Hospital IT Spend Trends
We represent here Leerick Swann & Company, a boutique healthcare equity research company. From time to time I'll share research of interest to healthcare IT marketers.
Healthcare IT - Hospitals Remain Committed to IT Spend Through 2008
· HCIT Investment Remains a Top Priority at Hospitals - A recent MEDACorp survey indicates that 24% of surveyed hospitals maintained that healthcare IT and related spending will be their top capital expenditure priority in 2008. The survey of 61 hospitals asked the hospitals to rank-order their priority for capitals expenditures in 2008 -- 24% ranked IT and technology-related spending as their No. 1 priority, 23% of hospitals ranked IT at No. 2, and 21% of hospitals ranked IT at No. 3. On average, hospital IT budgets are expected to increase 6% in 2008, compared with 12%E in 2007.
• Where We Believe the Money Will Go - We believe that hospitals will continue to spend significant portions of their budget on information technology. Beginning in 2008, we believe investors could begin to see a shift in dollars spent by hospitals on inpatient systems to outpatient systems as a result of the relaxation of the Stark law. We believe that some of this spending has already begun to occur and that the mix shift should accelerate through 2008.
· We Expect Increasing Levels for Inpatient IT - We believe that we are coming to the end of a major hospital IT cycle, as most hospitals throughout the country have invested heavily over the last 5-6 years in clinical technology systems. However, we believe that inpatient spending on IT should continue to be robust as hospitals that have previously invested in IT raise their ongoing operating expense level dedicated to IT. We recently observed this trend at Cerner's leadership forum and expect this effect to impact other incumbent vendors as well.
· Maintain Ratings & Estimates - We maintain our ratings and estimates on the inpatient IT systems vendors. We maintain our Outperform rating on CERN, which we view as one of the best-in-class healthcare IT vendors. We maintain our Market Perform ratings on CPSI, ECLP (Eclipse) and MCK (McKesson) shares. We continue to fear that larger vendors will move down-market, negatively impacting CPSI's competitive position. We believe the recent run in ECLP shares already reflects the improved operations of the business. And we believe that the value of MCK's IT business will be difficult for investors to fully realize while the company's valuation is largely tied to the drug distribution segment.
Tags: Cerner, CPOE, Eclipse, EHR, EMR, HCIT+Spending, Healthcare+PR, HIT+Spending, McKesson, Medical+PR, Online+PRPosted by Shawn Whalen on October 15, 2007 at 5:29 PM
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