IntegraMed America CEO Discusses Q2 2011 Results - Earnings Call Transcript

| About: IntegraMed America, (INMD)

IntegraMed America, Inc. (NASDAQ:INMD)

Q2 2011 Earnings Call

August 4, 2011 10:00 a.m. ET


Norberto Aja – IR

Jay Higham – President and CEO

Timothy P. Sheehan – VP and Interim CFO


Nicholas Halen – Sidoti & Company, LLC

Brooks O'Neil – Dougherty & Company

Kevin Ellich - Piper Jaffray

Frank DiLorenzo – Singular Research


Good morning. My name is Fredrick and I will be your conference operator today. At this time, I'd like to welcome everyone to the IntegraMed Second Quarter Investor Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers remarks, there will be a question-and-answer session. (Operator Instructions). Thank you. Mr. Norberto Aja, Investor Relations. You may begin your conference.

Norberto Aja

Thank you, operator. Good morning, everyone, and thank you for participating in IntegraMed's Second Quarter Conference Call. I’m joined today by Mr. Jay Higham, President and CEO; and by Tim Sheehan, Vice President and Interim CFO of IntegraMed.

Before we begin, however, I would like to caution that some of comments made on this call, may refer to certain measures such normalized earnings, which are not calculated in accordance with Generally Accepted Accounting Principles or GAAP.

Management believes these results are representative of the performance of the ongoing business of the company. For recalculation and reconciliation of normalized earnings to GAAP results in accordance with Regulation G under the Securities and Exchange Act, please see the company’s press release furnished as an exhibit to its current report on Form 8-K filed with the Securities and Exchange Commission today August 4, 2011, which maybe found under the News tab of the company’s website at

The content of this conference call contains time-sensitive information that is accurate only as of today, August 4, 2011. IntegraMed undertakes no obligation to revise or update any statements to reflect events or circumstances occurring after the date of this conference call.

With that, I'd now like to turn the call over to Mr. Jay Higham, President and CEO. Jay.

Jay Higham

Thank you, Norberto, and good morning everyone. We appreciate your joining us today and hope you’ve had a chance to review our Q2 release issued earlier this morning.

Before I review our Q2 operating results, I do want to explain the background or around the $1.65 million charge. The expense is a pre-tax provision for the settlement of medical malpractice suit brought against one of our partner fertility centers, a physician at the practice, and the company which reduced our reported net income by about $1 million. Absent this charge, IntegraMed would have reported normalized EPS of $0.12 per share for the quarter. And though, we have disclosed this as a legal risk factor in our last two quarterly SEC filings. And malpractice is unfortunate reality of healthcare and healthcare-related business, this is not the outcome we expected.

It was only in late May that we gained clarity on where the case is going, and since then, we’ve been actively involved in reaching a satisfactory resolution on the settlement of the terms we reported today.

Despite by this setback, we continue to believe our operating structure provides substantial protections against medical malpractice liability, both in terms of how we’re structured and through insurance. We do not believe that this case represents an unfavorable precedent and materially changes our business risk.

However, having endured this proceeding and having increased our insurance coverage over the past year by creating an additional entity level of coverage. There maybe other steps we can take, such as requiring each nurse to carry an additional level of individual malpractice insurance, which we are evaluating as well.

I want to turn the basic operations, I understand there’s likely to be other questions regarding this case and I’m prepared to address those in detail during the Q&A.

With that behind us, let’s now turn to our quarterly operating performance and our plans going forward.

Our second quarter revenue growth demonstrates the underlying strength of core business as revenue from our Attain Fertility Centers Division increased 8.9% and revenue from our Vein Clinics Division grew 19.8% for an overall growth rate of 11.8% versus the second quarter of last year.

Looking first at the Attain Fertility Centers, growth took place across IVF and IUI treatments at our partner centers, as well as from enrollment growth and a modest increase in the pregnancy rate in our Attain IVF program.

IntegraMed partner centers continue to shift to achieve growth rates that are well in access of the broader fertility market reflecting our proven track record of taking market share away from our competing non-IntegraMed fertility centers.

From an operating income perspective, as we stated last quarter, the Attain Fertility Centers Division Q2 and first-half results for 2011 were impacted by the reallocation of certain expenses from the corporate to the division level.

