Get me tech, stat!
As hospitals rush to join the Information Age, here are three companies that are poised to profit.
(FORTUNE) - The mountain of file cabinets at your local hospital offers telling testimony to the medical industry's need to join the Information Age. Now, hospitals are being pressured to turn those files into more reliable bits and bytes. (See how a large dose of technology transformed VA hospitals.)
The push is coming from the government and private insurers, which are beginning to pay hospitals more for higher quality care. Nationwide, there are now more than 80 "pay-for-performance" initiatives, in which providers get paid based on how well they meet certain "quality indicators," such as administering regular flu shots. And the trend is gaining momentum.
For hospitals, that means stepping up their investment in tech. By adopting clinical information systems, hospitals can better coordinate care and overcome problems as common as illegible handwriting on doctor's prescriptions that cause patients to receive the wrong drugs or doses.
And though many hospitals are struggling to turn a profit, tech spending at those that are healthy should grow at a decent pace: Market researcher IDC projects overall health-care IT spending will grow 8 percent per year, to $23 billion by 2009.
Here are three companies poised to benefit.
Cerner (Research) CEO Neal Patterson, a onetime tech consultant for Arthur Andersen, transformed the health-care IT industry in the mid-1990s by offering hospitals software to link their business and clinical sides, from emergency room to billing office.
Though it's still relatively small, with $1.2 billion in sales, Cerner now boasts more than 1,500 clients, primarily small local hospitals. Unlike many of its peers, Cerner's strength lies in providing clinical software, rather than financial systems. Cerner has attracted a number of fans, including Vanguard Health Care skipper Ed Owens, the largest shareholder.
McKesson (Research) is primarily known for distributing drugs and other medical supplies to hospitals and doctors. But the San Francisco company, with $86 billion in sales, also has a thriving IT business, providing medical facilities with both clinical and billing systems. CEO John Hammergren now counts over half of all the hospitals in the United States with at least 200 beds among McKesson's customers.
And though its provider technologies segment is still relatively small, with about $1.5 billion in sales, it is by far its fastest growing. Most recently, McKesson was awarded a $1.3 billion contract by Triad Hospitals to provide clinical and financial systems at its network of 50-plus hospitals and surgery centers.
The industrial giant has been expanding its role in health-care information technology in recent years. Beginning in the late 1990s, it started purchasing small software companies that make systems to store diagnostic images such as X-rays and track patients' medical histories. Its latest purchase came last year, when it paid $1.2 billion for IDX Systems, which provides clinical software at 3,400 sites.
GE (Research) shares, with a market value of $350 billion, aren't likely to move dramatically based on the performance of its health-care business, which makes up about 10 percent of its $150 billion in annual sales. But health care is one of the company's fastest-growing units, and CEO Jeff Immelt has said it's a key to the company's future.