The intersection of healthcare and technology has long been a game-changing trend, and the move toward electronic health records (EHRs) is only making it a more powerful one.
Diagnostic images can be accessed anytime and anywhere, so doctors can consult quickly about a patient. Your medical history will be all in one place, ready for any doctor’s office that needs it, so you don’t have to fill out all of those annoying and cumbersome forms every time you see a new doctor. And someday in the more distant future, you’ll carry your own genetic map with you, so your doctor can prescribe medicines that work best with your genotype.
Let’s not ignore the safety and financial benefits, too. Medical errors caused by notoriously bad handwriting of doctors or a chaotic hospital environment would dramatically decrease, and software would cut way down on paperwork. Plus, better information sharing would eliminate redundant procedures.
These are all among the reasons that the medical industry and the federal government are moving rapidly toward electronic health records. President Obama took even offered incentive payments to doctors and hospitals that move toward the use of electronic health records (as part of the HITECH Act, which was incorporated into the American Recovery and Reinvestment Act of 2009).
Data from the Centers for Disease Control (CDC) show that physicians are rapidly adopting EHRs in their offices, and that will only continue to increase, especially in the United States. As Baby Boomers age and healthcare costs climb, it becomes increasingly critical for health providers to deliver the most efficient care possible, maximizing treatment among continued insurance reimbursement scrutiny.
One company that is very well-positioned to take advantage of this trend remains Cerner (CERN), an innovative leader in healthcare IT that I’ve followed for years. CERN provides software to make record keeping easier across all platforms of medical research, patient care, pharmaceutical/medication management and billing. Its customers are healthcare organizations of all sizes, from solo practitioners to large healthcare systems to entire countries.
The main software product is called Cerner Millennium, which allows healthcare professionals to access a patient’s health record at the point of care, giving them up-to-date information in real time. Just think how valuable that is in an emergency room, where the hectic pace is ripe for error and inefficiency. Cerner is also growing its cloud-based software platform.
CERN has run up nicely (8.5% in four trading days) after reporting solid third-quarter earnings on Oct. 23. Revenues increased 15.5% to $840.1 million, thanks to 10.8% growth in system sales and a 16.7% increase in support and service revenues. Earnings grew even more, up 20% to 42 cents per share, as management leveraged expenses with the higher volume. Gross margins narrowed slightly on an increased use of outside vendors, but management indicated on the conference call that this would subside in future quarters.
While there was some concern about slowing systems growth, bookings were quite strong, up 19% to a third-quarter record of $1.1 billion. Approximately 27% of those came from outside Cerner’s core base of customers, and that expanding base is another sign that growth should continue. Assuming Cerner executes on the expected $0.15 earnings boost from the recent Siemens Medical acquisition, I am confident they can earn the $2.05 – $2.15 per share management expects in 2015, which would be about 25% growth from the $1.66 expected this year.