Promise of stimulus money drives up health IT stock prices

The $18 billion being pumped into health care has many investors hoping it will result in big business for vendors.

By Pamela Lewis Dolan — Posted Sept. 14, 2009

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Even if physicians haven't figured out yet whether they will buy new information technology, Wall Street assumes they will.

According to a July report by Healthcare Growth Partners, which advises small- to medium-sized health companies on financing, health information technology stocks outperformed broader markets during the first half of 2009 with a growth of 30%, compared with a 2% gain by Standard and Poor's 500 index and 16% for the tech-heavy Nasdaq Stock Market. For the most part, health care technology stocks have held those gains into early September.

Meanwhile, Emdeon, a claims-processing company, on Aug. 12 had a rousing initial public offering of stock. It issued 2 million more shares than expected to meet demand, and share prices reached $16.52 at the end of the first day, ahead of the company's $15 target. Emdeon, which raised $365.7 million, formerly was affiliated with Healtheon, which in 1996 was online health's first hugely popular IPO.

Days after Emdeon's IPO, Alpharetta, Ga.-based HealthPort, filed plans for a $100 million initial offering. The health IT company sells services to hospital and physician clinics that allow information from patient records to be requested by and provided to authorized parties such as insurance companies and government agencies. HealthPort did not disclose the timetable of its offering.

Christopher McCord, principal of Healthcare Growth Partners, said that because of the $18 billion made available through the federal stimulus package for the advancement of electronic health record adoption, a lot of activity is expected in the health IT market in the future.

"I do think eventually the reality is going to live up to the hype" in terms of how the stimulus will affect business, McCord said.

But he said it might not come as soon as Wall Street expects. "The expectation that, beginning at the end of this year, there will be a dash of [EHR] purchases and tons of spending might be a little overhyped. But I do think in the long run you will see this translate as a huge boon to health IT vendors."

In recent months, health technology sales have remained stagnant as hospitals and practices await the final definition of "meaningful use," McCord said. The federal standard would determine if physicians and hospitals that buy and use information technology will be eligible for stimulus money.

McCord predicts that in the short term, health care facilities will continue the deliberate pace, instead of rushing implementation, even after the definition of meaningful use is released.

The health IT market also has remained active in mergers and acquisitions, but with smaller transactions -- mostly, less than $20 million a piece -- than in years past.

Forty-eight deals worth a total of $205 million were announced in the second quarter of 2009. This was a decline from the 56 deals announced in the second quarter of 2008 that were worth more than $300 million. But it was up from 42 deals, worth $180 million, announced in the first three months of 2009.

McCord said the smaller deals were a result of a lack of credit. Many vendors are just sitting tight, waiting to see what happens after the release of meaningful use standards, he said. Mergers and acquisitions in the health IT market historically have run at a good pace, and McCord said he expects that to continue, but with larger deals in the future.

But some smaller deals might mask bigger aspirations. Australia-based iSoft paid only $15 million in August for Boston-based BridgeForward, a hospital data integration specialist. However, iSoft, which operated in 38 countries before the deal, plans to use that acquisition as a toehold to bring its Lorenzo platform into the United States. Lorenzo is the centerpiece of the massive plan to update the computer systems and provide a national health network in Great Britain's National Health Service.

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