Healthcare’s Y2K. And SmallCaps That May Save the Day.

As the first decade of the second millennium comes to a close, it is tempting to reminisce about where we were during the last few months of 1999. The excitement of entering a *new century and seeing a year end in 00 caused concern for IT departments the world over because many computer programs would not be able to recognize the year 2000 from 1900, the so called Y2K bug. The speculation of Y2K’s coming wrath ranged from paperwork headaches to Armageddon.  You may recall reports of people forming militias and stockpiling canned food in shelters in advance of Y2K ‘s threat. This actually happened! Well, the global community passed that test  with only mild nuisances.  Maybe the issue was overhyped, or maybe the $300 Billion spent to mitigate the threat was the best money ever invested. We’ll never know.  Here is a good 1 pager on all things Y2K.

Healthcare’s Y2K is known as ICD-10. It won’t spook people to start many militia movements and, it won’t cost $300 Billion to fix. Rand projects a bill of $425 million to $1.15 billion, with $5-$40 million in lost productivity per year. Blue Cross found the conversion to run from $5.5-$13.5 billion, with $150-$380 million per year in lost productivity. Though the cost estimates vary greatly – this is a definite revenue opportunity for health insurance data companies large and small.

So what the heck is ICD-10 already?

I’m glad you asked. ICD-10 is an international protocol that calls for more detailed coding in healthcare treatment, i.e. labeling diseases, symptoms, abnormal findings, complaints, external causes of injury or diseases, as classified by the World Health Organization.  With 155,000 different codes, ICD-10 is more than 10 X detailed than the current standard, ICD-9. The deadline for meeting the mandate is October 2013. The American Academy of Professional Coders (AAPC) lobbied to push it back –the HHS had originally called for a 2010 date. On the surface, it may seem like a stimulus project to create more jobs. Not true. Its purported goal is to make it easier to discover relationships between patient, diseases and treatments. In fact, the U.S. lags other countries in its adoption.

Humana’s (NYSE:HUM) CIO Bruce Goodman, in a Q&A with Wall Street Journal writer Ben Worthen, explains, “You have got to go through all the systems where those kinds of codes are carried and expand those fields and bring in those new code sets. A lot of it can be automated. But it means remediating millions of millions of lines of code across lots of systems—systems hospitals use, we use, doctors’ offices use.”

Another beneficiary of ICD-10 will be financial systems used by hospitals to manage revenue and information flows to payers, like Humana. Expect **Trintech (NASDAQ: TTPA), through its healthcare division, Concuity to benefit from this as they already process huge amounts of financial and patient data for large hospital systems like Cleveland Clinic and Providence Health Networks. Chicago based Concuity currently provides payer contract compliance solutions, financial modelling and patient financial responsibility solutions in all payer all care settings.

Lest you think the healthcare industry has plenty of time to focus on the 2013, consider that there are 17 pages of ICD-10 related jobs listed on today’s (NYSE:MWW) Job Board. Greater exposure to IDC-10 hiring may be had with a small cap that specializes in technical staffing. Tampa’s Kforce (Nasdaq: KFRC) health information management segment provides coding, project management, transcription and data analysis staffing. You may want to follow its IDC-10 related placement going forward.

The biggest concern with handling this mass data migration is privacy. Fines for patient privacy breeches begin at $50,000 per violation and with this in mid, you may want to take a closer look at Dallas-based Zix Corporation (Nasdaq: ZIXI.) The Company’s Email Encryption Service enables healthcare organizations to protect sensitive personal health information sent via email. Zix Corp email encryption is used by the leading private insurers and one out of every 7 hospitals in the U.S.  The company delivered a 17% YOY revenue increase in the third quarter, which was at the high end of its guidance.

If you do some basic Internet research of ICD-10, it won’t be long before you come across health IT firm QuadraMed (Nasdaq: QDHC) of Reston, VA is all over it. It intends to be the source of all things ICD-10, and the Company launched a suave marketing push called the ICD-10 Countdown Program last month. This package includes coding simulator software, educational tools and services to guide healthcare providers through the ICD-10 conversion. The American Health Information Management Association has signed to use its simulation software to train 4,000 future coders nationwide. Not a bad product entry point to say the least.

Are any of these companies acquisition targets? Time will tell, but Blackstone (NYSE:BX) controlled Intelenet, a Mumbai-based healthcare records processing firm just made a $30 M acquisition to gaine xposure to the U.S. market for ICD-10 conversion.

So, how do you plan to spend October 1, 2013? This is ICD-10 deadline day, after all. Don’t say you were not given a head’s up.

* Technically the new century began the first day of 2001, but that number does not pack the same cache. Blame Madison Avenue.

** Client of the publisher of this blog.


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