Sector Snap: Health care IT falls on funding delay

NEW YORK - Health care information technology stocks slid Tuesday after a Leerink Swann analyst said the electronic medical records portion of President-elect Barack Obama's economic stimulus package will not help the sector right away.

"Our best guess as to the time line for federal money to work through state grant and loan programs in any material way is at least 12-18 months," Bret Jones said in a client note. The climate for health care IT companies is still very difficult, Jones wrote, and investors may be disappointed as they wait for the stimulus package to take effect.

In his presidential campaign, Obama proposed greater funding for electronic medical records as part of a plan to save money for patients and reduce health care premiums. That funding is expected to be tied to an impending economic stimulus plan.

The analyst predicted health care IT stocks will be flat or lower until mid-2009 as hospital health care IT projects get phased in or delays occur. He said they will recover later in the year, when the funding is more certain and the details of the Obama plan are better understood.

Jones downgraded shares of Cerner Corp., AthenaHealth Inc., Allscripts-Misys Healthcare Solutions Inc. and Quality Systems Inc. to "Market Perform" from "Outperform." Each of those stocks has climbed at least 20 percent since Dec. 1, with shares of Allscripts and Quality Systems rising more than 50 percent.

In afternoon trading, AthenaHealth shares fell 81 cents, or 2.3 percent, to $35.04, while Cerner stock fell $2.09, or 5.3 percent, to $37.25 and Quality Systems shares gave up $2.46, or 5.8 percent, to $39.66. Shares of Allscripts-Misys lost 73 cents, or 7.3 percent, to $9.26.

He said the stocks may decline when the companies begin to report their fourth quarter results. As the reports come in, Jones said, investors will see the results of cutbacks in hospital spending as the hospitals work through the damaged credit market, lower admissions at hospitals and increased bad debt.

Based on contact with a lobbyist, Jones said Obama's health care staff plans to direct $5 billion to $10 billion to health care IT funding. However, not all of that funding will be used for electronic medical records, he said: Some will be used on infrastructure and setting up a national health information network.

He added that Watertown, Mass.-based AthenaHealth may not benefit very much from the stimulus plan because its AthenaClinics is not a leading emergency medical records product yet.

During the expected sector retreat, Jones recommended shares of companies that do business with ambulatory clinics like AthenaHealth, Quality Systems and Allscripts. His secondary recommendation was inpatient vendors like Cerner and Eclipsys Corp.

Shares of Eclipsys fell 83 cents, or 5.6 percent, to $13.92.

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