Zacks_Analysts' Blog : Merge Receives EHR Certification - Analyst Blog

Recently, the leading developer of healthcare information software solutions, Merge Healthcare (MRGE) received the ‘Meaningful Use’ stamp from the federal government for its Merge RIS v7.0. The product enables healthcare providers to efficiently record patient details.

With this complete Electronic Health Record (EHR) Ambulatory certification, RIS v7.0 has emerged as the industry’s leading radiology information system (RIS). With RIS v7.0, the users can now utilize a single product for radiology-specific workflow to qualify for up to $44,000 in funding under the Health Information Technology for Economic and Clinical Health (HITECH) Act.

The overall US health IT (HIT) market witnessed a drastic change in February 2009 with the passing of the HITECH Act, as a part of the American Recovery and Reinvestment Act (ARRA), which is an economic stimulus bill. The ARRA provision includes $20 billion in incentives. Within that, radiologists using certified EHRs are eligible for receiving rewards of approximately $1.5 billion.

As per estimates, the US HIT market, valued at $7.6 billion in 2010, is expected to grow to $9.6 billion by 2014. The US HIT market is gradually adopting EHRs to meet HITECH funding requirements. Merge is expected to target this market given its imaging interoperability platform. In such a scenario, our recommendation could go wrong. Earlier, in September, Merge got the complete EHR Ambulatory certification for its OrthoEMR v4.0 that enables healthcare providers to efficiently record patient details.

However, in recent years, medicare reimbursement for advanced medical imaging has declined significantly. At the beginning of 2011, the health care reform law, Patient Protection and Affordable Care Act (PPACA), reduced reimbursements for advanced imaging by mandating an equipment utilization rate of 75%, thereby increasing the multiple procedural reductions up to 50% from 25%.

Further, the Centers for Medicare and Medicaid Services (CMS) implemented additional reimbursement changes using the Physician Payment Information Survey (PPIS) data, resulting in further reimbursements cuts in the range of 30%-40% for advanced modalities by 2013.

Although Merge reported revenue growth during the second quarter 2011, the general slowdown in hospital spending, low demand for imaging equipment and related technology due to global credit crisis and macroeconomic factors could result in lower product sales. This could negatively affect hospital and imaging clinic revenue, which in turn could impact the demand for imaging-related software and services offered by Merge. Furthermore, the presence of major players like General Electric (GE) and McKesson Corporation (MCK) has made the diagnostic imaging market highly competitive.