In February of 2009, President Obama signed one of his signature
pieces of legislation into law... the American Recovery and
Reinvestment Act (ARRA), generally referred to as the "stimulus
I don't want to get into the politics, but this measure had
reaching implications... especially for investors.
Let me explain...
In total, the stimulus pumped $787 billion across the country to
different areas of the
. This massive piece of federal spending has a key takeaway for
investors that I want to discuss today...
The provisions created a federal mandate for all
providers to implement electronic health records (EHR).
The reasoning behind electronic medical records is simple:
efficiency. There are those who think that the percentage of health
care costs as a share of gross domestic product (16%) is too high
and, additionally, that costs are growing too fast. Digital medical
records are an attempt to reduce costs.
Digital records will help organize all that data and help end
medical errors, stop unnecessary (or redundant) medical tests and
eliminate the danger of improper drug interaction -- all while
streamlining health provider workloads and decreasing
A better system means better results and improved patient
experiences at a lower cost. Computerized records can revolutionize
the industry, just as they did for banking and retail.
So, how does a 2009 mandate still affect investors today? Here's
When the stimulus was signed in February 2009, it incorporated
the HITECH Act and federal "meaningful use" incentive program for
digital medical records.
HITECH provides some $35 billion in subsidies to physicians and
hospitals that prove they have adopted and are using EHR
technology. But most of these health care providers have yet to
begin the process.
You see, when the government announced its plans for electronic
health care systems, there was a lot of talk about the rules that
said hospitals must begin "meaningful use" of digital medical
records systems by a certain date (depending on a number of
factors) with every hospital and clinic achieving full
implementation by 2015.
Unfortunately, no one really knew what meaningful use looked
It took some extra time to get the confusion worked out, and
today many hospitals are just starting to convert their
In a letter to the chief administrator of the Medicare program
in April, the American Hospital Association (AHA) essentially asked
for more time for its members to comply, noting that 80% of
hospitals, to date, had failed to meet guidelines.
So how much will our nation's health care system be spending to
convert to a completely digitized system?
At an average cost to hospitals of $100,000 per licensed bed for
EHR software, the total price tag for the conversion to these
systems has been estimated at nearly $100 billion.
Estimates for doctors' offices vary, but a sampling of the
forecasts I found started at $25,000 per physician. There are
nearly 700,000 doctors in the United States, which conceivably adds
another $17.5 billion.
That brings the total price tag up to about $117.5 billion. And
with 80% of the
still in need to EHR, as much as $95 billion could be spent in the
next three years. This means big opportunities for the companies
that write that software.
This won't be a one-time deal, either. The digitization of our
medical records will require future software updates and upgrades.
As our health care system finally enters the age of the Internet,
there will continue to be opportunities for EHR companies to
innovate the space.
Right now, two of my favorite software companies are
-- both of which should see increased revenue as more hospitals
make the switch to their EHR software.
athenahealth is already showing signs of increased revenue from
the spending. In 2011, it brought in $324.5 million, up from $245.5
million in 2010 -- a 32% gain. The company serves nearly 33,000
medical providers, including more than 23,200 physicians.
My other favorite, Allscripts, at last count, sells its products
to more than 180,000 physicians, 1,500 hospitals and 10,000
post-acute organizations, which help patients transition from
long-term hospital care back to the community.
Its marketing is methodical: One practice at a time, one system
at a time, one region at a time. Once it gains a customer, it seeks
to sell to everyone that provider works with, then, every provider
that all of those caregivers work with, until the entire region is
using the same seamless Allscripts system.
So far the company's method seems to be working... Allscripts
was able to double its revenue to $1.4 billion in 2011, compared
with a year earlier.
Risks to Consider:
Of course, with investing, nothing is 100% certain. These are
both smaller companies, so you can expect above average volatility
if the market suffers a set-back.
Action to Take -->
But one thing is for certain... the new medical EHR software is
going to be big. And with 80% of U.S. hospitals still yet to
implement the program, both Allscripts and athenahealth could be
P.S. -- My research team and I have spent the past couple of
months tracking down the biggest investment opportunities for the
coming year. We've made 11 predictions, each of which offers
investors a chance to earn explosive profits in the next 12 months.
If you want to learn more about these "game-changing" predictions,
then I invite you to watch this presentation.
Andy Obermueller does not personally hold positions in any
securities mentioned in this article. StreetAuthority LLC does not
hold positions in any securities mentioned in this article.