Obama's health reform push seen buoying health IT

• Reuters, Wednesday November 26 2008

By Debra Sherman and Lewis Krauskopf

CHICAGO/NEW YORK, Nov 26 (Reuters) - A wealth of small companies focused on information technology may be poised to benefit should the U.S. government make good on vows to run the U.S. healthcare system more efficiently.

U.S. President-elect Barack Obama reiterated his commitment at a news conference on Tuesday to increasing investments in the healthcare system as a way to save costs in the long term.

Obama cited as an example the government's role in helping local hospitals and providers set up electronic billing and medical records.

Such words could be music to the ears of small companies that specialize in improving and automating systems, services, and record-keeping in hospitals and doctors' offices.

The industry has been talking about electronic medical records for years, but the divide among political parties has been partly to blame for minimal progress, said Ira Loss, a policy analyst with Washington Analysis.

"There was no leverage to get things done," Loss said. "It may be different now. I think we're going to have a president who is more engaged in this area. He believes in it."

JP Morgan analyst Ipsita Smolinski said a likely first step the new administration would take toward increasing the use of electronic medical records would be to require them for claims under Medicare, the large government health insurance program for the elderly.

"That could happen within the first year (of the new administration)," Smolinski said. "It would have a ripple effect."

Stifel Nicolaus analyst Todd Weller said Obama's administration would likely boost the healthcare IT sector, although he cautioned investors against thinking Obama's election would be a quick windfall for these companies.

"We view it as ... another positive catalyst behind a secular trend of more adoption of health IT; but I don't think it's real prudent to go out and invest in these stocks under an assumption that all of a sudden in 2009 their business is going to accelerate in a big way," Weller said.

"You're going to see doctors and hospitals increasingly adopt technology and automate just like every other industry has done," Weller said.

Analysts said potential beneficiaries from a health IT push would be those focused on establishing electronic medical records in physicians' offices, as well as on billing software and other administrative tasks. Among them are Allscripts-Sisys Healthcare Solutions Inc, Athenahealth Inc, and Quality Systems Inc.

Physicians have been reluctant to spend money on major IT systems, analysts said.

"What we need are more carrots and sticks out there," said Richard Close, managing director of equity research at Jefferies & Co. "Obama could develop grants and enable physicians to access funds to develop systems ... It sounds as though it's a high priority."

Hospital-centered IT companies that could benefit include Cerner Corp, MedAssets Inc, Computer Programs and Systems Inc and Eclipsys Corp. Large pharmaceutical wholesaler McKesson Corp also has a substantial IT business.

Adoption of healthcare IT has lagged in smaller rural hospitals which lack the money to invest compared with larger urban hospitals, Stifel Nicolaus' Weller said. He said there has been an increase in state and federal grants to these hospitals in the past year to finance such purchases.

"I would look for a push to help smaller rural hospitals come up to speed on health IT," Weller said.

Large technology companies are also angling to be involved in healthcare, including Intel Corp, which introduced health monitoring systems to connect patients with clinicians, and Google Inc and Microsoft Corp, which are trying to drive greater penetration of electronic medical records.

Loss, of Washington Analysis, said the government has failed to come up with uniform standards that would ease the way for electronic medical records.

"The first thing that has to happen is ... they have to make one system talk to the other," Loss said.

Analysts cautioned that the timing remains unclear for any new requirements that could lead to greater IT investments. Healthcare reforms may take a backseat as Obama focuses on the weak overall economy.

"It won't be like turning on a faucet full blast," Close said. "I suspect it will take a little while, maybe a year or two." (Editing by Gerald E. McCormick)