$1.2 Billion Stimulus for Electronic Medical Records: Who Could Benefit?

Like faddish Christmas toys, there are certain words and concepts that experience the headline equivalent of Warhol’s “15 minutes of fame.”  Well, maybe longer than 15 minutes in the case of “stimulus.”  Last week, we heard of a piece of the stimulus plan that seems to have a radical difference from its bigger brethren.  The team of Joe Biden and Kathleen Sebelius announced a stimulus package of about $1.2 billion to help promote and establish electronic medical records (EMR).  Unlike the majority of the $787 billion stimulus or “bail-out” package, though, this area is ballyhooed to SAVE money, estimated by some at $100 billion or more.  Here is coverage from AP via the New York Times: http://www.nytimes.com/aponline/2009/08/20/us/politics/AP-US-Biden-Health-Records.html?_r=1&scp=1&sq=biden%20electronic%20medical%20records%20stimulus&st=cse

In his typically joe-six-pack way, the veep said he is tired of filling out clipboards full of the same questions every time he goes to the doctor.  Good point (aren’t we all?).  But EMR is not being promoted simply as a convenience, like the little transponders you can knock against the credit machine in the supermarket and not have to swipe your card or sign a receipt.  EMR is intended to prevent and correct errors in healthcare, improve the time of delivery of healthcare services, cut back-office bureaucracy, help speed payment by insurors, and — most importantly — help you and me keep our medical records where we can get at them from wherever that truck hits us.

So, as always, our predilection at SmallCapWorld is to figure out how this can help us in our continuing quest for interesting companies to invest in.  Interestingly, there are not a lot of publicly traded pure-play companies in the field, although there are a fair number of privately held companies that we assume will now consider raising money and going public. 

Watertown MA-based Athenahealth Inc (Nasdaq: ATHN, http://www.athenahealth.com/) is as good a place as any to start.  Although its market cap is $1.3 billion as of Aug 21, athenahealth (they prefer the lower-case letters), concentrates on automating physician practices with avowed goals of improving billing and collections, improving services to patients, improving overall communications and getting better visibility of various payor practices.  The market seems to like their story and their performance, because the stock closed at $39.19 vs a year-high of $39.92 and a year low of $19.19, on average volume of 554,000 shares, which ought to make it possible to find a block of whatever size you had in mind.   And that’s after a downgrade from a Raymond James analyst exactly one week earlier, very impressive.

Or you might want to cast a glance at Atlanta-based Eclipsys (Nasdaq: ECLP, http://www.eclipsys.com/), a sizeable healthcare IT provider offering practice software for docs, clinics and hospitals.  With a market cap of about $1 billion, it operates in North America, Southeast Asia and the Middle East.  Revenue was slightly off year-to-year when ECLP announced its Q2 results on August 6, but its loss was halved, and without stock-options and acquisition-related amortization, the company was profitable.  Its closing price on Aug 21 was $17.63, vs a range of $7.39 to $23.21 over the last 52 weeks, and with average volume of about 700,000 shares, again offering institutional-quality liquidity.

We have a soft spot for much smaller companies, and think it may be worth having a look at Los Angeles-based MMR Information Systems (EBB: MMRF, http://www.mymedicalrecords.com/).  The big difference here is that the orientation is toward patients, rather than doctors — the brand name, My Medical Records, is illuminating.  With a tiny market cap of about $15 million and a stock price of $0.12, it has a gazillion shares outstanding and has asked its holders for authorization to considerably expand even that number.  But its product line looks like “just what the doctor ordered,” although its website is not the easiest to navigate.  It looks like most of MMRF shares are held either by insiders or by people who are otherwise tied up, so the average volume of  121,000 shares (which, after all, doesn’t come to much in dollars) may not mean there is much of a real float.  Nonetheless, for anyone interested in EMR, this looks like it could be a player.

Irvine CA-based Quality Systems (Nasdaq: QSII, http://www.qsii.com/), originally a dental specialist, now automates various aspects of practices, clinics and hospitals, with a patient-centric and a provider-centric Web portal.  The stock closed at $53.63 on Aug 21, vs a 52-week high of $62.00, with a market cap of $1.5 billion and average volume of 470,000 shares per day. 

If you’re interested in privately held companies, some of which might be good bets for either private equity investments or an eventual public listing, you might want to have a look at Goshen NY-based Waiting Room Solutions (http://www.waitingroomsolutions.com/index.php), Carrollton GA-based Greenway Medical Technologies Inc (http://www.greenwaymedical.com/) , or Eden Prairie MN-based Ingenix (http://www.ingenix.com/Home/).

However you think the cookie will crumble, Dr David Blumenthal is likely to have a lot of influence, since he has been named the Obama Administration’s National Coordinator (read “Czar”) for Healthcare IT.  Here is a brief article on Dr Blumenthal, a former Ted Kennedy staffer and Harvard boffin: http://www.boston.com/news/politics/politicalintelligence/2009/03/harvard_prof_wi.html.

As always, we do not recommend investments; we just look at segments and companies that interest us.  If you find these companies interesting, please do your own due diligence and/or consult a financial advisor whom you trust.

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