H-P Extends Health Care Deal

Hewlett-Packard Company (HPQ - Analyst Report) recently announced that it has been awarded an extension of the service deal with the Arkansas Department of Human Services (DHS) Division of Medical Services. The extended contract, which cost the company $70.0 million, will be operational for another 27 months. The deal entitles H-P to extend its Enterprise services for better management of DHS’ Medicaid operations and in due course, health care reform.

The alliance between H-P and DHS dates back to 1985 when the former offered its interChange Medicaid Management Information System fiscal agent and outsourcing services. The task of a fiscal agent is to review and process all medical claims. Till date, H-P technology has served more than 770,000 DHS customers.

Under the prior arrangement, H-P implemented a decision support system that helped staff with easy access to data to support the department’s programs and policies. The system has helped in speeding up productivity and lowering costs while providing better support for health policy decision making.

However, with the growing need to manage the program more technically, H-P is now providing technological support to DHS’ ConnectCare managed-care program and ARKids First Program, targeted at reducing the number of uninsured children in Arkansas, as well as the Department of Health’s BreastCare Program.

The Medicaid program focuses on the health care of the low-income population. The aged and disabled are also covered under the program through nursing and medical expense benefits. This fifty-fifty state-federal partnership is run by a state plan that federal centers for Medicare and Medicaid Services approve of.

H-P is already serving as a fiscal agent to 21 other state Medicaid programs. The need for an efficient Medicaid program arises from the enactment of the U.S. Healthcare Reforms Bill. The goal of the reform is to make health care more affordable to Americans.

The basic objectives of the reform were presented in the Patient Protection and Affordable Care Act passed on March 23, 2009. Per the Act, beneficiaries are expected to join Medicaid through a registration process requiring exchange of information regarding health.

Earlier this month, H-P renewed a deal with the Florida Agency for Health Care Administration (AHCA) for a period of 3 years, at a value of $172.0 million. In March, H-P signed a five-year deal with the health care division of Nevada Department of Health and Human Services. Per the terms of the deal, H-P will receive a sum of $176.0 million.

The U.S. government's endeavor to expand the information technology industry and make it a major component of health reform will help drive IT spending in the health care segment over the coming years. We believe that HP, with its strong position, would be able to capitalize on government initiatives.

Despite H-P’s positive deal momentum, market position and compelling product line, we remain cautious about its future growth, particularly as competition from other big technology players, such as Cisco Systems Inc. (CSCO - Analyst Report), Apple Inc. (AAPL - Analyst Report), Acer and Dell Inc. (DELL - Analyst Report) heats up. Moreover, the recent volatility over Apothekar’ dismissal, the appointment of Meg Whitman, the former EBay Inc. (EBAY - Analyst Report) chief and the decision to spin off the PC business are contributing to investor confusion over the stock.

As a result, H-P now has a short-term Sell recommendation (Zacks #4 Rank).

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