Wednesday, March 25, 2009

WSJ: Stimulus Funds for E-Records Augur Big Windfall for Small Health Firms

The Wall Street Journal had a piece yesterday on the whole medical IT electronic records theme we've been discussing for a few months [Jan 6, 2009: Analyst Throws Water on "Hope" in Medical IT] This is one of the Obama themes that unlike solar, or infrastructure stocks has actually stood the test of time - these stocks are simply on fire. While we own Quality Systems (QSII) [Jan 9: Bookkeeping - Starting Quality Systems] and have a big win in terms of % gain, the position size is not very large and we are missing most of this last part of the move. We highlighted 3 names back in early January but said ATHN was wildly expensive and MDRX was intriguing on valuation. Frankly, MDRX was doing nothing until yesterday (I assume the WSJ article helped) Overall, the market actually seems to be caring about relative valuations in this group... a nice change. I don't like chasing stocks in such a parabolic move as QSII (40%+ in 3 weeks) and frankly if I had a larger position I'd be selling much of it off "up here", but for now it's more of a buy on dips sort of situation.

Since that piece in January, a reader has also notified me of another company I had never heard of in the space Computer Programs and Systems (CPSI)

Computer Programs and Systems, Inc., a healthcare information technology company, designs, develops, markets, installs, and supports computerized information technology systems to meet the demands of small and midsize hospitals in the United States.

All this money being flooded in the US economy by government has to benefit someone. I do think this is a necessary efficiency for the US healthcare system; actually it is quite sad it took this long to address and that government has to push it along. I know there are "privacy concerns" but really... are we going to be stuck with hand written file folders until 2150 due to this same excuse? It would be better however if there was some centralized standard that would reduce costs further but I guess that only works in socialist countries. Wait in that case, we should be all for it....

Via the WSJ
  • Big companies including General Electric Co. will likely profit from the billions of federal stimulus dollars going to doctors who buy and use electronic health records. But little-known niche players could be among the biggest winners.
  • One such company is eClinicalWorks, a closely held firm in Westborough, Mass. The company, founded a decade ago by computer-programmer Girish Kumar Navani, his cousin and his physician brother-in-law, now has about 750 employees and expects $100 million in revenue this year. In the next few years, the company plans to hire 500 more people, up from 150 before the stimulus bill was approved. (thanks taxpayers) "As of Dec. 31, we had put together a game plan saying, 'This economy looks like it's really getting bad. Why don't we be a little bit prudent?'" Mr. Navani says. "It changed in four weeks to, 'You will hire for growth; forget hiring for need.'"
  • The $787 billion stimulus package Congress approved in February promises more than $20 billion in outlays for health-information technology, coming mostly between 2011 and 2015, according to an estimate from the Congressional Budget Office. Physicians using electronic records will be eligible for more than $40,000 each in Medicare incentive payments over several years starting in 2011. Hospitals can also qualify for millions of dollars in incentive payments. Doctors and hospitals not going electronic by 2015 will be subject to penalties.
  • "We never anticipated the kind of dollars we're talking about today -- never in our wildest dreams," says Steven Plochocki, chief executive of Quality Systems Inc., a publicly traded company that sells electronic records under the brand NextGen. (Mr Plochocki - we have free money to give to everyone in the modern Quantitative Easing economy - more to come! Enjoy our largess!)
  • An electronic health record, sometimes called an electronic medical record, replaces a patient's paper file. EHR systems can incorporate safety features such as automatically alerting a doctor if a patient has prescriptions for drugs with dangerous interactions. Proponents believe EHRs can also reduce wasteful spending from unnecessary testing, help doctors spot trends in their practices and enable agencies such as Medicare to pool anonymous medical data to track public-health issues.
  • Skeptics say that sharing information electronically will require the creation of complex data networks. Worries about patient privacy also persist. And many physicians say the systems can be expensive and difficult to use. The cost often runs to tens of thousands of dollars per doctor in the first year -- and several thousand dollars a year after that.
  • A federally funded survey published last year found that only 13% of practicing doctors used a basic EHR system, and only 4% used what the authors called a "fully functional" system. (big growth opportunities)
  • Key details of how the money will be distributed remain undecided. To receive incentive payments, doctors must demonstrate "meaningful use" of a "certified" EHR, but the legislation leaves those terms to be defined by federal officials. (devil in details)
  • ....the labor-intensive aspects of adopting and maintaining electronic systems in doctors' offices can give smaller technology companies an opening to compete against big corporations, says Eric Brown, an analyst at Forrester Research Inc.Shares of publicly traded specialists such as Quality Systems, Allscripts-Misys Healthcare Solutions Inc. and Cerner Corp., have outperformed the broader market this year.
  • Mr. Plochocki of Quality Systems says consolidation among vendors is likely, and he says that his company is considering a few acquisitions this year. Quality Systems has also been beefing up its sales force, he says. Allscripts is using its business selling billing software to doctors as a jumping off point, selling EHR systems to its existing customers.
Cerner (CERN) had been a laggard when we looked in January 09, but finally shows signs of life.

Overall it appears this is now "throw a dart at the sector and win" type of movements ex-ATHN whose valuation was completely bloated versus peer group.

[Jan 30, 2009: Quality Systems Earnings Solid]

Long Quality Systems in fund; no personal position

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