The effect was an increase in Attain Fertility Center Division G&A of approximately $200,000 in both Q2 and Q1 of this year as compared to last year. Of course, corporate G&A had a corresponding decrease which was principally – which was the principal factor in the year-over-year decline in corporate G&A.

Growth in our high-margin Attain IVF fertility treatment program moderated during the second quarter as we annualized the launch of the Multi-Cycle program, which had provided strong growth last year.

The drop in applications is principally related training physicians and nurses to help them better identify patient profiles. They’re likely to meet the program's requirements, which has allowed us increased enrollments from fewer applications.

Enrollment growth is clearly and more accurate reflection of the program performance in applications. Historically, we’ve had great success with enhancing the core Attain IVF program with new offerings. Last year, the Multi-Cycle program was a primary catalyst for the growth we experienced.

This year, we are preparing to launch a fertility through our rider to the program, but way of background, about 25% of the cost of IVF treatment is comprised of medication costs. Patients who make use of the Attain IVF program have often asked us to include the cost of medication in the program.

As it turns out, that it’s not as easy as it seems, because different patients require different protocols with different amounts of medication. It creates a complex actuary on pricing problem that we've – that we are working to fully resolve and be able to finalize so that we can begin to bring this enhancement to market in the second half of 2011.

Once this enhancement is fully developed, we expect it to help increase the average revenue per patient who enrolls in the program.

From a business development perspective, we remained focused on building our base of fertility clinics to better leverage our management team and operational infrastructure. As you’re all aware, we have a strong balance sheet that we intend to put to use with acquisitions of new fertility centers.

We started the year with a transaction that was integrated into our Seattle Fertility Center. We continue to explore new structures and transaction sizes in order to meet a broader array of physician needs within the fertility marketplace.

And we’re prepared to execute on multiple average size transactions on one or two larger deals in a 12-month period. Yet despite our work shaft and even as to grow, we remained disciplined on our transaction and return requirements to ensure that any new acquisitions deliver the appropriate returns.

We continue to believe the overall softness in the fertility marketplace is an important factor causing physicians to rethink their long-term strategies and goals. As an IntegraMed has an enviable track record of driving growth and partner clinics, we believe we’re going to be very attractive safe haven. We’re engaged in several discussion, but have no way to predict the timing or potential outcome.

Moving to Vein Clinics, this segment delivered very strong top line performance, principally from the contribution of $4 million in revenue from new clinics. The decline in matured clinic revenue of approximately $300,000 reflected the short-term impact of adjustments we've made in clinic capabilities and scheduling.

As reported to you previously, over the past year, we’ve added additional laser and ultrasound equipment at certain clinics in order to increase our ability to treat higher numbers of patients.

The added capacity enabled us to achieve strong growth in earlier quarters from matured clinic as we are able to complete greater number of treatments. However, that incremental capacity and hours began to strain staffing schedules and was starting to result in higher staff attrition than we like to see.

In response, we elected to reduce schedules modestly to preserve employee morale and reduce turnover. The impact was to push some level of patient volumes forward into Q3.

Our second quarter results also reflect the impact of several physicians leaving the company, during the first half of the year. All of whom have been replaced to compensate for the loss of a clinic physician, we have remaining physicians cover two facilities until a replacement can be found. This practice preserves the clinic, but affects both revenue and profitability from both effective clinics impacting our division operating income.

Physician turnover is a normal part of the business and the level of turnover we experienced in the first half of the year is within historically normal ranges for the year. However, physician recruiting and retention will be a very important component of our success. In this business, going into the future, we are going to seek to reduce that rate of attrition over time.

In addition, we also took the opportunity to close one of our Florida vein clinics and consolidate operations at the remaining two. These actions where taken due to the fact Florida has historically been an underperforming market with very challenging reimbursement.

Vein clinic operating income was also impacted by the startup costs from our accelerated pace of new clinic openings. These costs amount to $400,000 in Q2 on a net basis, in line with our expectations and a significant decrease from the first quarter startup costs of $1.2 million.

Looking to the balance of 2011, we anticipated additional vein clinic startup losses related to recently opened clinics, as well as to the five clinics we planned to open before the end of the year. The first of which is planned to open in Connecticut in the next few weeks and we'll represent our fourth clinic in that state. The other four clinics plan to open this year will be located in Atlanta, Baltimore and two in the Philadelphia area.

