by James Brumley | September 12, 2013 8:52 am
Any anti-Obamacare voters expecting a Republican to take over the oval office in 2016 and to repeal all 2000 pages of President Obama’s healthcare overhaul might want to adjust those expectations. That snowball has been set into motion for too long — and has already gathered too much momentum — to be stopped now.
As they say, though, when life gives you lemons, make lemonade. Investors can lament Obamacare, or they can capitalize on it by owning stakes in the companies best-positioned to profit from the changes. Most of the top prospects can be found on the medical-technology and the medical-data arena.
Just for the record, it’s not Obamacare that’s creating the real opportunity in the healthcare IT industry. It was 2009’s HITECH Act (part of the American Recovery and Reinvestment Act) — which clarified how many of the electronic record-keeping requirements could and would be met — that’s actually driving the growth in the electronic healthcare records, or EHR, arena.
What’s HITECH? Essentially, it’s mandated improvement in the accuracy of medical records specifically by compelling caregivers, hospitals, and pharmacies to begin using digital medical records. It’s an acronym for “Health Information Technology for Economic and Clinical Health”, if that helps. Of course, the advent of Obamacare — which will successfully complicate the process of getting or receiving care — is setting a bullish stage for the healthcare technology industry’s players. The top prospects within that arena are (in no particular order):
Though nowhere near the top of the average investor’s watchlist, Cerner (CERN) is probably one of the first medical technology names well-versed investors think of. Aside from being one of the biggest with a market cap of $16.65 billion, its revenue and earnings growth have almost been freakishly reliable.
While there’s nothing especially unique working in the company’s favor, its sheer size means it can muscle its way into new markets.
HMS Holdings (HMSY) is, for all intents and purposes, a government watchdog that will almost certainly play a bigger role in billing management once Obamacare is fully implemented.
HMS drives the bulk of its revenue by earning a percentage of billing mistakes it catches. Medicaid is one of its biggest customers, and Medicare is a major client too. With both programs on pace to become more complicated and open new doors to potential fraud and reimbursement confusion, the opportunity for HMS Holdings will grow significantly.
And to be clear, HMS has only scratched the surface of the opportunity. The Department of Health and Human Services estimates that nearly $65 billion worth of improper Medicare and Medicaid payments were made, and only $4.2 billion of it was actually found and recovered. The industry needs HMS Holdings doing more digging.
Accretive Health (AH) operates in the uglier part of the healthcare billing industry. It’s a debt collector — the nation’s biggest. It’s not an industry that’s going away either. In fact, the need may ramp up once the healthcare industry expands this year and next year.
Additionally, Accretive Health offers a proactive solution that will theoretically keep some patients out of the emergency room in the first place. The company’s data-driven computer system identifies patients who likely need preventive care, rather than waiting for serious conditions to arise that send the patient into the emergency room. The system also handles medical billing and medical record-keep tasks, making it a one-stop, efficiency-driving option.
It might not be anything special on the surface, but boring companies have a funny way being cash cows, and in the past three years Accretive Health has grown its top line faster than any other of the companies under the microscope here.
While Quality Systems (QSII) is downright dwarfed by industry top dog Cerner, there’s still something compelling about this $1.2 billion company.
At first glance, Quality Systems looks like just another digital healthcare records play. It’s got a hand in a little bit of everything, but specializes in nothing. And truth be told, the company hasn’t exactly been well-respected lately. The company’s services rank fairly low in terms of customer satisfaction, and the management team has been under pressure from activist investment company Clinton Group of late, culminating in some sweeping changes on the company’s board.
So where’s the upside in that kind of disruption? Because the organization (despite shortcomings and a lack of pizzazz) has an attractive book of business and an existing framework that would be attractive to a suitor interested in tweaking it. And, the buzz is that the new board is open to such a strategic alternative. While buying a stock solely for its buyout potential isn’t always a strong idea, when it’s a turnaround story too, it sure doesn’t hurt.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities.
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