MRGE Mirage Energy Corporation (PK)

Recently, the leading developer of healthcare information software solutions, Merge Healthcare (MRGE) got the ‘Meaningful Use’ stamp of the federal government for its OrthoEMR v4.0. OrthoEMR v4.0 enables healthcare providers to efficiently record patient details. The federal stamp was based on the complete Electronic Health Record (EHR) Ambulatory certification the company received from Drummond Group's EHRs Office of the National Coordinator Authorized Testing and Certification Body (ONC-ATCB) program.

The overall US health IT (HIT) market witnessed a drastic change in February 2009 with the passing of the Health Information Technology for Economic and Clinical Health (HITECH) Act, as a part of the ARRA, which is an economic stimulus bill. The ARRA and accompanying HITECH provisions include more than $35 billion in incentives, which reward providers using certified electronic health records (EHRs) in a meaningful way.

As per estimates, the US HIT market, valued at $7.6 billion in 2010, is expected to grow to $9.6 billion by 2014. This market will gradually adopt electronic health records (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.

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. This could negatively affect hospital and imaging clinic revenue, which in turn could reduce 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.

Presently, we hold an ‘Underperform’ recommendation on Merge.

 
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