The Next Y2K

Thirteen years ago, there was speculation that modern civilization would cease to exist when the clock struck 00:00:00 on 01/01/00.

You see, the vast majority of computer systems were coded for a two-digit year. Computers would perceive the year was again 1900 instead of 2000.

Fear stoked the fire of technology…

Windup flashlights sold like hotcakes. Radio stations sold disaster kits filled with Spam, beans, and bottled water and gave tips about reverting to pioneer times. People were advised to move 150 miles from the nearest city.

The simple truth is that fear sells… and big companies were sweating the looming cyber Armageddon.

Trepidation of servers freezing or software malfunctioning led many information technology leaders to spend billions of dollars in 1998 and 1999.

Fly-by-night consulting firms grew rich by saying: “Well, we can’t really test it completely, but we believe it could be an issue… No one really knows until 2000 hits.”

CIOs live and die by their systems. They fear the middle-of-the-night text barking out a Sev 1: “System Down” — which could easily mean millions lost and a pink slip in the morning… or at best, a chink in the armor that would eventually be chipped away by C-level piranhas.

A CIO’s best job security is stability in his or her system and deactivating the landmines before they blow up. In terms of Y2K, this meant nearly every IT leader was pushing for system replacement if there was even a minimal risk of failure.

Fear the Deadline

Now there’s a new nightmare that wakes CIOs in the middle of the night. And like Y2K, billions of dollars are again being spent to hit a deadline…

It’s called the Affordable Care Act, better known as ObamaCare.

What few investors know is that as a part of ObamaCare, the HITECH Act was also passed in 2009. This provisioned funds (federal government payouts) for doctors and hospitals to automate their processes.

Automating patient records has tremendous benefits: less data entry, better accuracy, interfacing directly with labs and pharmacies.

However, doctors previously had very slow technology adoption rates due to the heavy IT costs and fears of “system” issues…

Paper just seemed so much simpler: “Grab the chart, Claire.”

A Ticking Time Bomb

Now, with the landmark ObamaCare case having passed through the Supreme Court, doctors are running out of time.

According to industry studies, 45% percent of doctors and hospitals have still not installed an Electronic Medical Records (EMR) System.

The new Y2K date — the date IT directors must hit now — is January 1, 2014, just 16 months away.

The End Is Nigh: January 1, 2014

For doctors and hospitals, being paid is paramount. They’re not philanthropists that give out their valuable diagnoses and treatments for free; like most of us, they are in business to make money.

When the clock strikes midnight on January 1, 2014, those who submit their reimbursements to Medicaid or Medicare in paper will be at the bottom of the pile for processing, destroying a doctor’s cash flow.

On top of this, the tax breaks and grants for reimbursing hospitals and physicians for their technology investment are reduced… and eventually eliminated.

Things will get worse when on January 1, 2015, Medicare penalizes doctors by 1% of their reimbursements — and then increases the penalty to 3% by 2017.

It is speculated that health care insurance companies will put similar penalties in place, further affecting a physician’s bottom line.

The time of doctors trading services for chickens is long gone. So too is the time of paper charts and prescription pads. But doctors aren’t exactly what you’d call “early adopters of IT.”

Free Money

According to the Center for Disease Control, as of this year only 55% of physicians have installed an Electronic Medical Records System. And of the 45% who have not yet adopted an EMR, half of these physicians will do so within a year.

This means a surge in EMR Systems as 23% of U.S. doctors will purchase and install an EMR System within the next twelve months.

According to the federal numbers, 75,276 physicians and 2,349 hospitals have purchased an EMR since 2011.

It is estimated the average cost of EMR software is $50,000, but it can range into the hundreds of thousands. This year alone, the lowest potential spent by all U.S. physicians on IT is $2,647,150,500.

Doctors will spend $2.6 billion this year on just the core IT software. This doesn’t include the servers, operating system licenses, desktops, laptops, tablets, etc. — nor does this figure factor in another potential area of huge spending, which I’ll tell you about in a minute.

Where is this $2.6 billion going?

The top EMR Systems show an upward trend that began with the HITECH Act in 2009.

Interestingly enough, most had a sharp decline that coincided with the Supreme Court ObamaCare hearings.

Big Run Since 2009 — and It’s Only Just Begun

If the pattern for Y2K holds for this health care IT surge, all doctors and hospitals will be scrambling to meet the deadline.

There will be a huge crunch and rush for adoption to beat the clock for January 1, 2014.

Just in case you forgot what the stock prices for IT companies did from 1998 to 2000, here’s a chart of Oracle (ORCL):

If past is prologue, EMR stocks are about to go parabolic.

I’m currently doing my due diligence on a $12 company with a unique niche in the IT medical field. I will keep you informed.

Kind Regards,

Amy Kobayashi-Häas
Medical IT Director and Contributor to Wealth Daily