Did You Buy These Stocks In 2010? Health Care IT Stock Picks From Steve Halper Of Thomas Weisel Partners LLC
December 16, 2010 - The Wall Street Transcript has just published 2010 Health Care Review From The Wall Street Transcript offering a timely review of the Health Services sector. This Special Report contains expert industry commentary through in-depth interviews with public company CEOs, Equity Analysts and Money Managers. Please find an excerpt below.
Recent Wall Street Transcript Special Reports.
Steve Halper is Associate Head of Research, United States, and covers health care information technology and pharmaceutical services at Thomas Weisel Partners. Prior to joining Thomas Weisel Partners in April 2001, Mr. Halper was a Vice President at Donaldson, Lufkin & Jenrette, where he followed the health care IT industry as well as medical devices. Mr. Halper received a Bachelor of Science degree from the State University of New York at Binghamton and an MBA from Fordham University.
TWST: What is your perspective on the health care IT industry at the moment, particularly given the ARRA?
Mr. Halper: If you look at the ARRA plan, the legislation calls for incentive payments to hospitals and physician groups that adopt electronic medical records and then meet certain criteria about how they use those applications. The goal, and this was originally set forth in the Bush administration, was to increase the use of electronic medical records and ultimately increase the overall efficiency of the health care system, while at the same time providing higher-quality care.
We believe that the potential incentive payments that are going to be available for hospitals and physician groups are accelerating purchase decisions for EMR technology, especially in the hospital market, where hospitals that have already made significant investments in IT are going to be making more investments in IT in order to make sure that they qualify for the incentive payments. So we are pretty positive on the impact of ARRA on the hospital IT vendors. We are a little more cautious towards physician office software vendors.
The large groups will make these investments, but the smaller physician groups will probably drag their feet a little bit more and we might not see the acceleration in demand from that segment right away. But the overall trend is that the health care industry is getting pushed or incentivized to adopt electronic medical records. Those incentives will be in place for the next five years and then penalties will be accessed if they are not meeting the criteria as outlined by the government.
TWST: Are there any companies in particular that are well situated to benefit from ARRA?
Mr. Halper: Sure. I think that Cerner (CERN) is probably the best-positioned publicly traded company to benefit from increased hospital demand for software products. The company has been around since the mid-1980s, and they've really designed a suite of applications and built in a great deal of functionality around their core products to support the ultimate goal of having electronic health records not just within hospitals, but within a total community setting. So Cerner has invested in this area for a very, very long time, and we think that they have a good shot of virtually every large purchase decision that's being made in the United States. They are also building out their infrastructure to attack the opportunity outside of the United States.
TWST: Conversely, are there any companies that perhaps aren't as well situated to capitalize on the funding?
Mr. Halper: I think that the two companies in the industry that have done exceptionally well and will continue to do exceptionally well are Cerner and a private company known as Epic. The other well-known hospital-focused companies that compete in this space would be Eclipsys (ECLP), McKesson (MCK), GE (GE), Siemens (SI). Those companies after Cerner and Epic are not necessarily as competitive. They will benefit from the rising-tide-lifts-all-boats scenarios, but from a product standpoint, we think that Cerner and Epic will continue to win the lion's share of the deals.
TWST: As you look at the industry, what do you see in terms of innovation? Are any companies doing anything particularly innovative to address certain problems, giving them an advantage beyond ARRA?
Mr. Halper: I think it goes back to Cerner and what they've invested in. They have built out a suite of software applications that were designed to work together on the same platform, whereas many companies built their product suite by acquisition. The latest trend has been for vendors to start hosting their applications in conjunction with other applications in order to get at this concept of the cloud. What is the cloud? Cloud computing is essentially applications that can be hosted pretty much anywhere.
Cerner has driven down its cost of ownership by offering these applications on a hosted basis and will afford a lot of efficiency for the hospitals as they integrate various applications from other vendors at their hosting site. So while this whole concept of cloud computing is becoming much more important, it will probably wind up being one of these overused words in health care IT as we see more and more hosted applications. The cloud or the Internet is the perfect vehicle to facilitate information flow across integrated delivery networks.
Again, there is much work that needs to be done to ensure privacy and security of data, but we really see that going in that direction. A lot of the vendors will duplicate that strategy as well. Is there one application that separates these vendors from anybody else? No. Especially in the hospital market, these are very, very complex software applications because health care delivery is a very complex process. Given the complexity of health care delivery, by definition the software will be extremely, extremely complicated. So I don't want to say that there is one application that separates these vendors from one another.
TWST: So investors shouldn't think all of the companies will capitalize on funding equally?
Mr. Halper: I think that all the companies will benefit to some degree, but I think that the companies that have the best product suite going into this will benefit the most, and that's why we call out Cerner.
The remainder of this 400 page 010 Health Care Review From The Wall Street Transcript can be immediately viewed by purchasing online.
The Wall Street Transcript is a unique service for investors and industry researchers - providing fresh commentary and insight through verbatim interviews with CEOs and research analysts. This special issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.
The Wall Street Transcript does not endorse the views of any interviewees nor does it make stock recommendations.
For Information on subscribing to The Wall Street Transcript, please call 800/246-7673