Have You Heard of This $25 Billion Growth Market?
By Rob Fannon, editor, Phase 1 Investor
March 28 , 2008
Every year, nearly 100,000 patients die due to medical errors.
In a groundbreaking study entitled To Err is Human, published by the Institute of Medicine in 2000, experts estimated medical errors kill more people per year than car accidents, AIDS, and breast cancer... combined.
A large chunk of medical errors arise from patients getting the wrong medication or not getting it at all... Very simply, automating the handling of health care records would make hospitals more efficient and patients safer.
Yet, right now, the health care industry is one of the least automated sectors in the U.S. – at least 20 years behind technologically. On average, the industry shells out about 2% of gross revenues on IT. Compare this with the finance sector, which spends about five times that amount.
Simple bar coding and tracking software, for example, helps doctors know the right patients receive the right prescriptions. Yet technology at work in every single grocery store in America is offered in only 20% of U.S. hospitals.
That means plenty of growth for health care IT companies... and plenty of profits for investors who buy now.
The RAND corporation, a leading health care think tank, estimates hospitals could save $162 billion per year creating a safer and more efficient IT system.
Most hospital automation falls in two categories:
1. Clinical – In one vendor's own words, clinical IT applications "help doctors who got C's in medical school look like they got A's."
This part of the industry focuses on improving patient safety and staff efficiency. For example, computer terminals give doctors instant access to mountains of data on how diseases are typically treated, reducing variability between patients and preventing major medical errors.
2. Business – In general, these applications automate accounting, human resources, billing, and other administrative tasks. Automated billing and claims preparation helps hospitals increase revenue while minimizing costs.
Overall growth rates for the health care IT industry have slowed down in recent years from the mid-teens to 8%-10%, but it remains a massive and growing industry.
The business-applications market has so far found greater acceptance. But the clinical software market, totaling around $10 billion to $15 billion, is where the big upside opportunity lies... Medical imaging applications and electronic health records, for example, are growing at 15%-20% annual rates.
Many medical centers, especially large hospitals (with more than 300 beds and deep pockets), incorporate different IT applications from various vendors. And many health care IT vendors tend to pursue specific niches...
For example, some companies focus exclusively on storing and transmitting x-rays, MRIs, and other medical images. Other software firms only develop products for optimizing revenue streams, like automated claims processing programs. And vendors also tend to specialize in specific types of customers: large or small hospitals, individual physician practices, pharmacies, surgical centers, lab facilities, and other ancillary services.
Health care IT is a $25 billion market. With such a huge number of companies vying for a piece of those sales, it can be confusing for investors interested in profiting off the trend...
Next week, I'll give you the name of one of my favorite companies in this sector. More than half of all U.S. hospitals use this company's software in some form. And best of all, this "hub of American health care" is now trading at a great price. Don't miss it...
Good investing,
Rob Fannon