Looking into 2012, we anticipate opening of approximately 10 new clinics. So we are still confirming final plans for these new clinics, we do expect to enter the state of Texas and to continue our expansion westward.

As for startup losses related to 2012 expansion, we anticipate them to approximate of $3 million level that we are currently experiencing and to be spread similarly across the year. About half of those losses in the first quarter and the other half spread evenly across the other three quarters which is the experience we are having in 2011.

In summary, despite a few incidents that mask our core performance, we're generally happy with the progress of the business and the opportunity for long-term growth across both our segments.

With that, let me the turn the call over to Tim, who will provide additional color on our financial performance and balance sheet. Tim?

Timothy P. Sheehan

Thank you, Jay. Looking at the income statement overall revenue increased by 11.8% to $69.1 million versus Q2 2010. The increase was the result of an 19.8% jump in revenue at our Vein Clinics Division, as recently opened clinics begin to contribute to the top line and a 8.9% increase in our Fertility Division.

Total contribution for the second quarter of 2011 was $5.4 million. This number reflects the continued significant investment we are making to grow our vein business, G&A costs for the quarter remained relatively steady on a year-over-year basis.

Our tax rate in the second quarter was approximately 44.8% as compared to 43.9% in the same period last year. We expect our income tax rate to approximate 40% over the second half for this year.

As we reached a critical number of vein clinics, the impact of new clinical openings on operating income and earnings will diminish as it will become clear that our business is indeed performing at a high level. We expect that we will be able to drive continued revenue growth to the bottom line over this second half of the year.

Moving to the balance sheet, our cash position increased to $53.9 million versus $50.2 million at the end of 2010, primarily as a result of the cash generated by the business. We believe the company’s current cash position and its access to capital will allow us to successfully execute on our growth strategy going forward.

While accounts payable decreased from $3.6 million at December 2010 to $2.3 million, accrued liabilities increased from $17.3 million to $23.3 million as of the end of the second quarter. Primarily due to accrued payments for physicians and the timing of payroll and certain expenses.

Regarding our bank facility, we continue to pay down this term loan obligation, which now stands at $12.5 million versus $14.3 million at the end of 2010.

In addition to the balance sheet data provided in the release, our capital expenditures in the second quarter of 2011 totaled $2.1 million, of which the majority related to the purchase of fixed assets and leasehold improvements related to the growth initiatives.

In terms of key underlying and operational metrics, let me begin by highlighting the continued progress in AR collections and DSO improvements across the business. Consolidated DSOs dropped to 29.8 days from 33.3 days a year earlier on the back of improved operational efficiencies across the business.

Specific to Attain Fertility Centers, the key metrics continued to perform well. New patient visits, along with the IVF and IUI cycles were up 4.2%, 9.2% and 2.4% respectively. Showcasing a clear outperformance of the general fertility market and a shift by patients back to more expensive, yet more successful IVF treatment options.

It is important to note that these results are primarily on an organic basis. As with the Attain Fertility Centers business, Vein Clinics enjoyed healthy underlying metrics including a 21.3% increase in enquiries, and a 19.6% increase in first leg starts.

In summary, our results for the second quarter of 2011 demonstrate that IntegraMed continues on course with solid execution and strong cash flow generation as evidenced by the strong revenue growth and the ability to generate cash from operations.

With that, let’s open the call to questions. Operator?

Question-And-Answer Session


Thank you. (Operator Instructions). Your first question comes from the line of Nick Halen.

Nicholas Halen – Sidoti & Company, LLC

Hey, good morning guys.

Jay Higham

Hi Nick.

Nicholas Halen – Sidoti & Company, LLC

First question I had is, just in terms of the medical malpractice that $1.6 million that you saw, is that – that's just a one-time thing and none of that will carry into future quarters?

Jay Higham

That’s correct.

Nicholas Halen – Sidoti & Company, LLC

Okay. All right. And then now, just on the fertility side, I mean obviously it's a market that, you know, like you said the growth has been pretty flat to single-digit and I was just wondering, just what the pipeline looks like now in terms of acquiring new partners and where you are starting to see opportunities and I guess, what are your expectations going forward on that front?

