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Beneficiary Of Healthcare Reform

Posted on Monday, Apr 12th 2010

The healthcare industry is set to undergo the most fundamental set of changes since the establishment of Medicaid in 1965 following the signing of the much-debated Health Care Reform Bill. The act, signed a few weeks ago, guarantees access to medical insurance to nearly 30 million Americans who currently lack it. It will require nearly 16 million more Americans to sign up for health insurance coverage to help subsidize private coverage for the low- and middle-income population. The act will regulate private insurers more closely and will cost the government an estimated $938 billion over ten years. While insurance companies will be impacted the most, other healthcare-focused companies, such as athenahealth, will also benefit from the additional volume and focus that the sector will generate.

The health care sector had already gotten a big stimulus last year through the government’s stimulus program. The $20 billion allocated for the development of electronic medical records is aimed at driving automation within the industry to iron out inefficiencies in the system. The United States spends an estimated 17% of GDP or $2.5 trillion in healthcare. In my estimate, $100 billion of this cost can be saved by IT adoption alone. Analysts estimate that there are nearly 100,000 avoidable deaths in a year owing to redundant paperwork that results in avoidable medical errors.

athenahealth (ATHN) is expected to make a significant contribution to automating the sector. The company announced its Q4 results recently and reported a 33% increase in revenues over the year to $54.4 million. However, the company missed the Street’s expected $55 million target. EPS of $0.17 managed to meet analysts’ targets. For2009, revenues grew 38% to $188.5 million but EPS fell to $0.27 compared with $0.91 earned a year ago.

athenahealth had delayed the results announcements to review the treatment of deferred revenues from service implementation. It are now amortizing revenues from service implementation over a period of 12 years compared with the earlier policy of recording them over a year. It claims that 12 years is the period it expects to do business with a new customer. This is new in the SaaS market, I have to look at it more closely.

athenahealth is entering into partnerships and launching new products focusing on SaaS within the sector. The company recently entered into a partnership with Bancorp and its subsidiary, Elavon, to launch an Integrated payment processing service that will include a new Credit Card Plus solution for athenaHealth physician clients nationwide. The comprehensive payment processing service aims to streamline the payment process and to provide an improved and secure checkout process for physicians and the patients. athenahealth is looking at being able to access a suite of integrated financial services, including merchant processing, treasury management, lockbox, and wealth management through this relationship.

athenahealth is also expanding the range of services that it offers. It recently launched athenaCommunicator, which is a patient communication service fully integrated with its physician practice management and electronic health record services. The new service provides physicians and their staff with a suite of Web-based services such as a messaging platform to remind patients of their appointments and payments and a patient Web portal to enable patients to look at their health care information over a secure platform. The service aims to free physicians and their staff from administrative tasks to let them focus on the quality of care delivered.

The stock is currently trading at $36.66 with a market capitalization of $1.25 billion. Earlier in the year, it touched a new 52-week high of $47.82. Expensive, but it’s a promising company with a lot of growth ahead.

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