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Vendor Powers Up Following IPO
December 1, 2007
Flush from a $130 million initial public offering, from which it received $90 million, athenahealth Inc. has retired $30 million in debt and has the rest in the bank.
Now, the Watertown, Mass.-based company has to show its service won't falter as a public company, says Jonathan Bush, president and CEO.
Since 2000, the vendor has made its name by offering remotely hosted practice management software bundled with outsourced billing and collections services. The company receives 2.5% to 8% of collected revenue, depending on a practice's size. It also generates a variety of routine reports and customized benchmark reports for clients.
In July, the company officially launched a clinical records service about a year behind its original schedule and following extensive pilot testing. Under the service, athenahealth offers electronic health records software bundled with outsourced medical records management services.
Paper-based clinical documents, such as laboratory results and specialist reports, are faxed from practices to athenahealth to bar code, scan and route to the appropriate electronic patient record. The clinical service, the cost of which varies but averages about another 2% of collected revenue, also includes the generation of reports, such as identifying the turnaround time of labs or the error rate of certain procedures done at a practice.
Bush has some ideas for new product lines. For example, he'd like to offer outsourced disease management software and services to insurers and physicians.
The service would include "mass communication capability" by using data analytics software to identify patients who would benefit from disease management programs and enable insurers and physicians to communicate with them through athenahealth's network. "That's my vision and I'm nowhere near it," Bush says.
Asked if acquisitions could be on the horizon, Bush says that's not yet clear. "I'm a big believer in doing things organically, but if there's a good fit, I don't want to turn my nose up."
Getting its new clinical business launched cost a lot of money and was a big reason for athenahealth going public. "I wanted to have clinical and all the heavy losses from clinical behind us," Bush says.
For instance, total revenue in 2006 rose 42% to $75.8 million, but the company had a net loss of $9.2 million.
Developing the clinical service proved more complex than envisioned, Bush acknowledges. "We signed a wide swath of beta clients and found lots of customization was needed," he recalls.
Breaking Down Language Barriers
Inbound fax recognition rules took time, as did normalizing clinical definitions so results from different laboratories could be better compared. "We have to get into a level of taxonomy and detail that an EHR company would never see, much less put in software," he contends.
Now, hundreds of physicians in dozens of practices use the EHR software and outsourced records management services-and the market remains virtually untapped, Bush contends.
But it's a market where the psychological barriers to EHRs are falling: Physicians may not be ready to automate right now, but know they soon will have to, he adds. "Almost 90% of prospects want to see clinicals before signing for financials," he notes. "They're not ready, but want to know they can add clinicals."
Further, the acceptance rate of practices using the clinical software and services also is higher than envisioned, Bush says. Ninety-four percent of clinical users would recommend it to other practices; the company's goal was 85%.
But Bush acknowledges not every current or prospective client is comfortable with the company being public. The biggest liability in closing contracts before the IPO was concern that the level of service would drop after the money rolled in. Now, athenahealth is in a holding pattern with some prospects that want to check to see if the vendor falls off on service.
So, while concerns of the company's financial viability have gone down, cynicism that it will retain the high level of services that private companies survive on has gone up, Bush acknowledges. "If we prove ourselves, being public will help us because they will see us as more viable."
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