As DMEA2023 wrapped up in Berlin last week, it was clear that two topics had dominated discourse among participants. One was Oracle Cerner’s ongoing tribulations in Germany with its i.s.h.med EHR solution (which Signify Research explored last week in this Insight). The other was, inevitably, progress (or the relative lack of it) on the Germany Hospital Futures Act (KHZG) from the perspective of vendors waiting for hospitals to award contracts.
According to the Bundesamt für Soziale Sicherung (Federal Office for Social Security), as of mid-April, €2.9BN out of the total €3BN in federal funding had been approved, covering around 6,070 KHZG-related IT projects.
Hospitals are starting to receive some of this money, but IT vendors at DMEA said this is not yet translating into a steady stream of contract awards. Consensus in Berlin was that this will only start to happen later this year, with contract award activity peaking through 2024.
The Signify View
Signify Research’s regular observations in recent months that the bulk of the impact of KHZG is back-loaded towards the end of the funding period (2021-2024) was vindicated at DMEA. Realistically, vendors do not see full implementation of IT systems under KHZG being complete before 2026/27. They claim that an IT manpower shortage in Germany means they cannot commit to the timescales needed to execute all the 6,000-plus projects approved.
As well as being a source of frustration for hospitals in dire need of digitalisation, any delays also leave vendors – who have invested a lot of time, expertise and money in product development to meet the technical criteria of KHZG’s 11 pillars – playing a waiting game for now. Most IT vendors with ambitions to serve KHZG are, from a technical perspective, race ready and raring to go. But with only a finite amount of skilled resources to implement projects, and only a trickle of contracts coming through anyway at this stage, there isn’t much of a race for them to run right now.
Any rollout delays also raise the spectre of spiralling project costs. With German inflation averaging 8.2% in the first three months of 2023, cost overruns are a real prospect. In this scenario, hospitals would either need to find additional money to complete projects, project scopes may need to be scaled back, and/or vendor margins will be squeezed.
CGM Manoeuvres into Position
Nevertheless, vendors continue to prepare for what is expected to be a rush of contracts later this year and next year.
In the run up to DMEA, Signify Research predicted (read the Insight here) the top five themes that would dominate at the show. One was to reiterate our (long-held) belief that both CompuGroup Medical (CGM) and Dedalus are in prime position to support multiple different KHZG pillars. Both vendors reported healthy organic growth in their Hospital Information Systems (HIS) businesses last year (CGM grew 8% and Dedalus an estimated 15%) and will achieve further growth in future via acquisition or partnerships with KHZG in mind.
It was fitting, then, that the day before DMEA opened, CGM announced it had taken a 51% stake in specialist patient portal provider m.Doc.
This is a smart move by CGM. Patient portal is the second most popular KHZG pillar in terms of the number of funding applications received from hospitals (electronic documenting of patient files being the first as shown below).
CGM has had some success with its Clickdoc virtual care platform to date, but m.Doc is an established name in the sector. It has more than 300 hospitals on its books, and is accredited to meet the technical criteria of the KHZG patient portal pillar. This acquisition will turbo-charge CGM’s non-organic HIS growth, and there is every chance the company will become a disruptive influence in the patient portal pillar, where German vendor samedi and French telehealth specialist Doctolib are also competing. Doctolib, which began life in French primary care, has made a big play in the German hospital market precisely with KHZG in mind.
CGM’s move to acquire 51% of m.Doc also reinforces Signify Research’s assertion, stated earlier in this Insight, that it and Dedalus are ideally equipped to support multiple different KHZG pillars. For its part, CGM is now active in patient portals, medication management, emergency room, IT, decision support systems, hospital telemedicine, cloud computing and hospital bed capacity management pillars. Dedalus, meanwhile, bought Dosing in 2021, allowing it to address the fourth and fifth pillars of KHZG.
Perhaps reflecting the time that hospital managers currently have to consider long-term strategy during the relative calm before the contract award ‘storm’ later this year, another discussion topic at DMEA centred on the ongoing maintenance and support that German hospitals will need for the big IT systems they are procuring under KHZG.
It is widely acknowledged (most recently by the German health minister) that hospital IT systems in the country lack the quality of those installed in US hospitals. KHZG funding will go some way to reducing this gap, but once that funding has been spent, hospitals will have much higher ongoing IT costs, whether to service SaaS-based IT contracts or operational/maintenance support contracts for on-premise IT. As it stands, this is a point of concern for hospitals, and many are looking to the Federal government for indications as to how this will be addressed over the longer term.
Furthermore, German hospitals self-assess the complexity of their EHR platforms against the EMRAM hospital standard. Most hospitals are at 0 to 1 on EMRAM, and improving the maturity of their EHRs will take time and require additional funding long after KHZG is complete.
Calm Before the Storm
With nearly all federal funding now approved for KHZG IT projects, the gaze now falls firmly on hospitals, which are starting to receive money, as they go out to tender.
There is a sense now that the market will soon begin to really ramp up. The waiting game that the hospitals and vendors have played for the last two years is nearing its end, certainly in terms of contract awards.
The German healthcare industry will have factored some capacity challenges into their equations – after all, implementing 6,000-plus sizeable projects across the country pretty much simultaneously over two years is a big undertaking. But, given that vendors are likely to be maxed out on resources as KHZG contracts are awarded means there will need to be some push back on timings.
In any case, it will soon be all hands to the pump.