Jay Higham

Yeah, Nick, it’s a great question and obviously we raise money in order to be able to put the money to work and make acquisitions. I do think that where the market is right now which is flat to very small increase. In some market, it’s different in different markets around the country. Some markets are actually down. We feel that this is a target-rich environment, we feel that this is a hostile environment for a lot of these centers. It's a high fixed cost business used to be relatively easy to grow the top line, not the case from most providers now.

And we are entering a phase of the evolution of this field where we feel there's going to be a lot more consolidation in order to drive efficiencies and that’s what going to be – enable people to show improved performance in this type of environment. There is nobody else out there who has the capital or the operational capability of driving those operational performances – that type of consolidation efficiency improvement of IntegraMed and we feel it's just a matter of time. They are willing physicians and fertility centers out there, the question comes down to price. And we need to maintain discipline around price and not overpay. So we’re willing to pay a fair amount, but we are not willing to overpay and that’s really what’s going to drive the pace of consolidation here.

Nicholas Halen – Sidoti & Company, LLC

Okay. Thanks for that. And just one more question, is there any chance that you guys would end up lessening the requirement to be accepted into the Attain IVF refund and then multi-cycle programs, if say the economy turns south and you guys start seeing less volumes?

Jay Higham

No, there is no – there's no, I can’t see any benefit for us doing that. I mean this is a program that has a lot of consumer appeal. This is the program that we were able to continue growing, although at a very slow rate through the teeth of the last recession in 2008, 2009. So we’re confident that this is a very substantial value proposition for consumers. I mean, I think the bigger issue for patients enrollingness during the last recession was availability of credit.

This is the one that does require. It has a price point of sort of mid $20,000 range and does – for most people it requires, even though we’re dealing with the more affluent population by definition, most people do want to finance this and consumer credit was scarce during the last recession. We never wanted to use our balance sheet to provide credit. That’s not our business and we – I think we did a solid jobs through the last recession, if another recession comes along we'll honker down and continue to perform and eke out improvements where we can. So I’m not too concerned about that.

Nicholas Halen – Sidoti & Company, LLC

Okay. Great. Thanks.


Your next question comes from the line of Brooks O'Neil.

Brooks O'Neil – Dougherty & Company

Good morning. I have a couple of questions. First, I guess, obviously, you spoke a little bit about the legal situation and it sure sounds in general like the one-off situation, but if you could provide any additional color regarding the specifics there and why you believe it’s more of a one-off situation? That would be very helpful, Jay.

Jay Higham

Thanks for the question, Brooks. And I’m very happy to do that. I’m glad you raised the question. Okay. So first, I think the first thing to understand is that IntegraMed, we have a management contract with each of the fertility center of PCs, professional corporations which is embedded physicians. We do not employ physicians. We provide contract management services to physicians. It's a very standard structure that all companies that kind of look like us use. And it's really required throughout United States by regulatory, through the country's regulatory requirements which prohibits companies like ours from practicing medicine, it's called the corporate prohibition against corporate practice medicine.

So, even if we wanted to which we don’t – we don’t practice medicine. We don’t employee doctors and we don’t practice medicine by definition. We are, however, affiliated with the physicians and we do employee all the non-physician clinicians. So, the nurses is an example and the embryologists. And we do get, from time-to-time we do get named in malpractice cases because we do employee people who are involved in the treatment of patients and not the primary provider of care obviously and they are not physician, but they are involved in taking histories and assisting the physician in the provision of healthcare.

In every other case that we've been involved in here IntegraMed – malpractice does rise from time-to-time, the company has been successful in getting itself removed, dismissed from this cases just because of our structure and the fact that we don’t practice medicine. We do have and we have had historically entity level coverage which covers us in the event that the nurse does get dragged into a case and since I said this, this does happen from time-to-time but in all other cases we have been successful and having ourselves removed. We think that is going to be the normal course of events.

This particular case was very unusual, both in terms of the facts surround the case. It was a young woman who did present herself to our – one of our physicians with a reproductive endocrine complaint, not a fertility complaint, but a reproductive endocrine complaint, which was in scope for that physician's practice. It was – she had a very rare form of cancer, adrenal cortical carcinoma and my understanding is that thereabout 300 cases of this a year.

