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Athenahealth (NASDAQ:ATHN) is a software-as-a-service (SaaS) based provider of technology services to over 30,000 medical professionals nationwide. Their product line allows physicians the ability to enjoy faster payment, increased collections, radically improved control over billing and clinical operations, and more time for their patients. ATHN is a business services company, which can implement ongoing billing, clinical-related, and similar services to medical group practices primarily in the United States.

ATHN provides SaaS-based business services in the Health Information Technology sector for medical practices in the United States. Services are accessed through the athenaNet, a proprietary Internet-based practice management application. The company primarily offers athenaCollector, a revenue cycle management service that automates and manages billing-related functions for physician practices, and includes a practice management platform. The athenaCollector assists its physician clients with the handling of claims and billing processes to help manage reimbursement.

The company also provides Anodyne Analytics, a business intelligence application, which provides physicians and practice managers with insight into practice performance. The company's products and services are designed to increase collections, reduce operating expenses, and allow providers to focus more on medical care than administrative functions. Athenahealth's service offerings feature an internet-based platform, a continually updated database of reimbursement rules, comprehensive back office service operations that handle administrative aspects of billing and clinical data management.

Current Price $46.60

Mean Target $44.21

Median Target $46.00

High Target $60.00

Beta 1.04

52 Week Change 85.5%

Shares Outstanding 34.87M

Market Cap (July’11) 1.63B

Enterprise Vale (July’11) 1.51B

Trailing P/E (ttm ) 106.34

Forward P/E (fye Dec 2012) 43 .32

PEG Ratio (5Yr expected) 1.67

Price/Sales (ttm) 6.15

Price /Book 8.79

Enterprise Value/Revenue (ttm) 5.79

Enterprise Value/ EBITDA (ttm) 38.96

Governance Risk Indicator (GRI®) by RiskMetrics Group July 2011

Board (Low Risk)

Audit (Medium Risk)

Compensation (Low Risk)

Shareholder Rights (Medium Risk)

Earnings Est

Current Qtr.

Jun 11

Next Qtr.

Sep 11

Current Year
Dec 11

Next Year
Dec 12

Avg. Estimate

0.18

0.21

0.81

1.08

No. of Analysts

21.00

21.00

22.00

22.00

Low Estimate

0.16

0.19

0.75

0.84

High Estimate

0.21

0.24

0.89

1.30

Year Ago EPS

0.12

0.18

0.64

0.81

Revenue Est

Current Qtr.

Jun 11

Next Qtr.

Sep 11

Current Year
Dec 11

Next Year
Dec 12

Avg. Estimate

75.03M

80.35M

312.33M

395.08M

No. of Analysts

19

19

21

21

Low Estimate

72.80M

78.20M

306.20M

368.51M

High Estimate

77.87M

82.77M

320.51M

412.25M

Year Ago Sales

58.55M

63.14M

245.54M

312.33M

Sales Growth (year/est)

28.10%

27.30%

27.20%

26.50%

Favorable outlook can drive 30% top-line growth of ATHN
Source: CSC Healthcare, 2009

The SaaS based model is the ideal solution for physicians given the flexibility in deployment and ongoing updates. SaaS reduces the margin eaters as the operating environment for physicians has become increasingly complex and laborious. For example, stringent requirements under Phase 2/3 implementation of "meaningful use" criteria for electronic health records (EHRs), projection of over 14 million citizens becoming eligible for Medicare, the move to ICD-10 coding by 2013, pay-for-quality initiatives, and online patient scheduling capabilities increase demands on physician time.

