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David Willcutts is a long time health care services executive and entrepreneur focused on managed care, specialty pharmacy and home care services. He is currently the president and founder of Ready Consultant, LLC an early stage marektplace for healthcare consulting services created in response... More
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Ready Consultant, LLC
  • Unaffected by Health Reform, What will Impact Health IT Players? 0 comments
    Jan 22, 2010 12:00 PM | about stocks: MDRX, ATHN
    Health IT vendors focused on electronic health records (EHRs) have done quite well over the last 12 months.  While the coming $19B in federal stimulus dollars (starting in 2011) has been a great boost, the big question remains, what will be the pace of new installations.  Of primary focus has been the now published (but not yet finalized) "Meaningful Use" guidelines.  However an area less discussed but perhaps more influential on product/vendor selection is the role of the new "Regional Extension Centers" (REC). 

    The first phase of RECs are due to be announced now with the second and final phase in March (more at the HHS site).  In total, these 70 RECs are intended to offer their services to a minimum of 70,000 providers (1,000 per REC).  How does their role impact product selection and implementation timelines?  While this may not effect large system installations deploying a Cerner system, they will likely have an increasing impact as you move down in provider size.

    Implementation, vendor selection and group purchasing are all part of a REC's mandate.  How these centers approach these roles could have a dramatic impact on a vendor's sales pipeline.  Will a REC attempt to limit their preferred vendors or will they be open to all systems that meet their criteria?  Will aREC's group purchasing change the dynamics of a sale?  Will the REC's ability to handle the volume of providers impact implementation schedules?  These continue to be unknowns but should certainly be a focus for players such as Allscripts-Misys (NASDAQ:MDRX) and Athena Health (NASDAQ:ATHN).

    The federal grants for REC's equal $640M (just over $4.5M per year, per REC for 2 years).  Spread over 70 centers this is a fairly small budget given the size of the task and the impact they could have on both providers and system vendors.  Now that the first set ofRECs are being awarded their operational execution and methodology should be monitored ( We will attempt to follow at ReadyConsultant). 

    How a Couple Players are Performing
    MDRX has recovered well over the last 12 months with a 137% gain although they remain below their 2007 highs.  They are down (6%) since the start of the year and (3%) since the start of the Q4.
     
    ATHN has also recovered well with a 20% gain from 12 months ago and in the neighborhood of their 2007 highs.  They are down (10%) since the start of the year but up 14% since the start of Q4. ATHN has come back from a significant drop in Q1-2009 (up 69% since the start of Q2-2009). 

     
    Will Implementations Jump or be Slow and Steady?
    The electronic health record stimulus (HITECH portion of ARRA) creates a strong incentive for physician ($44K over 5 years) starting in 12 months but it also brings many risks.  Common concerns are loss of productivity, disruption to operations and how the systems will be funded after the stimulus dollars are gone.  In addition, providers are still waiting for the final version of Meaningful Use and clarity on the certification process. 

    Providers can begin to receive stimulus dollars in 2011 however they can start as late as 2012 and still receive the full stimulus amount.  Some physicians are also considering forgoing the incentive dollars and target 2015 when the penalties begin.  The rationale for waiting is to let others work through problems that may cost a practice more than $44K.
     
     
    Is there Room to Run?
    Today, both MDRX and ATHN have PE's just over 51 so there is a pretty strong growth expectation built in.  This is certainly logical given the stimulus dollars and the large untapped market.  The government estimates that less than 10% of the market is currently utilizing an EHR in a way that would qualify for the incentive dollars.  This is all very attractive and should be a formula for long term success for this sector.  Timing and picking winners and losers within the section may be the question today.  Will the pace of this growth meet the market's expectations?  I expect the pace to slow after the initial early movers as I expect the smaller physicians to take a wait and see approach.  Picking specific winners and losers is a challenge at this early stage.  Certainly MDRX has a very good market position and seems to be executing well, however how with these RECs impact purchasing decisions.  There are also many smaller private players in the market that are making a strong showing.

    I believe there is significant upside in this sector over the long term but there needs to be caution that expectations do not get too far ahead of a traditionally slow moving provider market.


    Disclosure: No positions
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