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SQL Server and Data Segregation

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So I am looking for some options and insight

My company provides software as a service hosting. Currently our hosting model is physical servers with SQL on each box independently. This is becoming very cost prohibitive as we are starting to outgrow our current model year over year, this year we're expected to outgrow our rack in dedicated services. As such, we are looking at virtualization and optimizing our offerings.

Here's my question: What is the best method for segregating data?

We are already doing 1 database per customer with unique credentials per customer, and in our new model we're enabling TDE. But for security concerns such as HIPAA/FISMA, is having all of these customers on the same server even with different databases/credentials acceptable? If not, what is an alternative that wont cost us an arm and a leg such as buying SQL...


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