Jefferies & Company Equity Research Group Sees Constructive Outlook on Health Care IT Tied to Drug Development and Fraud Prevention

Wall Street Transcript

67 WALL STREET, New York - October 24, 2012 - The Wall Street Transcript has just published its Health Care IT Report offering a timely review of the sector to serious investors and industry executives. This special feature contains expert industry commentary through in-depth interviews with public company CEOs, Equity Analysts and Money Managers. The full issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.

Topics covered: Electronic Health Record Adoption - HIT Consolidation Activity - Platform Interoperability and Data Analytics - Analytics for Evidence-Based Care Protocols - Electronic Health Records Implementation - HITECH Act Incentives - Affordable Care Act

Companies include: Unitedhealth Group, Inc. (UNH), Cerner Corp. (CERN), Athenahealth, Inc. (ATHN), Allscripts-Misys Healthcare So (MDRX), Quality Systems Inc. (QSII), HMS Holdings Corp. (HMSY), Health Net Inc. (HNT), Molina Healthcare Inc. (MOH)

In the following excerpt from the Health Care IT Report, an expert analyst discusses the outlook for the sector for investors:

TWST: You cover a wide range of health care stocks. How does health care IT fit into the overall picture for you right now?

Mr. Windley: What I find particularly interesting is the intersection of managed care's desire to contract with and manage a more connected delivery system with the goal of health care IT, to provide the plumbing for the delivery system. Managed care wants to drive efficiency into that delivery system through elimination of excess procedures, tests and hospital days. Health care IT strives to connect systems so that those excesses can be wrung out in an efficient way. We see managed care in some cases subsidizing some health care IT purchases. UnitedHealth (UNH) owns a small clinical system vendor. Health care IT and managed care are plying their trade into the provider community for health care.

TWST: Where are you focusing your attention within the IT space at the moment?

Mr. Windley: We're more constructive on areas that are not directly selling clinical systems into the physician space. I say that because the last two years have seen significant pull forward of demand due to the government's meaningful use incentives. We're coming out of a period of very high growth and think that growth is poised to slow by virtue of maturity of these programs. We think that the growth rate is more sustainable in the near term in a couple of areas. The first one is around IT systems selling to the drug-development arena, which is every bit as inefficient as the clinical delivery space.

The other area where we are doing work is in the fraud, waste and abuse area, which also has government tailwind. There are companies in health care IT that have some heavy analytical and algorithmic capabilities that help screen out erroneous payments on behalf of Medicare and Medicaid. These areas do not have an artificially induced peak in the near term.

TWST: When do the meaningful use incentives slow down?

Mr. Windley: We think right now. We've done some surveying, which we put out with our initiation of Cerner Corporation (CERN). That survey showed that hospital CIOs expect capital IT spending to be flat this year and decline by 5% in 2013. So we think we're seeing that roll over right now.

TWST: As you look at the whole IT space, how has activity gone over the past 12 months or so for the industry, for the stocks?

For more of this interview and many others visit the Wall Street Transcript - a unique service for investors and industry researchers - providing fresh commentary and insight through verbatim interviews with CEOs, portfolio managers and research analysts. This special issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.

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