So very, very rare, he failed to diagnose that case. And again, hardly ever see it, so perhaps not – somewhat understandable in hindsight, but she – by the time it was identified, it was very late stage and the prognosis is very poor. The nurse one of – who is our employee was implicated in the case because of her communication and the fact that it was not well documented communication back to the physician.

So, because of all the facts surrounding this case, we could have fought the case on the grounds that so we don’t practice medicine, but our feeling was that we needed to settle this, get it behind us. And I would emphasize here that the physicians and the medical practice and the insurance company did bear the brunt of the cost here. We picked up a minority share of the liability, especially given the fact that the contribution on the part of the nurse was very limited.

So, it’s a very unfortunate circumstance. Obviously, our heart goes out to this young woman and the family. We feel very bad about what has happened to her. Not clear frankly that there would have been any better prognosis had this been identified earlier than it was, but the beta in these types of cases is very limited, given the limited number of cases around. And we just didn’t want to – this is not situation you want to go to trail and try to fight this.

Brooks O'Neil – Dougherty & Company


Jay Higham

So, again, sort of a black swan type situation. All the facts lined up against the physician. I want to emphasize these are good physicians. We’re very happy to be affiliated with this group, it's just a really unfortunate circumstance for principally for the young woman obviously.

Brooks O'Neil – Dougherty & Company

Sure. Well, all that color is very helpful and it certainly makes a lot of sense to me. Let me just shift gears and ask you, if I understand your release in what you’ve said so far correctly, it seems to me like the vein centers that you’ve opened over the last 12 to 18 months are ramping generally consistent with your expectations. But if you could provide any color on sort of the nature of the ramp and what you're seeing particularly in light of the current economic environment that would be helpful?

Jay Higham

Great, well we’re ramping, I think in the pattern, that exactly the pattern that we had communicated last year and reaffirmed earlier this year. We expected to sort of flip over into a sort of break even position in the second quarter. We did that actually in the month of June before the – call it the – well, call the 2010 class of clinics that were opened. Among those clinics we have some that are superstar clinics and some that are lagging in performance. But overall, as a class, these are – this is exactly the performance that we had expected and anticipated. I could go to individual ones and say, yeah, that one is actually way exceeding our expectations and others that are underperforming our expectations. But as a group, this is exactly what we have anticipated.

So, we are very encouraged. We do anticipate – we have $400,000 in startup losses for that group for the second quarter, all of which were incurred in the first-two months, because the third month of the quarter was break even for us. We do anticipate that we will have similar type of startup losses for fourth quarter and frankly really for the – here and out, I mean, we’re going to have – my expectation is we are going to startup losses every single quarter into the future. Because we are into a program here of a consistent program of opening new vein clinics. And so we want and we expect to accelerate that over time. We were not planning on accelerating it next year, so we anticipate having a similar level of startup losses next year, but we are going to have a bigger group to – of mature clinics by that point in time to begin to offset those startup losses. So, over time these startup losses will although they'll always be there will become a smaller and smaller percentage of our performance.

Brooks O’Neil – Dougherty & Company

Sure. All that makes sense. That’s helpful. And then just one last question. Obviously, in the recent weeks there's been a lot of concern among healthcare investors about potential for cuts and reimbursement under government programs, particularly Medicare and Medicaid. Obviously, a meaningful portion of reimbursement in vein centers is for Medicare. Do you have any sense at this point of potential changes in reimbursement under the Medicare program for veins right now?

Jay Higham

Wow, Brooks, you are a continent healthcare analyst. Great question. We have taken pains to minimize our exposure to Medicare. Company-wide, we have above 3% of our revenue that comes from Medicare through vein clinics business, it’s about 13%. We can do Medicare all day long if we wanted to, but we take – we make an effort to limit the amount of Medicare that we get that we have in these clinics.

I'm very respectful of reimbursement risk and in healthcare services I’ve done this long enough to understand that healthcare services, you don’t generally see increases in reimbursement. It's usually sort of a gradual deterioration over time. I think the good news associated with that type of environment is that our business model where we have aggregated a large number of providers in these two segments, really do drive economies of scale and improved performance and we get better performance on revenue cycle management, in the overall cost structure of the business because we are aggregating such a large number of providers. We think this type of business model, whether it’s, you know, in a single specialty across multiple markets or among more driven by large regional hospital providers. This type of larger, more organized provider entity is really what healthcare reform is going to encourage.

