Cerner Corp (CERN – Analyst Report), one of the leading health IT suppliers, was recently selected by the State of Washington Department of Social and Health Services (DSHS) to modernize integrated revenue cycle and electronic health records (EHR) in multiple state facilities.
Per the agreement, Cerner will digitize DSHS’ paper health records to improve provider access to patient information across facilities. The company will also provide tools like computerized physician order entry to support DSHS’ objective to improve patient safety.
Apart from patient safety, one of DSHS’ objectives in replacing the existing systems is to support the transition to ICD-10 compliance by Oct 1.
ICD-10 is the 10th revision of the International Statistical Classification of Diseases and Related Health Problems (ICD) – a medical classification list by the World Health Organization (WHO). After several delays, the deadline for the implementation of the ICD-10 in the U.S. is set at Oct 1, 2015.
In order to comply with the same, healthcare providers need to install new software, provide training for physicians, staff members, and administrators and also develop new practice policies and guidelines, and update paperwork and forms.
We believe that the deal with Cerner is a result of the State of Washington government’s strong initiatives for digitization in the health care industry and to eventually meet the ICD-10 deadline.
We note that Cerner is greatly benefiting from the accelerated momentum among medical providers to comply with federal EHR requirements. Further, its non-EHR offerings for the untapped Healthcare Information Technology (HCIT) market, such as population health management and care coordination, are considered important growth catalysts in our view.
However, the HCIT market is highly competitive, which puts considerable pressure on both pricing and margins. Moreover, a growing proportion of low-margin services and technology resale may further affect margins.
Stocks to Consider
Currently, Cerner carries a Zacks Rank #3 (Hold). Better-ranked stocks include Merge Healthcare in the medical information systems industry and Cardinal Health (CAH – Analyst Report) and Merit Medical (MMSI – Snapshot Report) in the broader medical industry. All the three stocks carry a Zacks Rank #2 (Buy).
