A New Health-Care Winner

08/20/2012 11:30 am EST


Benjamin Shepherd

Analyst, Breakthrough Tech Profits, Global Income Edge and Personal Finance

Regardless of what you think or feel about Obamacare, the point isn't to carp about it, it's to find out how to profit from it...and the stock below is already doing just that, notes Benjamin Shepherd of Personal Finance.

While the Patient Protection and Affordable Care Act (PPACA) was the capstone in President Obama’s efforts to reform American health care, he and congressional Democrats were already making headway in that arena well before PPACA was signed into law in 2010.

As part of the American Recovery and Reinvestment Act of 2009, otherwise known as the economic stimulus bill, the Health Information Technol­ogy for Economic and Clinical Health (HITECH) Act created financial incen­tives for physicians and hospitals in the form of higher Medicare reimburse­ments to encourage the adoption of electronic health records (EHR). The incentives total $19.2 billion and run through 2014.

EHRs are an important policy priority because they help health-care organizations standardize and lower the cost of care for chronic—and consequently expensive—conditions such as diabetes. They also improve the quality and efficiency of care by integrating doctor offices with hospitals and labs.

Despite those financial carrots, adoption of EHR systems has been relatively tepid over the last few years, because of the generally weak economic environment and uncertainty over the ultimate fate of health-care reform.

But no law is complete without some sticks. Beginning in 2015, physicians who aren’t using EHRs face financial penalties that begin with a 1% reduction in Medicare payments during that year, and may rise as high as 5% by 2018.

Although 2015 seems a long way off, the deadline is looming disturb­ingly large because it can take between one to three years to implement an EHR system, depending on its size and complexity. As a result, orders for EHR systems should pick up over the course of the next several quarters, particularly as small- and mid-sized health-care providers that have delayed action because of budgetary concerns begin buying systems.

Computer Programs & Systems (CPSI) serves that small- and mid-sized market, focusing primarily on hospitals with fewer than 300 beds. The company experienced a spike in new clients in the first quarter of this year. While most of that growth is largely attributable to secular regulatory trends, the depth and breadth of the firm’s offerings also played a role.

In addition to offering EHRs, Computer Programs & Systems also provides business functions including payroll and personnel management, inventory control systems and IT administration. The company has begun offering its productions on a Software as a Service basis, allowing clients remote data access and storage capabilities and potentially reducing their liability in the event of a data breach.

These important business functions set the company apart from its competitors and they’re crucial for compliance with HITECH. To ensure that every dollar is used for the intended purpose of promulgating EHR, the federal government has attached a proviso: physicians and hospitals that want to qualify for incentive payments must demonstrate that they’re actually using the technology.

In other words, purchasing and even installing an EHR system is not sufficient. The health provider must demonstrate that it is beneficially and efficiently using the system in the real world. This prevents providers from buying a new EHR system, getting paid by the government, and then mismanaging or underutilizing the system. Computer Programs & Systems helps clients with this mandate.

Over the past five years, the company has generated average revenue and earnings growth of about 11%. For the rest of 2012 and into 2013, this growth rate should rise into the mid-teens. With a surge in EHR demand on the horizon and an attractive 46-cent quarterly dividend, Computer Programs & Systems is a buy up to $52.

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