling value-added services portfolios around an ASP offering through solution partnerships will dictate the success niche ASPs have in increasing their appeal and chance for survival.

"Many [health care] organizations are going to see [ASPs] as a way to leapfrog and access new technology in a very fast way. In today's environment, I don't think that anyone wants to put a big three-[year] or four-year investment in the books," Gunasekaran said.

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