SaaS Model For EHR Compliance Reduces Physician Upfront Costs, Leading To More Extensive Adoption
June 28, 2012 - The Wall Street Transcript has just published Health Care IT Report 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.
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Gene Mannheimer joined Auriga USA, LLC, in September 2008 to cover the health care IT sector. His experience in health care IT spans 20 years, including 10 years as a Research Analyst following the health care IT and services sector. He was also a Senior Analyst at Jefferies Broadview, specializing in mergers and acquisitions of IT companies. Mr. Mannheimer holds a B.S. in economics from the Wharton School, a Bachelor of Applied Science in Systems Engineering from the University of Pennsylvania and an MBA in finance from the University of Southern California.
TWST: What about the cost? There is some stimulus money, as we discussed, but for the smaller practices, for example, is this a daunting cost to implement the new IT?
Mr. Mannheimer: That's a great question, and certainly the cost can be prohibitive. That's probably the biggest obstacle to adoption of electronic medical records - is cost. Especially when you consider that 50% of physicians, half the population, practice in physician offices with fewer than 10 doctors. This segment is very sensitive to price, and that's why many of the legacy EMR products, those offered by GE (GE), Quality Systems (QSII) to name two, are just cost prohibitive. These things cost maybe $10,000 per physician, and the doctors don't have the capital put upfront or they don't see the value proposition. That has been well demonstrated and documented into the cost issue.
You have a lot of newer models today which are very exciting, like those offered by athenahealth (ATHN), Greenway (GWAY) and Allscripts (MDRX), is now starting to see about 25% of their bookings come from SaaS subscription-based delivery, where you pay virtually nothing upfront, but it's more of a pay-as-you-go model, and that's much more palatable to the physician's pocketbook as they don't have to lay out money upfront. The market is getting more creative in ways just to reach the small physicians in the small doctor office. So now instead of paying $10,000 upfront, you may be only paying $400 and $500 monthly to use and lease an EMR. They're much more receptive to that at the lower end.
TWST: Should investors look at including health IT in their portfolio right now?
Mr. Mannheimer: Without question, they should. In these precarious markets where you've got an election year and uncertainty about which way health care is headed, you can look to health IT for two reasons. One is it has the government stimulus behind it, which should not get derailed because that's received bipartisan support - George Bush's administration initially started the health IT initiative, and President Obama really expanded on that and put a lot of money behind that. So it's got bipartisan support, it shouldn't get derailed. And health care is a relatively defensive sector.
The second reason to include health IT is that the sexy, higher-growth characteristics of software companies are here as well. These companies are essentially software companies that target the health care vertical. So you have the growthy aspects of a tech company combined with the defensive characteristics of the health care industry. I would say it's a great place to put money, but you have to be sensitive to valuation. So that's why, say, if you're looking five years out, you just buy these names and hold them, because many of them get consolidated and acquired at a nice premium. But if you're more near-term oriented, some of the multiples have gotten ahead of themselves and you might look for pullbacks therefore getting involved. That's how I would couch it.
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