It’s no surprise when I started my Game-Changing Stocks service that my publisher and I picked the name we did.

For me, this is what it’s all about — not market timing, value investing, vulture investing or swing trading; it’s about finding the next big trends and the handful of stocks that stand to benefit.

And one of the best spots I’ve found for hunting down the next big thing? Healthcare.

In fact, our healthcare system is about to undergo a revolution. And the U.S. government (read: taxpayers) is putting up $40 billion to make sure it goes smoothly. That’s going to benefit a small group of companies in a big way.

Most people have heard about this change to the healthcare system only in passing. Few investors realize its far-reaching ramifications.
 
The initial changes the White House made were found in the stimulus package. That bill, the $787 billion American Recovery and Reinvestment Act, contained nearly $20 billion in direct federal funding for a new type of medical technology.
 
On top of that federal funding, Medicare — the single largest player in the healthcare arena — will add billions more in incentives to doctors and hospitals that purchase and implement this new technology. All told, federal outlays for this new technology, including direct subsidies and incentives, will total nearly $40 billion. And hospitals and doctors’ offices will spend tens of billions more.

The game-changing technology I’m talking about is digital medical records.

In the last week of July 2010, the Obama administration released a detailed five-year plan for moving healthcare providers to electronic records. The plan called for a series of steps that clinics and hospitals must meet to demonstrate they’re taking steps toward “meaningful” adoption of the technology. Some medical interest groups have cited the need for greater flexibility, but most are in favor of using the new digital systems.

Doctors’ offices and hospitals will be eligible for federal money to help defray the costs of the new systems, which can run into millions of dollars for larger hospitals. The incentives are necessary because “electronic health records tend to be financially out of reach for private practitioners and small practices,” according to Julie Rehm, senior associate dean of the Case Western Reserve University School of Medicine.

Hospitals can be paid up to $4 million. An individual doctor can receive $40,000. That’s the carrot. The stick is that providers who don’t have the systems in place by 2015 will face cuts in Medicare payments. The bill has been passed, the law has been signed, checks have been cut and the rules have been issued. Now, the clock is ticking.

Let me give you a hypothetical situation. Allscripts (Nasdaq: MDRX), one of the nation’s leading electronic medical records software providers and I stock I like in this sector, has 800 hospital clients. Hospitals are eligible for up to $4 million as incentives to implement the systems. These incentives are just that, incentives. They’re subsidies meant to defray only a portion of the cost of these systems.

But let’s assume that Allscripts gets just $4 million in business from each of its clients. That’s $3.2 billion in NEW business. That’s going to make one heck of a difference for investors, as Allscripts had posted just $705 million in fiscal 2010 revenue. And remember, that’s a conservative estimate — some of the largest hospitals might spend $20 million on a new system and another several million each year to maintain it.

Action to Take –> Digital medical records are the inevitable future of the U.S. healthcare system. Investors who position their portfolios to take advantage of this enormous move in medicine stand to reap large rewards as billions are spent on the transition.

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