Procurement and RDT&E Spending at the Defense Health Agency

Published: May 04, 2016

DEFENSEForecasts and SpendingHealth CareHealth IT

According to its Procurement budget request for fiscal 2017, the Defense Health Agency intends to spend at least $393 million on investments related to health IT.

Back in January of 2016, the media reported that the Defense Health Agency intended to stop using agency-specific contracting vehicles for the procurement of health IT in favor of using a series of contracts offered by the General Services Administration. The contracts listed at the time included future iterations of the Alliant and Alliant Small Business vehicles, 8(a) Stars II, Veterans Technology Services (VETS), and Schedule 70. The procurement of health IT through these vehicles will be facilitated by the introduction of a new Special Item Number (SIN) specific to medical technology.

Reports at the time assigned various totals to public sector health IT spending. One suggested public “health IT sector spending of $31.4B is expected to grow by 7.4%.” Another claimed a “$5.4 billion annual spend” at the DHA alone on health IT procurement. The $5.4 billion figure apparently came from the GSA itself via this blog post. Since they are coordinating with the DHA on the new SIN they must know what they are talking about, but I haven’t seen totals anywhere near this high in the DHA’s annual budget request. Recent news out of the DHA itself stated that the agency intends to spend at least $1 billion through GSA’s contract vehicles over the next two fiscal years. This is a more reasonable total, although it still isn’t fully in line with the budget numbers released by the DHA.

The chart below shows the DHA’s budget request for fiscal 2017 divided into three distinct budget categories – Operations and Maintenance, Research, Development, Test, and Evaluation, and Procurement.
The O&M portion of every Defense Agency’s budget is the amount of money they anticipate spending on steady state programs. This funding is not considered new money and it is generally not dedicated to procurements. The portions of the budget considered to be new money are the RDT&E and Procurement categories and while RDT&E might be thought of as “new” money, the reality is that a high percentage of funding in that category goes to programs (and their supporting contracts) that are already in progress. So, if a big effort requires another year of funding an option year is exercised on the contract and the funding to pay for it comes out of RDT&E. Technically this could be considered “procurement” since it is funding dedicated to a contracted effort, but that funding is not part of the Procurement budget.

This leaves the funding in the Procurement portion of the annual DHA budget as the only pure “procurement” category. As we can see in the chart above this amounts to $239 million in FY 2015, $365 million in FY 2016, and an estimated $413 million in FY 2017. The good news is that the DHA projects its Procurement budget will rise. The bad news, for those thinking the DHA spends $5.4 billion annually procuring health IT, is that $413 million is nowhere near close to $5.4 billion!

The table below shows DHA’s planned FY 2017 procurements divided into program areas.
The lion’s share of DHA’s planned investments in FY 2017, some $381.6 million, center on replacing old medical equipment and on buying new medical equipment for some facilities. According to the documentation provided by DHA, “The most significant medical equipment investments will be in the radiographic, surgical, and information systems functional areas. Procurement investments for information systems will cover software license acquisitions, infrastructure, and hardware replacement such as End User Devices, Local Area Network (LAN) upgrades, and servers supporting Military Health System Information Management/Information Technology.”

“The new facility outfitting program element of the DHP’s procurement budget funds the acquisition and installation of commercially available equipment to furnish new and expanded facilities being completed under military construction projects in support of dental services, health care delivery, health care training, and other health care activities. The items range from dental, surgical, radiographic, and pathologic equipment to medical administrative support equipment. The new facility outfitting program provides critical support to the DHP’s military medical construction program.”

Summing up, the largest portion of DHA health IT investment in FY 2017 will fall under the replacement and modernization of medical equipment, some $361 million. Specific health IT programs like DHMSM, JOMIS, TMIP-J, and IEHR will see an additional $32 million in procurement related investment. Vendors providing both health IT and non-health IT medical equipment can therefore expect to see DHA procurements totaling just over $413 million, assuming Congress funds the DoD’s FY 2017 budget at the levels requested. The market for health IT will thus see as much as $393 million in procurement-related investment in FY 2017. It’s a far cry from $5.4 billion, but closer to the recent DHA estimate of $500 million in spending planned for FY 2017, and still a goodly number of dollars in a fiscally challenging environment.