So we feel like we are ahead of the curve there. We are well positioned to take advantage of those market forces which are going to drive providers into larger organizations like this one. I don’t expect reimbursement to improve, if anything it will probably deteriorate. We haven’t experienced any deterioration over in the four years that we’ve owned our vein clinic business. We enter markets that have better reimbursement. We enter markets that have worst reimbursement, it’s why we are exiting Florida, because the reimbursement there is so bad. And we just don’t, you know, there is really no way to overcome bad reimbursements. So that’s why we are exiting Florida. We take into consideration new markets that we enter and we try to be very smart about where we are positioning the business to try and minimize the effect of these types of changes.


You have a question from the line of Kevin Ellich.

Kevin Ellich - Piper Jaffray

Good morning. Thanks for taking my questions. Just following up on that last question, could you provide us the, just overall payer mix for the business?

Jay Higham

Well, we ought to break that down by segment. So our fertility business is about 50% self-pay and the balance is commercial insurance of various kinds, HMOs, PPOs, no government reimbursement in that business.

Our vein clinic business is 98% insurance, 2% self-pay. Again, there is a self-pay segment to that business, which tends to be more cosmetic. So spider veins and more cosmetic issues, we have positioned the business over time until to that more to a medical – the medical segment of that business because there is good reimbursement right now. And we are wanting to make access to that reimbursement, so we have filtered it in that direction, but 98% of it is insurance, and of that, you know, of a 100% of our revenue in that business is 2% self-pay, and like I said earlier about 13% is Medicare, we don’t have any Medicaid exposure.

Kevin Ellich - Piper Jaffray

So, then the rest would be commercial or managed care, right?

Jay Higham

That’s correct.

Kevin Ellich - Piper Jaffray


Timothy P. Sheehan

Mostly, you know, really mostly managed care these days, you don’t have any, there’ very little true commercial insurance anymore.

Kevin Ellich - Piper Jaffray

Understood, understood. Not to beat the dead horse here, but just going back to the medical malpractice suit. You mentioned in the press release that you had a layer of insurance, just wondering if, you know, maybe you can quantify what type of cost impact we should expect going forward?

Jay Higham

Okay. So, we have historically had pretty traditional medical malpractice insurance for the physicians. It’s $1 million, $3 million, $1 million per incidence, $3 million in the aggregate. So, that if multiple providers are named in a particular incident, there’s a $3 million in coverage. This is really standard level of medical malpractice coverage across the country. You do see variations in some markets because of the state regulations or other strategies that physicians have taken, but $1 million, $3 million is very standard level of coverage.

We have piggy back, IntegraMed is piggy backed on that coverage for the entity. So the entity, meaning the nurses and the facility itself has been covered under that $1 million and $3 million on the policy. In the case of this particular law suit, so we had million dollars in coverage between the physicians and the entity and it was the same, the same level.

So, what we have done is, we have increased that to an additional one separate additional $1 million in coverage for the entity. So then in the future if a situation like this comes along we’ll have an aggregate of $2 million in coverage. That still wouldn’t been sufficient to cover this particular case. And in consulting with the experts and malpractice insurance, the strong vice that we get is, you never can – you don’t really want to have insurance to cover the one in 20-year situation that comes up, the black swan event because what that does, if you do – if we had $5 million in coverage, let's say, which would have covered us in this particular case.

Kevin Ellich - Piper Jaffray


Jay Higham

What will happen over time is, obviously the premiums are very high, but what will happen overtime is, it just creates a vicious circle because plaintiffs attorneys will demand settlement up to policy limits.

And in most cases – so you want to try and find that sweet spot where you’re covered in most cases, but not over covered, you know, not creating a situation, we have too much coverage, which will, you know, create higher settlements, which will then subsequently drive up premiums.

Our performance actually over the last five years has been very solid, to the point where we were able to get, you know, leaving this case, putting this case aside for a moment. If you look at us, if you look at our provider group from an overall standpoint terms of the number of cases and the settlements and the expenses that are going out. Over the last five years it’s been very strong, and our premiums have actually come down over that period of time to the point where we actually were able to get as an additional $1 million in coverage for no additional cost.

