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(Reuters) – The U.S. government announced grants of almost $1.2 billion on Thursday to help hospitals and health care providers establish and use electronic health records.

The grants include $598 million to set up some 70 health information technology centers to help health care institutions acquire electronic health record systems and $564 million to develop a nationwide system of health information networks, Vice President Joe Biden’s office said in a statement.

The funds are aimed at helping physicians and hospitals adopt electronic medical records and at building an exchange to move health information among various healthcare agencies, Health and Human Services Secretary Kathleen Sebelius said on a conference call.

"This is just the first wave of resources invested in health technology aimed at transforming our paper-driven system to an electronic system over the next several years," said Sebelius, who was in Chicago to unveil the grants with Biden.

She said that expanding the use of electronic medical records would be "fundamental to reforming" the system and that broad adoption could help reduce medical errors, improve quality and make the entire system more efficient.

National Coordinator for Health IT David Blumenthal said these funds will likely be granted in three cycles over the course of 2010. Blumenthal, who was also on the call taking questions, said he did not know what hospitals or physician groups would seek government funds, but expects those that have been at the forefront of using technology to apply.

The grants will be funded by the American Recovery and Reinvestment Act of 2009 and be made available in 2010, the statement said.

The Obama administration has made the overhaul of the $2.5 trillion U.S. healthcare system a centerpiece of its domestic agenda.

Providers of electronic medical record software and solutions include Cerner Corp, McKesson Corp, athenahealth Inc, Eclipsys Corp, Quality Systems Inc and Allscripts Misys Healthcare Solutions Inc.

Michael Cherny, an analyst with Deutsche Bank Securities, said all providers stand to benefit from this far-reaching effort expand the electronic health system. In afternoon trading, their stocks were mostly a little higher, with Quality Systems showing the biggest gain, about 1.8 percent.

Andrew Rocklin, a principal at Booz & Co, said shares in these companies are unlikely to rise much until hospitals and physician groups start to see some success and savings tied to the transition.

"That will take time," Rocklin said.

(Reporting by Debra Sherman, editing by Gerald E. McCormick)