Watch stocks you care about
The single, easiest way to keep track of all the stocks that matter...
Your own personalized stock watchlist!
It's a 100% FREE Motley Fool service...
Physicians are scrambling to put in place next-generation electronic health records, or EHR, solutions, and that's great news for industry players like athenahealth (NASDAQ: ATHN ) , one of the fastest growing players in health records for outpatient settings. In the year ending May, athenahealth grew its market share by 35%, bringing its total share of outpatient medical records market to 2.3%.
Tapping a fast-growing market
Athenahealth's cloud-based solution resonates with physicians balking at installing high-priced hardware and software. The company reported 47,195 providers on its network at the end of September.
And the number of providers using athenahealth's solution may climb as the company leverages its acquisition of mobile health care app maker Epocrates. Earlier this year, the company bet $300 million that Epocrates mobile app subscribers will give it an edge with doctors looking to buy EHR systems.
If the acquisition is successful, it will be due in part to Epocrates' better-known brand name. Roughly 90% of doctors have heard of Epocrates, and more than 300,000 have downloaded the company's drug information app. Athenahealth hopes that recognition can boost awareness of athenahealth's brand and open doors for its EHR platform.
Bridging the gap
The ability to integrate Epocrates' respected mobile solution into athenahealth's existing EHR system, athenaClinicals, could prove significant. In August, athenahealth reported that its Epocrates Bugs + Drugs app, which integrates data from athenahealth's EHR systems, generated more than 100,000 downloads in its first month. That kind of innovation and adoption rate may signal that athenahealth can win share from competitors like NextGen Healthcare, a subsidiary of Quality Systems (NASDAQ: QSII ) , with 75,000 physician customers, and GE Healthcare (NYSE: GE ) , a division within the well-heeled conglomerate.
Athenahealth, Quality Systems' NexGen, and GE Healthcare are all enjoying a flurry of attention ahead of the move to stage 2 Meaningful Use, a reform driven set of hurdles designed to accelerate the use and analysis of electronic records, next year
Providers are also scurrying to upgrade, test and train employees on systems ahead of next October's launch of ICD-10, which increases the number of health care codes from under 20,000 to more than 130,000. That expansion may create significant productivity headaches for small practices early on and potentially profit-friendly analytics to improve patient outcomes later.
In both cases, market demand may allow athenahealth, Quality Systems NextGen, and GE Healthcare to reap billions in sales over the coming years as spending on health care IT grows to $184.5 billion in 2020 from $89.7 billion in 2012.
But can they turn demand into profit?
Athenahealth is already enjoying a wave of demand sparked by Meaningful Use stage 1. In the third quarter, the company's sales totaled $151.5 million, up 43% from a year ago. Hold aside the $13.4 million in revenue contributed by Epocrates, and Athenahealth's core growth was still a solid 27%. That translated into non-GAAP net income of $0.29 per share.
That was much better than the 6% year-over-year slide in sales at Quality Systems last quarter. Quality Systems posted sales of just $111.1 million in the quarter, a reflection of the company's ongoing struggle to reorganize and leverage the upcoming opportunity.
And, over at GE Healthcare, the company's size and reach has allowed it to win about 6% of the EHR market with its Centricity product lineup. GE's Centricity is among the top 5 implemented by providers who've successfully achieved Meaningful Use stage 1. And sales across GE's all-encompassing health care franchise totaling $18 billion represent roughly 12% of the conglomerate's total revenue.
The Foolish final take
The market opportunity to provide EHR systems to physicians doesn't come without risk. The push toward coordinated care is driving consolidation within the industry, and that favors providers to institutional accounts like athenahealth. But there appears plenty of room to win share given that nearly 50% of the market is owned by more than 400 different small, regional EHR players.
That suggests that athenahealth could capture accounts as physicians look to upgrade to scalable and easy-to-use systems. It also suggests the company, and competitors Quality Systems and GE Healthcare, could consolidate smaller companies too. Regardless, with the CMS paying out $6.55 billion in Meaningful Use payments to providers so far, there's plenty of incentive for providers to spend money on EHR.
A huge growth stock to watch
This incredible tech stock is growing twice as fast as Google and Facebook, and more than three times as fast as Amazon.com and Apple. Watch our jaw-dropping investor alert video today to find out why The Motley Fool's chief technology officer is putting $117,238 of his own money on the table, and why he's so confident this will be a huge winner in 2013 and beyond. Just click here to watch!