Analysts forecast moderate growth for health IT

By Larry McClain
09:31 AM
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Expect a year of modest growth in 2011, both for the healthcare information technology sector and the industry as a whole, said four analysts who spoke at the Nashville Health Care Council on Jan. 26

“HIT growth is tied to quality, but people aren’t currently being paid for quality,” said Adam Feinstein, managing director at Barclays Capital in New York. I think some of the initiatives driving HIT implementation will be delayed or scaled back, which could have an impact on stock performance in that sector.”

[See also: Healthcare IT among PWC's list of top 10 healthcare issues for 2010.]

On a separate front, Feinstein said: “The long-term trend is our friend because I foresee a big spike in utilization when the newly insured enter the system. But for 2011, I think hospitals will experience just 1 percent volume growth. I’m still bullish on hospital stocks because there’s so much opportunity for consolidation.”

“There’s still a robust M&A environment,” said Kemp Dolliver, Boston-based managing director at Avondale Partners. “I think there will be a lot of hospital acquisition opportunities this year.”

The panel also tackled the topic of looming state budget crises. “Medicaid reimbursement accounts for nearly 10 percent of hospital revenue, so state budget problems could obviously be a drag on performance this year,” said Frank Morgan, managing director at RBC Capital Markets in Nashville. “I think there are good tailwinds this year for post-acute care providers like renal clinics and rehab facilities. Companies with predictable volumes should also do well, especially dialysis clinics and behavioral health providers. On the negative side, home healthcare still faces formidable challenges this year.”

[See also: Healthcare IT can 'bail out' hospital budgets.]

“The medical device sector got hit hard in 2010, and there’s still a lot of uncertainty going forward,” noted Christopher Cooley, managing director at Stephens, Inc. in Little Rock, Ark. “But I’m very bullish on medical device manufacturers in two markets: diabetes treatment and ophthalmology.”

All four analysts agreed that repeal of last year’s healthcare reform legislation – including the mandate – is highly unlikely, despite the heated rhetoric on Capitol Hill.