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Why Obamacare Could Spark the Next Tech Boom
CNBC.com | December 14, 2012 | 10:07 AM EST

The last 18 months have a been a whirlwind for Cameron Brooks, the director of Government Healthcare at IBM. Big Blue has gone after contracts to build out state health insurance exchanges that will play a central role in the rollout of Obamacare in 2014.

"In the middle of this, we acquired a company, Curam, that has tremendous strength in this area," Brooks said. "So, for IBM, we've been able to go from participation on the infrastructure side, to really leading participation in terms of the systems that help determine eligibility for these exchanges." (Read More: Tight Deadlines, Big Challenges for Health Exchanges )

Seventeen states and the District of Columbia have begun the process of setting up their own exchanges. IBM has won work on building out exchanges for Maryland and Minnesota.

So far, the Obama administration gave states nearly $2 billion in funding for the development of the exchanges, but analysts say for tech firms the opportunities are still growing when it comes to the build-out of the infrastructure that will be needed to carry out the expansion of coverage under Medicaid for the health care overhaul.

"Health insurance is a complicated purchase and it involves interfacing through a number of systems and procuring capability from a number of vendors," said Scott Donahue, a director and health technology analyst at Triple Tree.

"We're probably 30 percent of where we need to be, so it's going to take a lot more than what's already been awarded to get to have states fully stood up," he said. (Read More: Obamacare Is Here to Stay. Now What ?)

Rick Howard, research director of the government industry team at Gartner said beyond the establishment of the exchanges over the next year, states will spend the next five years upgrading the legacy infrastructure that links to the payment and data systems of the Centers for Medicare and Medicaid, or CMS (content management system).

"By CMS estimation, $23 billion will be spent to replace or enhance medicaid management info systems through 2020 and the medicaid management info systems, " Howard explained.

No one company now can provide the full spectrum of infrastructure and services needed for the exchange, so companies like IBM and system integration giant Accenture [ ACN 81.12  +0.06 (+0.07%) ] have been acquiring or partnering with firms that give them the expertise they need when it comes Medicaid systems.

"They are really thinking not only to meet the immediate goals of the health benefit exchanges in those timelines, but more broadly over the next decade of modernization in the healthcare and human services segment," he said.

NAMES TO WATCH:

Xerox [ XRX 13.84  +0.03 (+0.22%) ] won a $72 million contract to the build-out of Nevada's state insurance exchange earlier this year. Accenture [ ACN 81.12  +0.06 (+0.07%) ] won one of the biggest prizes, a $399 million contract in June to lead the build-out of California's health benefit exchange, withOracle [ ORCL 41.66  +0.13 (+0.31%) ] and Canadian health IT firm CGI Group [ GIB.A-CA 39.22  +0.74 (+1.92%) ] serving as subcontractors.

CGI Group will also be part of the build-out of exchanges in Hawaii, Massachusetts, Colorado, and the 30 health exchanges that will be built by the federal government in the states that have opted against building their own platforms.

In a recent note to clients, Citi [ C 51.96  +0.31 (+0.60%) ] analysts said they expect earnings at health IT firm Maximus [ MMS 41.76  +0.56 (+1.36%) ] to double over the next three years, in part due to the company's role in build out of health exchanges. Maximus is the lead contractor helping put together Minnesota's insurance exchange.

But along with the big opportunity for these firms, the unprecedented scope of the government-led build-out of Obamacare also poses some risks, if the new exchange system experiences big glitches in its debut next fall when tens of millions of Americans try to sign up for new coverage.

IBM [ IBM 191.56  -0.74 (-0.38%) ]'s Cameron Brooks isn't worried. "I think companies know what to do if there are glitches last-minute, how to manage that, how to put redundancies in place," he assured this reporter, adding "one of the things we focus on is making sure there's a solid infrastructure."

There's a lot at stake for both tech firms and the state and federal government to make sure the tech backbone of the exchanges does hold up to the challenge.

—By CNBC's Bertha Coombs

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