Cloud-based technologies have been very popular of late. Within the healthcare arena, cloud-based solutions promise to transform and revolutionize U.S. healthcare infrastructure.  As medical practitioners upgrade their traditional paper-based records to electronic health records (EHR), many are undoubtedly weighing their alternatives. Cloud-based EHR systems have garnered much attention and have emerged as a favorite thus far. Astute investors in this arena, however, would be wise to consider the sustainability of the hubbub surrounding cloud computing.

“The cloud” has become the hot new moniker that everyone seems to be rushing to adopt these days. From casual note taking to office applications and even mission-critical infrastructure management, cloud-based solutions are popping up everywhere. At its core, cloud-based software systems allow users to access their data remotely. This provides an unprecedented level of access and sharing that tends to foster greater efficiency.

Cloud-based EHRs function on the same basic premise. Patients’ medical records are no longer stored on paper or local storage devices, which may be prone to theft, loss, or destruction. Instead they are kept in specialized off-site systems that often feature multiple redundancies. As patients visit specialists or change their primary medical providers over the course of their lives, new doctors can instantly access a patient’s entire medical history since all of this data is centralized in one location or network.

By cutting down on the manual paperwork, productivity and quality of care should theoretically rise. Doctors will be able to make more accurate diagnoses with up-to-date information. Patients will have the option of easily switching doctors or getting second opinions. This technology can also potentially usher in a new age of collaboration among medical professionals, since patient data can be easily shared with practitioners anywhere in the world.

Skeptics, however, have begun to question this new technology. With prominent stories of hacked data servers featured on a regular basis, patients should be concerned about the actual security of their medical files. The massive data breech of credit card information at Target (TGT) in late 2013 served as a sobering reminder of the risks that technology often entails. 

Although not as widely publicized, breeches of healthcare record systems do occur. This stolen data can be used for nefarious reasons, ranging from identity theft to insurance fraud. As cloud-based EHRs become more popular, criminal elements will likely look for new ways to exploit this technology. In the arms race to find and fix potential security issues, however, cloud-based EHRs do have an advantage. Since these systems are centralized, updates and patches can be instantaneously rolled out behind the scenes with little to no impact on users. If service providers remain vigilant and ahead of the curve, they have an inherent advantage that traditional decentralized software makers have lacked.

Medical providers will need to exercise greater care in selecting their EHR vendors. Under the Health Information Portability and Accountability Act (HIPAA), penalties are levied for data breeches. As medical providers consider their options, security will likely become one of the top issues as they consider whether they want to hop on the cloud-based EHR train.

That said, companies that provide cloud-based EHR systems ought to see solid demand over the near and long term. The Health Information Technology for Economic and Clinical Health (HITECH) Act, will continue to provide financial incentives for healthcare providers to upgrade to EHRs. Although security concerns regarding cloud technology are valid, traditional client-side EHR systems are not a convincing solution, especially for smaller practices with limited resources. These decentralized systems typically entail high equipment set-up costs and are comparatively slower in receiving security updates since they are locally situated and require greater user interaction.

Providers of compliant Health IT solutions have benefited greatly from the federal HITECH mandate. Within this competitive business, however, certain companies have led the pack while others have lost market share. Although athenahealth (ATHN) pioneered cloud-based EHRs, industry stalwarts like Cerner (CERN) and AllScripts (MDRX) have made much progress over the past few quarters.

Despite the recent weakness in cloud-technology stocks, providers of cloud-based EHRs still have a compelling long-term growth story. Most medical practitioners would rather focus on their patients instead of an EHR system, so easy to use cloud systems ought to make further inroads. Moreover, with a comparably lower price point, the cloud is well on its way to becoming the new standard for affordable EHRs. Security protocols and standards will need to catch up, but cloud-based EHRs will likely continue their steady march and evolve over time.

At the time of this article’s writing, the author did not have positions in any of the companies mentioned.