EHR Sector Poised to Consolidate

Meaningful use mandates for electronic health records under the HITECH Act have largely been met, or at least initiated, by most payers and providers, which means that software vendors will have a smaller customer base, and less room to grow.

The widespread adoption of electronic health records by payers and providers in recent years means fewer customers for software vendors, and that could lead to significant consolidation within the EHR sector, according to a report by Standard & Poor’s Global Ratings.

"The high degree of penetration, and the resultant decline in the new customer base, has spurred industry consolidation as leading participants seek new avenues for revenue growth, including enhanced features and capabilities to existing products," S&P analyst Sarah Kahn said.

Kahn cited a government report which showed that in 2015, 96% of hospitals (up from 72% in 2011) and 78% of physician offices (up from 34% in 2011) used certified EHRs, and that 82% of non-federal acute-care hospitals exchanged laboratory results, radiology reports, clinical summaries, or medication lists electronically.

With new customers in short supply, Kahn said she expects EHR vendors to "start feeling the pressure from more limited revenue opportunities and greater competition in the U.S. markets."

The report also predicts that:

• Growth rates among the largest EHR providers (such as Epic Software Corp. and Cerner Corp.) will outpace industry growth rates, as healthcare providers continue to favor large EHR providers that can offer a broad range of services.
   
• Consolidation in the healthcare IT industry will facilitate economies of scale and broaden capabilities, but that credit ratings will remain constrained by the niche nature of the industry as well as by low barriers to entry and high fragmentation.
   
• Aggregation of information within a digital healthcare infrastructure will allow industry payers to compare outcomes of providers, products, and procedures, facilitating a greater focus on total cost and value.
   
• With healthcare IT spending trending upward overseas, as countries with public payment systems focus on providing a base level of care and managing a growing population, some U.S. vendors will look abroad to expand their operations.