Athenahealth’s revenue is directly correlated to the revenue of its clients. The healthcare market is projected to continue to grow as the future age structure of the population will be older than it is now. The median age of the population will steadily increase from 34.0 in 1994 to 35.5 in 2000, peak at 39.1 in 2035, then decrease slightly to 39.0 by 2050. This increasing median age is driven by the aging of the population born during the Baby Boom after World War II (1946 to 1964). About 30 percent of the population in 1994 were born during the Baby Boom. As this population ages, the median age will rise. People born during the Baby Boom will be between 36 and 54 years old at the turn of the century. At the end of 2011, the first members of the Baby Boom reach age 65, and the Baby Boom will have decreased to 25 percent of the total population (in the middle series). The last of the Baby-Boom population will reach age 65 in the year 2029 and about 1 in 5 would be elderly by the year 2030.

In July 2011, Athenahealth announced that University Hospitals’ Case Medical Center will use the company’s collector product for the ~850 physicians and 150 non-physician providers at the facility.

Early this year ATHN added 581 physicians on the athenaCollector product, 527 physicians on the athenaClinicals product, and 198 physicians on athenaCommunicator product. The company currently has 19,778 active physicians (27,944 active medical providers) on the athenaCollector product 2,910 active physicians (4,161 active medical users) on the athenaClinicals product, and 934 active physicians (1,564 active medical users) on the athenaCommunicator product.

Continued sales and marketing rollout should drive per seat user and grow EPS projection 40%

The future for Industry Dynamics of Billing & Coding in Healthcare

Worldwide, the computer assisted coding markets are anticipated to grow from $50.9 million in 2007 to $2.7 billion in 2014. The markets are primarily U.S. markets because of the primary role that insurance plays in the health care delivery system. Worldwide markets will start to grow as more hospitals and physician offices seek to get control of systems costs and introduce automated process systems.

A study by IDC provides a forecast for the worldwide and U.S. business process outsourcing market and indicates strategic horizontals for the 2011-2015 period. This study highlights key assumptions and drivers that are creating significant changes in this market. At a worldwide level, IDC expects that the BPO market will grow at a five-year CAGR of 5.3%, reaching $191 billion in 2015. The U.S. market is expected to grow at a five-year CAGR of 3.3%, reaching $85.2 billion in 2015.

Next-Generation Networks Require New Billing Solutions

The convergence of voice and data networks has resulted in unprecedented cooperation among participants as they work together to design advanced solutions that will be able to bill by byte, packet, quality of service (QoS), or time of day. Meanwhile, telecom service providers are exploring new services such as application hosting, voice-over Internet protocol (VoIP), IP faxing, and IP messaging, offering tremendous opportunities for OSS billing companies to develop robust systems to support these new services and networks.

Compelling Frost & Sullivan research provides a detailed analysis of the invoicing/collections, rating and discounting, and network data management segments of the world OSS billing markets. By focusing on the drivers and restraints influencing this market, including the quantification of each segment, this study explains the competitive environment and suggests strategies to successfully overcome industry challenges.

Data Collection Partners Crucial For Next-Generation Success

In an IP network, no single element can furnish the required data to provide billing records, making companies that specialize in data collection an important part of any complete billing system. This has resulted in the creation of OSS participants that work exclusively in the collection and assembly of this data. These records must be literally assembled using authentication server and router data. It is almost mandatory that even a traditional billing system firm will need to partner with a company that provides the assembling of records from IP networks in data-centric IP networks, routers or other network elements do not readily furnish event records.

Computer assisted coding applications depend on the development of production quality natural language processing (NLP)-based computer assisted coding applications. This requires a process-driven approach to software development and quality assurance. A well-defined software engineering process consists of requirements analysis, preliminary design, detailed design, implementation, unit testing, system testing and deployment. NLP complex technology defines the key features of a computer assisted coding application.

Automation of processes will revolutionize health care delivery. In addition to automating the insurance, billing, and transaction systems, streamlined care delivery is an added benefit. The ability to look at workflow and compare actual care to best practice is fundamental to automated business processes.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. Joseph Scime has not been compensated for the information provided. I do not have any financial instruments associated with Athenahealth.

Source: Athenahealth and Software-as-a-Service Prove Successful With Health Information Technology