The high initial investment in health IT combined with necessary ongoing funding present challenges to States. Significant continued expenditures associated with health IT efforts and a difficult financial environment have led States to use a variety of funding strategies beyond the traditional approach of obtaining monies from the State general fund through legislative appropriations.
A report by the National Association of State Chief Information Officers (PDF - 480KB) from September 2008 details State level IT funding approaches. Innovative or alternative funding approaches cited include:
Grant funding has been useful for several States to provide initial investment in large health IT projects. Grants generally originate from private foundations, Federal grants, and State subsidized grant programs. Massachusetts applied funds from a Medicaid Transformation Grant Award in the amount of $3,950,440 to fund a system designed to securely verify citizenship status of public insurance applicants through automation of vital records. The American Recovery and Reinvestment Act (PDF - 1.07MB) (ARRA) and The Children's Health Insurance Program Reauthorization Act (PDF - 423KB) (CHIPRA) also provide funding through establishment if grant programs for State funding of health IT efforts.
In addition to Federal and State grants, private foundations provide target grant funds. Private foundations and corporations can be an important source of revenue. Grants are typically for new programs or initiatives and rarely provide for continuous funding. The Foundation Center provides a compilation of grant-related resources.
Budget and appropriation strategies include utilizing unspent funds that are reallocated at the end of the year instead of reverting back to the States' general fund. In order to utilize this method of funding, States must have pre-established authority to carry forward unspent funds. Maryland established the Major Information Technology Development Fund (PDF - 20KB), through a legislative act, as a non-lapsing fund. The fund is set up as interest bearing with income used to finance new and/or ongoing initiatives.
Purchasing and procurement strategies refer to the leveraging of State buying power to obtain favorable pricing conditions. To help obtain the best pricing possible, New York seeks to aggregate computer and centralized IT purchases. Finally, another promising method is the sharing of information technology services among State agencies. Such "shared service" models encourage collaboration among agencies with cost savings coming through synergistic activities.
The Maryland budget and appropriation and New York purchasing and procurement strategies are detailed within the report by the National Association of State Chief Information Officers (PDF - 480KB) titled Innovative Funding for State IT: Models, Trends & Perspectives (PDF - 480KB). The report contains additional information and tools for the facilitation of innovative and alternative IT funding efforts gathered through a national survey of State chief information officers.
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