Kevin Ellich - Piper Jaffray

Okay. So, bottom line here, I mean, should we expect G&A expense to pick up a little bit because – is that were the premiums?

Jay Higham

There’s no additional premium, that's what I’m saying. The premium – the additional level of coverage that we have here is coming at no additional cost.

Kevin Ellich - Piper Jaffray

Got it.

Jay Higham

Because of our historic performance. Notwithstanding this one situation, you’re getting half situations where you have a large payout, but we have, you know, you’ve got to look at this over the long haul and the actuaries tell us that our performance is solid and that’s why we are able to get the additional level of coverage and at no cost.


Your final question is coming from the line of Frank DiLorenzo.

Frank DiLorenzo – Singular Research

Good morning. Thanks for taking my call. Just two quick questions. One regarding the malpractice law suit, with better clinical documentation have helped to shield you in that particular case, just wondering?

Jay Higham

Yeah, I mean, if we had really great documentation, it would have probably shielded us a little bit better. We do have an electronic medical record that does provide the tool and capability for that documentation to take place. In this particular case, the allegation that drug that drew the nurses into this case was a lack of documentation, and the tools are there, if they’re not use then I don’t care what the tool is.

Frank DiLorenzo – Singular Research

Is there anything you got to do, any steps to maybe try to make sure you are recording the patient accounts a little better, where you have fits all of us.

Jay Higham

Yeah, it's standard nursing practice. This was a case where malpractice – malpractice cases are rise because of the deviation in the standard practice, not necessarily because there is a bad outcome. A bad outcome – nobody can warrant that the patient has a good outcome. So malpractice generally arises when there is a deviation from the standard. And the standard is to provide good documentation and that’s what nurses are trained to do. And if the nurses aren’t performing that then they get discharged. We can provide the tools, we can reinforce the training, but we do need people and expect people adhere to the standards of nursing practice. And in the case of the physicians it's standards of medical practice.

Frank DiLorenzo – Singular Research

Okay. Also just, with regards to the fertility centers and also the vein clinics, last quarter it looked like, on the fertility center side, the applications and the enrollments they looked good and there was weakness here in the second quarter going forward. But then, on the vein clinic side, your mature clinics initially grow this quarter and if you go back to the first quarter, the enquiries for the consultations in the first leg starts they were pretty weak, but they’ve shown an big rebound here in the second quarter. I know you had mentioned it earlier, but can you give us a little more color on what the reasoning is for that? Is there anything you’re doing out there from the standpoint of marketing and targeting and trying to find, sort of areas that maybe a little less – a little more insulated from the kind of economic problems we're having out there.

Jay Higham

The vein clinic business is really not – we’re not experiencing exposure to general economic weakness at our vein clinic business. This is a – what’s great about this business and the reason we’re so excited about it, the reason we got into it in the first place is a good example of new technology, emerging technology and reimbursement around that technology that’s creating a market opportunity. And what we’re seeing is a really strong growth and we are trying to get, a lot of vein clinics out there to take access, to make access or gain access to this market opportunity as rapidly as possible.

If there was mature market, then I think that we would likely see some exposure to the general economy. Hospitals for instance are seeing weakness in surgical volume because of the economy. Patients are not coming in for procedures as readily as they used to. We’re not experiencing that in our vein clinic business because it’s a new technology, still relatively new technology with the laser and undertreated condition. So even if on the margins some people aren’t, you know, have loss their insurance or aren't making as ready access to their insurance because of higher co-pays and so forth. Even if that’s happening on the margin, there's such a big market opportunity out there for us that we’re not perceiving that in our business.

The marketing program is working really well. The second quarter is generally our strongest quarter. We have ton of enquiries. As I've said, the drop in the mature clinics was not a function or a lack of patient demand, it was a function of a lack of capacity to handle the patient demand. And our judgment that it was better to take the foot off the accelerator slightly in that business, in order to be able to preserve the business, and not have the turnover that we’re starting to experience.

