Deltek Predicts Slight Dip in HHS IT Spending Over the Next Five Years

Published: July 06, 2016

Forecasts and SpendingHHS

Deltek’s forecast predicts a relatively flat contractor-addressable IT budget for HHS through FY 2021, with a Compound Annual Growth Rate (CAGR) of -0.8%.

Deltek estimates HHS spending on IT goods and services will drop slightly from $4.3 billion in FY 2016 to $4.1 billion in FY 2021. Deltek’s forecast predicts declines in hardware and software segments with stable spending on IT services, and communications and network services. The forecast does not include funding passed through to state and local governments for IT, such as Medicaid systems.

Spending at CMS, the highest IT spending bureau within HHS, is expected to drop from $2.2 billion in FY 2016 to $2.1 billion in FY 2021.  The drop is due to less IT spending to support the Affordable Care Act, as well as efficiency gains through IT infrastructure consolidation and data center optimization.  

As HHS continues to explore and leverage shared services and cloud computing, equipment demand will decline. The need for hardware and storage equipment for medical research, modeling, analysis, health records and fraud reduction will continue, but some needs will be satisfied via cloud computing. The shift to cloud or service-providers for data center resources, will also reduce the need for hardware investments.

IT services will continue to be needed for IT consolidation, network and infrastructure projects, systems integration, design, migration to cloud services, training, analytics, and program integrity. HHS will continue to rely on current and recompeted IT outsourcing contracts, such as help desk services, desktop management, contact center operations, network management and data centers O&M.  Migration to shared services for commodity IT services will draw down some contractor-addressable spending on IT services.  However, obstacles must be overcome for certain migrations, such as the pause in moving HR to a shared services provider. CMS’ spending on outsourced data center operations and IT infrastructure will keep this sub-segment stable.

Cloud investments peaked in FY 2016 and are anticipated to drop below FY 2015 levels in FY 2017. HHS enterprise-wide cloud investments remain elusive.  However, expect bureau investments in cloud solutions to remain steady as a way to conquer storage and computing requirements for massive amounts of data in agencies such as FDA and NIH.

HHS will continue to invest in cybersecurity solutions, services and applications to resolve its FISMA reported information security deficiencies.  Security for trusted health, billing and research data is imperative.

HHS’ demand for big data solutions will continue to increase due to enormous data requirements for conducting medical research. The Affordable Care Act increased the potential for Medicare fraud, but also provided additional resources to combat it. CMS’ need for big data solutions will remain steady for its efforts to root out waste, fraud, and abuse.

Although HHS IT spending is not expected to increase over the forecast period, contractors can expect a stable stream of investments and procurement opportunities. Look for continued IT innovation at HHS building on the IDEA Lab and digital service teams to make the department more efficient and effective without major spending increases.

More information regarding projected federal IT spending and priorities over the next five years, can be found in Deltek’s annual IT forecast report, Federal Information Technology Market, 2016 – 2021.