Health IT Attracting Defense Contractors As Harris Buys Into It

We had written last week that General Dynamics (GD) was starting to sell a package of software to aid companies in detecting health care fraud. The possible boom in government money flowing into health care through the reform bills being debated in Congress makes this an attractive new business for defense contractors. The new business that might be gained may offset some of the losses expected if the defense budget remains flat or shrinks.

Now Harris Corporation (HRS.N) a sizable defense contractor known more for their tactical radios and support services is looking to grow into that business as well. They announced recently that they had acquired the privately held Patriot Technologies. This company produces products that support the Veterans Administrations (VA) IT efforts. In the defense business the easiest way to expand or get into a new business area or region is to do it through M&A. There was no value given for the cost of the acquisition.

Harris has already entered the market through assisting companies in developing or improving their software related to Electronic Health Care Records. This is expected to be one of the largest and most heavily funded portions of the Federal Government’s efforts to reform health care. Already the recent “stimulus” bill included large amounts of funding for this effort which is something a few hospital chains and companies have been able to take advantage of.

Harris feels that the VA alone will be spending a large amount of its funds on outsourcing IT support. The VA budget will continue to grow over the next several years as the significant amounts of Iraqi and Afghanistan veterans move into the system. This offers a new market for many companies and it only makes sense that defense contractors will move into it. They already have the necessary experience developing IT solutions for the government and in the contracting area which should give them a leg up over other companies trying to break in.

If their is a public option included in the final version of the bill that would require the establishment of a large administrative arm such as exists for Medicare and Medicaid. This will require significant support a great deal of which would come from contractors. This is a brand new business that would see significant interest from the existing large government contractors. The companies are already positioning themselves in case this happens.