Lower Budget Doesn’t Mean Less Opportunity at HHS

by Chris Wiedemann, Senior Analyst

Last week, we talked about looking forward to FY15 and beginning to make some strategic decisions about sales targets at your agencies. Well, if you sell to HHS and you followed that advice, you may have noticed something a little concerning – namely, the department’s requested IT budget of $8.6 billion is significantly down from their FY14 enacted level of $9.6 billion. At first glance, it looks like the department may be getting squeezed in the aftermath of the Affordable Care Act rollout, and a lower budget almost always looks like bad news to industry. If HHS is a customer, you’re probably asking yourself how much the projected budget decrease will affect your total addressable market.

Fortunately, the real answer is not much. This is an area where the supposed budget cut is really a smokescreen – or, to put it another way, it won’t affect the COTS market at the department much at all. The reason for that is simple – dig a little deeper into the requested budget levels for next year, and you’ll see that the lion’s share of the $1 billion decrease in HHS’s IT budget comes from the CMS Medicaid Management Information System line item, which is really just a large pool of money that the Centers for Medicare and Medicaid (CMS) funnels to state organizations. In other words, the main driver of HHS’s lower IT budget is an investment that would likely not have been addressable to federal COTS vendors in the first place. Most of the rest — $400 million or so – can be attributed to Affordable Care Act-related systems that are managed by CMS – but remember that a lot of those systems required emergency funding last year, and so those levels were never likely to repeat themselves anyway.

All told, FY15 looks to be a strong year at HHS, particularly in the areas of analytics, data management, storage, and cybersecurity.

View my recent webinar on capturing more IT business from HHS in FY18.