Analysts: Stimulus for health IT will take time

With President Barack Obama's massive stimulus plan set to become law, analysts cautioned investors that it could take at least a year before the government's investment in electronic medical records translates into industry sales.
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The sweeping $787 billion package to be signed Tuesday will pump federal dollars into a host of projects, including infrastructure, renewable energy and health care.

Roughly $19 billion will go toward purchasing health information technology for hospitals and clinics and rewarding doctors for using the technology. By replacing reams of paper files with electronic records, administration officials say the effort could reduce costly medical errors and duplicative testing.

Bold expectations for the health IT industry have driven shares of software makers higher in recent months. Shares of Cerner Corp., the leader in hospital-installed electronic records, is up nearly 10 percent for the past three months, while shares of rival McKesson have risen more than 30 percent, even as the broader market fell sharply.

Other companies poised to benefit from the stimulus plan include Eclipsys Corp. and Allscripts-Misys Healthcare Solutions Inc.

However, industry analysts warned that the complicated mixture of government grants and payments outlined in the stimulus package will take at least a year to trickle down to companies.

"Anticipation of stimulus has driven gains in many Health IT stocks," Stifel Nicolaus & Co. analyst Todd Weller wrote in a note to investors. "We believe we will likely move into a lull period now as the street looks for stimulus market impacts, which will take time."

The Congressional Budget Office estimated last week that a mere 2.3 percent of the health IT funds would be distributed in fiscal years 2009 and 2010.

While hospitals and doctors' offices wait for federal funds to become available, Morgan Keegan & Co. analyst Jamie Stockton cautioned that sales of software programs could decline along with other discretionary items.

"We do not believe adoption will meaningfully accelerate until early in calendar 2010, which means that many software providers may experience weakening fundamentals in 2009 as result of the recession," Stockton wrote.

The stimulus plan includes about $2 billion for infrastructure to support the new medical records systems, with the remaining $17 billion as incentive payments and grants designed to spur adoption by health care providers. The payments will be administered to establishments that participate in Medicare and Medicaid, the government's health plan for the elderly and poor.

Beginning in fiscal 2011, a hospital will be eligible for up to $3.2 million in federal bonus payments for using health IT, while doctor's offices can receive up to $18,000 in the first year.

Those payments will gradually taper off through 2015 and then become penalties for hospitals and doctors not using the technology.

But even when the payments begin flowing, analysts say it's not exactly clear who will be eligible for the federal dollars.

The bill indicates that grants will go to establishments that show "meaningful use" of health IT, a somewhat vague description that analysts say could persuade physicians to hold off on upgrading their records.

"Absent some clarification I think you'll see a slow or modest uptake of the technology," said Avalere Health Vice President Jon Glaudemans. "I don't think it will be rapid because it's a significant investment — not only in terms of software and hardware, but also in terms of staff training."

For nearly a decade, investors have eyed health IT as an industry poised for major growth, citing the nation's aging population and calls to improve U.S. health care. Encouraged by those trends, diversified giants like Siemens and General Electric Co. have increased their investment in the sector.

But despite solid performance by specialty companies like Cerner the sector itself has remained relatively small, at an estimated $10 billion to $20 billion. That represents barely 2 percent of the overall $973 billion U.S. IT market, as estimated by research firm Gartner.

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BY MATTHEW PERRONE
Source：msnbc

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