In the 1987 cinematic cult classic Wall Street, villainous wheeler-dealer Gordon Gekko famously said: “The most valuable commodity I know of is information.”

Gekko’s dictum is especially true in the health care field, where success isn’t just measured in dollars and cents, but also in human lives.

One of the hottest trends in the health sector is federally mandated electronic recordkeeping. As the use of Electronic Medical Records (EMR) proliferates and the technology behind it becomes more advanced, the federal government has come to the conclusion that it’s an inevitable trend of great benefit to society.

U.S. regulators have implemented a slew of financial incentives for physicians and hospitals to adopt EMR. Notably, the Health Information Technology for Economic and Clinical Health Act, or HITECH, provides incentive payments to qualified physicians and hospitals, to assist them in the purchase, implementation and “meaningful use” of a federally certified EMR system.

These HITECH payments (worth a total of $17 billion every year) represent a tailwind for companies that specialize in the electronic records industry. End user recipients stand to gain tens of thousands of dollars from Uncle Sam for each system installed, depending on their circumstances.

The company that’s best positioned to benefit from this regulatory landscape is Allscripts Healthcare Solutions (NSDQ: MDRX). The Chicago-based technology company is a “defensive growth” play that’s resistant to recession and inflation.

Allscripts provides information technology systems worldwide for physicians, hospitals, governments, militaries, health plans, biotech companies, retail clinics, surgery centers, retail pharmacies, pharmacy benefit managers, insurance companies, employer wellness clinics, consumers, testing laboratories, urgent care facilities, and health-oriented venture capital firms, as well as post-acute organizations such as home health and hospice agencies.

Global spending on health care has doubled in real terms over the past two decades, reaching US$ 8.5 trillion in 2019, with the U.S. accounting for the biggest percentage by far (see chart).

Advocates of EMR argue that the technology not only reduces costs and eliminates administrative waste, but also enhances the quality of care. It’s a persuasive rationale, backed by U.S. federal law.

Allscripts saw the writing on the wall sooner than its competitors. It lined up clients during the nascent stage of the EMR transition and lobbied hard on Capitol Hill for implementation incentives. Now, the company’s prescience is paying off.

Carrots and sticks…

A wide range of medical specialties and health care facilities are eligible for federal incentive payments, including osteopathy, dental surgery, optometry, chiropractors, certified nurse-midwives, nurse practitioners, physician assistants, and acute care or children’s hospitals.

Behind the financial carrots are very big sticks. If an EMR solution is not implemented, not only will health care providers be unable to collect reimbursement, but they also will be subject to onerous financial penalties.

Moreover, to ensure that every dollar is used for the intended purpose of promulgating EMR, the U.S. government has attached a crucial proviso: physicians and hospitals seeking to qualify for incentive payments must demonstrate that they’re actually using the technology.

In other words, purchasing and even installing an EMR system is not sufficient. Health care providers must demonstrate that they’re beneficially and efficiently, or “meaningfully,” using the system in the real world. This prevents providers from buying a new EMR system, getting paid by the government, and then mismanaging or underutilizing the system.

Allscripts foresaw this all-important criterion. In addition to providing the integrated software packages necessary to digitize health records, the company also handles implementation and records management and helps providers prove meaningful use to the federal government.

The company will benefit from its entrenched position in the field and the fact that the sector is fast growing but still underpenetrated. Foreign countries have been implementing similar incentives and penalties regarding EMR.

With a forward price-to-earnings (P/E) ratio of only 17.36, Allscripts boasts one of the lowest valuations in the booming health services industry, which sports an average forward P/E of about 51. That makes Allscripts’ stock a deep bargain. The average analyst expectation is for MDRX to reach $21.44 per share over the next 12 months, which from current levels would represent a gain of more than 50%.

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John Persinos is the editorial director of Investing Daily. You can reach John at: mailbag@investingdaily.com.

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