by Larry McClain, Healthcare IT News | Feb 02, 2012

NASHVILLE – Healthcare technology stocks don’t have the obvious roadblocks facing many other healthcare sectors in 2012, according to industry analysts who spoke to an audience of 600 at the Nashville Health Care Council on Feb. 1.

Unlike many healthcare niches, health IT companies have favorable tailwinds, such as the continuing push for ICD-10 conversion. But the analysts emphasized that the industry overall is poised for modest growth at best.

“I foresee a slightly better 2012, with the emphasis on slightly,” said Darren Lehrich, managing director of Deutsche Bank Securities A.J. Rice, senior financial analyst at Susquehanna Financial Group, agreed.  “I’m looking for modest, 5-10 percent returns this year,” he said.

Rice added that acute care hospitals – which help drive the entire healthcare field – were hampered by weak admissions throughout 2011. “Yet virtually all those hospitals delivered on their guidance throughout the year, so their stock prices didn’t suffer as much as they might have,” he said.

The analysts predicted that greater political stability in 2012 would help reduce the wild swings in healthcare stock valuations.

“An election year is usually a fairly calm legislative period, where key bills get postponed until after the November balloting,” said Adam Feinstein, managing director of Barclays Capital. “In the second half of last year, the debt ceiling and Super-Committee debacle had a big negative impact on all healthcare stocks. It created a perception that the future of healthcare was just too uncertain.”

The only judicial wild card on the horizon is this spring’s Supreme Court ruling on the individual mandate in the Affordable Care Act. All the analysts felt the court would uphold the provision by a comfortable margin.

The panelists concurred that mergers and acquisitions activity would remain strong in the year ahead. “I think that consolidation among managed care companies will continue to increase, as evidenced by the recent acquisition of HealthSpring by Cigna,” said Rice.

“They’re looking to dramatically reduce the administrative burden, and health IT plays a big role there,” he said.

So what healthcare niches suffered the most in 2011?

Home health stocks were among those that really took a beating. “As healthcare reform unfolds, some sectors get hurt earlier than others – and that’s what happened in home health,” said Whit Mayo, senior research analyst at Robert W. Baird & Co. “Many home health stocks were down 75 percent in the second half of 2011.”

“Publicly held surgery centers had a tough year,” said Deutsche Bank’s Lehrich. “That space still has way too much capacity, which has really hampered growth.”

On a brighter note, some healthcare sectors look promising in 2012. “There’s a wave of great generics hitting the market this year, so PBM stocks should do very well,” said Frank Morgan, managing director of RBC Capital Markets. “And I still think that publicly held rehab companies have the best growth potential of any service subsector.”