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TWST: Ray, you follow a broad group of health care-related companies. What’s the common link between these companies?

Mr. Falci: I think the common link between all of my companies is that their business models are predominantly service-based. They don’t have the patent protection or the intellectual property of a drug company or a medical device company. What they do bring to the table is a knowledge of health care processes and an ability to, in most cases, apply information technology to improve those processes. That could range from improving supply chain management in the distribution world to improving the way physicians and nurses practice medicine and many other areas of health care that could benefit from IT.

TWST: What has changed most over the past year in the way that investors look at health care information technology, particularly at the e-health segment that had attracted a lot of attention?

Mr. Falci: Whether it’s semantics or not, I don’t think the word e-health is used too much. Investors have basically, in my view, stopped making the distinction between e-health and health care information companies. The bottom line is any company that is supplying IT in some innovative way to the health care industry to help improve efficiencies or quality of care is being viewed based on the demonstrated value that their business delivers. I would say what has changed is that people do not make the distinction, number one, between the two groups, and number two, people are definitely more focused on tangible proof of a business model rather than a high-level vision and opportunity.

TWST: What are the business models that you think work best in this sector?

Mr. Falci: Ironically, what we’re finding now is that the old-fashioned license fee model, where a vendor comes in, assesses a problem in his customer’s facility, and essentially develops an application for that problem and gets paid an upfront license fee, still remains the dominant method by which hospitals and insurance companies and others pay for these products. While many thought we were going to subscription pricing and transaction-based pricing and some of the other newer models, the simple truth is that a one-time software license fee is the best economic solution for the hospitals as long as they have the capital. If they don’t, then maybe they will look at some of the other models.

TWST: May we just run through the reasons why you favor Cerner (Nasdaq:CERN), McKesson (NYSE:MCK) and IMS Health (NYSE:RX)? Let’s start with Cerner.

Mr. Falci: Cerner has the leading clinical IT system in the industry. It’s virtually all been developed in-house, which means there is a high degree of coordination or integration among all of Cerner’s applications, so that a hospital buying the entire Cerner suite of products or any portion of it knows that they’re going to work well together. There are also a lot of benefits in being able to share information across all the areas of the hospital. Given that capability of Cerner and the recent trends I just mentioned about more money going into clinical systems, I think it just puts them in the right place at the right time. They’re the leader in what is now the segment getting more of the dollars coming out of the hospitals.