Medical transcription these days is a fast-paced, knowledge-intensive, high-tech, global business. I discuss three of the biggest players in the medical documentation arena below. Judging by EPS, recent stock price, RPE, and volume, only one of the three would be a reasonable buy at this time. None of these companies pay dividends.
Medical records in the United States are subject to strict privacy rules under HIPAA, the Health Insurance Portability and Accountability Act of 1996. These records are not intended to be used for treatment planning. They are produced quickly and are only intended to document the patient's treatment for purposes of insurance reimbursement, billing, and recordkeeping. Medical records are transcribed all over the world by employees and subcontractors of hospitals and transcription agencies, and increasingly by speech recognition software.
MedQuist, Inc. (MEDQ.PK) produces more than 1.5 billion lines of transcription annually. Transcriptionists are usually paid by the line. MedQuist provides medical record transcription services under contract to hospitals, clinics, and physician practices. MedQuist has been on a buying spree for decades, snapping up transcription agencies from small mom-and-pop shops to larger, better-known entities such as Lernout & Hauspie in 2001. MedQuist completed the purchase of Spheris Transcription, with its more than 5,000 employees worldwide, in April 2010. Spheris had purchased HealthScribe in 2004, gaining more than 1,800 transcriptionists at that time.
On September 28, 2010, MEDQ was trading at $4.96. In the past five years its stock has rarely traded above $12.50, closing at $12.25 on June 8, 2011, down 35 cents. But MedQuist's RPE, or revenue per employee, is only $62K. And on March 24, 2011, MedQuist voluntarily delisted its common stock from NASDAQ.
Nuance Communications, Inc. (NASDAQ:NUAN), with EPS of 0.0071 to MedQuist's 0.96, fared better in the market on June 8, closing at $20.36, up 15 cents, on above-average volume. Nuance's website claims $100 million annual investment in R&D and 3 billion lines of transcription generated. According to smartmoney.com, Nuance's RPE is an astonishing $197,665. Since May, CEO Paul Ricci has sold nearly 200,000 of his shares at $21.50 to $22, fueling the rumor that Apple (NASDAQ:AAPL) is interested in a takeover.
Nuance offers a wide range of speech recognition systems, including eScription and Dragon Medical, to its healthcare clients. As an aside, I read on an internet message board that Nuance has recently lowered the line rate it pays its transcriptionists -- a shortsighted move if true, considering Nuance's extremely high RPE.
Transcend Services (TRCR) made Rex Moore's Foolish 8 Stocks List at fool.com on June 7. Its quarterly EPS estimate is 0.32. However, Transcend's RPE is even lower than MedQuist's at just $52K. Transcend closed at $24.99 on June 8, down from $25.05. The day's volume was nearly twice the average amount.
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Low RPE numbers severely limit the potential for a company to become a global market leader, especially in a 24/7 service business which must compete with cheaper labor overseas.
My opinion? That only one of these stocks is worth considering. That stock is NUAN, although I would completely lose interest in it if Apple doesn't pursue a takeover. Without the Apple factor, NUAN's low EPS would be a deal-breaker for me.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.