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

The Wall Street Journal had a piece Tuesday 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. (GE) 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., (CERN) 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.

Comments

[jimmy46:]

Proponents believe""""""
ALL SORTS OF SILLY THINGS,
MOSTLY I THINK THEY ARE PEOPLE WHO THINK THEY CAN MAKE MONEY OFF THIS.

THE PROBLEM WITH E-RECORDS, IS THAT NONE OF THE HEALTH PROFESSIONALS THEMSELVES ARE INTERESTED IN THE CONCEPT.

ALL THE BUZZ COMES FROM OUTSIDERS.

Mar 25 05:09 PM

[steve62:]

You obviously don't know what you're talking about. I've installed a few of these systems and, once you get past the learning curve, the healthcare providers absolutely love their systems and refuse to ever go back to paper! I know of quite a few doctors that conduct business solely through electonic means. There are no filing cabinets in their offices. Not only will these software providers win but so will data storage companies because one must maintain duplicate and even triplicate copies of these medical records in a secure fashion.

Mar 25 05:23 PM

[User 383125:]

Whether doctors like it or not, the industry will have to change. First, they are no longer in the 'driver's seat'. Most are the part of larger groups and/or health systems and are, essentially employees. The larger system will drive adoption

With the coming of the 'baby boomers' into the 50+ age group, you cannot decrease the number of people providing care. Efficiency has to come from some where and that means the billing and collecting of what Healthcare $$ is out there.

The assignment of the National Provider ID for each provider is a start. Not too long ago, you had to submit a different number for every insurance company you billed!

The time is now, the technology exists and the industry is ready.

Mar 25 08:25 PM

[tcitc:]

As a physician user of electronic health records, let me say that they do NOT improve the efficiency of practice. What they do is prompt the physician to increase documentation in order to increase reimbursement under the arcane rules promulgated by Medicare. They do permit remote access to office records, but the lack of uniform national standards means that most data has to be re-entered manually. And when the system crashes, our practice is dead in the water.

But the real problem is not that electronic health records are useless - it is that they are being touted as the solution to America's health care cost crisis. That is because it is easier to envision a technological fix than it is a behavioral fix. Electronic records do nothing for the problems of overutilization, conflict of interest and defensive medicine. As H.L. Mencken said, "for every complex problem there is a solution that is simple, direct and wrong".

Mar 25 09:25 PM

[Michael D.:]

Electronic records will allow better analysis, data mining, and one would hope better services.

Author: Please consider CGI(GIB.A-T) and MMM in healthcare information systems.

Mar 26 08:31 AM

[Doc 224899:]

Doctor "tcitc", above, has summarized the problems clearly and succinctly. All of what he says is true, based on my first-hand experience with the same electronic healthcare information systems.

And, there is solid data which I think demonstrates that the Obama approach to healthcare reform is chilling the market. I'll reference the following article (Percentage of Stocks Above 50-Day Moving Averages , posted 3/24/09) and explain as follows:

The most dismally failing sector in the list is Health Care.

The second most dismally failing sector is Utilities (which I think of as energy that gets delivered to people like you and me and keeps the lights on at night, as opposed to the Energy sector, which is energy that makes money for the people who boss around folks wearing hardhats). Announcing to the whole world that President Obama will bankrupt the backbone of American utilities, the coal industry, explains the market pessimism in the Utility sector in response to President Obama's destructive and unfortunately relentless energies.

For all the Obama campaign talk about focusing on domestic issues and "saving" the important things at home, the bear rally has ignored the only service sector we literally cannot live without, Health Care.

The bear rally serves as a prediction for what will do well in the long run, if anything will ever again do well in the long run, during a recovery or post-consolidation market.

The Obama health care reform plan for creating a more extensive Health Care bureaucracy with more bean-counters and more rapidly-shared information that nobody knows what to do with will not "save" Health Care. It will just "re-distribute the wealth" in the sector in a spiteful neo-Marxist sort of way that will ultimately bankrupt every organization that tries to put doctors in the position of seeing patients. It will also make it easier for trial attorneys to harvest fees, bleeding dollars away from doctors and facilities and suppliers of drugs and supplies and equipment. The market recognizes this reality, and the chart reflects it.

At least this week the president will be overseas, so maybe American corporations will have a chance to recover a little while he tries to convince the G20 approve of the same policy agenda that has so chilled the market at home.

Mar 29 11:44 AM