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Healthcare Data Security Costs, by City

March 28, 2012
by John DeGaspari
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Surge in healthcare data security spending drives search for lower cost data center site selection
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Healthcare data security spending is growing rapidly, and is expected to reach $40 billion in 2012—a 22-percent increase from 2011. The higher cost of maintaining data centers has led healthcare organizations to consider lower cost cities in which to locate these operations, according to a recently released report by The Boyd Company, Inc., Princeton, N.J. The study estimates that data security spending will top $70 billion by 2015, much of it stemming from investments in electronic healthcare systems, mobile health applications,, and efforts to comply with new government standards.

The report, “Healthcare Services Industry: A Comprehensive Cost Analysis for Information Assurance Operations,” characterizes information security as a major driver in shaping strategic planning, capital spending and site selection of data centers. According to John H. Boyd, Jr., the overall trend in site selection is toward smaller, lower cost markets, particularly in the Midwest, as a way toward cost containment.

The report compares the cost of operating a data center in 50 U.S. cities, and includes all of the costs critical to site selection, including labor, power, amortization, corporate travel costs, and taxation. It focuses on the healthcare assurance field and IT companies and business units dedicated to preventing security breaches and cyber crimes including medical record fraud, insurance scams and identity theft, according to the company.

John H. Boyd, Jr.

The top five cities rated were New York; San Francisco; Los Angeles; Stamford, Conn.; and Newark, N.J., with total annual operating costs ranging from $32.6 million to $24.6 million. The lowest cost cities were Lee County, Pensacola and Ft. Walton/Destin, Fla.; Tulsa, Okla.; and Sioux Falls, S.D., ranging from $18.1 million to $17 million. Those cost savings are significant, especially in a soft economy where cost reduction has become an overriding factor in site selection, Boyd says. Annual costs in the study are scaled to a healthcare data security center employing 150 workers and occupying 150,000 square feet of newly constructed space.

Investments in information security will accelerate as healthcare providers ramp up to share data with patients through health information exchanges, according to Boyd. The sharing of medical records has created IT niche markets in areas such as data and email encryption. Reported data breaches continue to rise, as certain states have stepped up efforts to enforce penalties, he adds.

Sioux Falls, S.D. ranked lowest cost city in survey

Employment growth in the healthcare IT field has continued at a healthy pace. Boyd projects that jobs in the medical records and health information technician fields will grow by 22 percent in 2012. Healthcare IT positions range from entry-level coders to highly trained data management professionals with salaries in the $100,000 range and above.

Boyd notes that factors important to data center site selection include a trained labor force and various financial incentives offered by state governments. The presence of academic programs that are certified by the Chicago-based American Health Information Management Association (AHIMA) and the Commission on Accreditation for Health Informatics and Information Management Education (CAHIIM) can distinguish one city from another, Boyd says. Dakota State University, for example, offers a CAHIIM-accredited program in health information management, which has arguably given nearby Sioux Falls, the lowest cost city in the survey, an added competitive edge, Boyd says. (South Dakota also has the lowest number of identity thefts per capita according to Federal Trade Commission figures, the report notes.)

Overall, Boyd sees a shift in data security investments to smaller markets with lower risk and less costly cities that have the necessary telecommunication infrastructure, trained labor resources, and some insulation natural disasters. He says that mid-continent states have an edge in this regard, due to their lower land costs, and more affordable and reliable energy, including renewable energy technologies. Cities that already have a strong healthcare industry presence also have a competitive edge, Boyd says.

States including Iowa, Texas, Oklahoma and South Dakota have recently attracted major new IT investments, both inside and outside the healthcare services field, have succeeded in attracting data centers using incentives such as favorable tax structures and tax exemptions on hardware.

In the past, incentives have been directed toward the manufacturing industry, Boyd says. Now he is seeing a new wave of incentives focused on “white collar” industries such as data centers. Much of that growth will be at the expense of higher cost geographic areas, he says. “Data management will  be leaving expensive, high cost, highly regulated areas,” he says.

As a precedent to what is now occurring in healthcare, he points to banking, another highly regulated industry that has been faced with new government mandates and a shift in consumer behavior. “Banking has been proactive in shifting these operations to lower cost cities in the Midwest,” he says.

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