We want to take a long-term perspective on this and make sure that we adequately staffed to be able to handle the business so that, you know, people aren’t making mistakes. We don’t get expose to incidents and malpractice situation, that good quality care has been provided. I mean that’s really what’s important in the long-term is that we have a great quality of service, it’s being performed and we would rather, you know, take the pressure off a little bit right now, even despite the fact that we have really strong demands from patients for services that we can – that we're offering.


We have a follow-up question from the line of Kevin Ellich.

Kevin Ellich - Piper Jaffray

You said that the vein clinic business is not exposed or it doesn’t have exposure to the economy?

Jay Higham

Well no, what I’m saying is it’s a well reimbursed program. In another words, varicose vein disease does get – especially if you tilt it to the medical component of varicose vein disease which we have then insurance companies do cover that because it’s a medical condition. For decades people who've had varicose veins since there have been people walking the earth and…

Kevin Ellich - Piper Jaffray

Oh yeah.

Jay Higham

It’s not a new condition. What’s the different here is that about 5 years ago lasers were approved by the FDA for treating large varicose veins because it's a medical condition that gets progressively worst if left untreated. The historic – the treatment that was offered up until that point in time was – was vein stripping, a surgical procedure that people didn’t like. So that reimbursement for vein stripping has always been there, but wasn’t patient-friendly or comfortable or patients sort endured the discomfort and the progressive nature of that disease until they simply couldn’t wait and had to have it treated.

What's happened with lasers is that it’s comfortable and effective and also well reimbursed. So that’s was causing the big market opportunity for us is that there is so much vein disease that have been untreated for so many years. So my point is that even if the margin, there is some exposure to the economy, this is such a big opportunity there's sufficient number of people who are – who we can identify, who are willing to move forward with treatment right now that we don’t steal the exposure that the economy has generally in the healthcare right now.

Kevin Ellich - Piper Jaffray

Right. But I mean, given what's going on in – with utilization trends and unemployment, I mean that’s obviously does still have an impact on that business, right?

Jay Higham

Well, it has an impact – it has an impact on the healthcare segment generally in the economy, there is no escaping that situation. But we are in high-growth, really underserved component of healthcare right here, and so we can find, we’ve been very successful to find the patients who don’t have the economic limitations.

Kevin Ellich - Piper Jaffray

Understood. And then just speaking about the press release, the comment about the fertility drug financing program, could you provide a little bit more detail on that? How it'll work and I guess what type of revenue expectations should we see going forward?

Jay Higham

I don’t want people to build into their model that there's going to be dramatic increase in our Attain IVF program associated with this drug rider. I've raised the issue as an example of how we are constantly innovating and providing new functionality to what we do here at IntegraMed. We do think that it's going to help people to be interested in enrolling in the program? At what pace and how much of impact? That’s still to be determined as we roll this program out.

It’s a complex situation, because as I mentioned in my comment, although patient who need IVF treatment look homogenous, on the outside there is a lot of variation and exactly the medication protocol that's used to treat a particular type of patient, these medications are very expensive. So how much, over what period of time is going to have big impact on the price of the program and we are having workout the details.

And so, I expect over the near term, that this is not going to be a meaningful impact until we can really workout how the program works. I'm expecting a second half of 2011 for us to beta test what we've been able to workout through the actuarial model and launch this program in a very controlled way. It's potentially, could have a big impact on the performance and we don’t want to expose ourselves to unintended consequences here. So we're going to roll it out very carefully and make sure we beta test it and understand how all the various variables are working before we make it more general available.


There no further question at this time.

Jay Higham

Thank you, operator. We continue to see substantial growth potential for IntegraMed in the years to come within our two specialties. We are focused on a long term growth plans supported by a robust balance sheet and healthy cash flow. And more importantly, our success is supported by a highly talented and dedicated group of employee and physicians who are commitment to the highest in patient care and to pursuing disciplined growth. We remain active in the Investor Relations front and hope to see you at Wall Street conferences or on investor marketing trips over the remainder of the year.

Please contact Norberto Aja with our Investor Relations firm Jaffoni & Collins, at 212-835-8500. Should you have any questions or wish to schedule some time with management. Thank you for your continued interest in IntegraMed and your participation today. That’s concludes our remarks.


This concludes today's conference call. You may now disconnect.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to All other use is prohibited.


If you have any additional questions about our online transcripts, please contact us at: Thank you!