Athenahealth Is a Big Winner Thanks to Obamacare

NEW YORK (TheStreet) -- One of the bigger winners in the health care market shift created by the Affordable Care Act, aka Obamacare, is Athenahealth (ATHN), a company created a decade ago to help doctors get paid but which has used the $19.2 billion of HITECH stimulus  in the 2009 American Recovery and Reinvestment Act to move into the area of Electronic Health Records.

According to research from SK&A, Athenahealth presently has about 2.8% of the electronic health record market, but anywhere from 28% to 48% of each state's market remains unclaimed, even as incentives from the HITECH Act start to expire. There remains substantial growth to be had in the market.

Once the incentives expire starting next year, clinics and hospitals could be fined for having failed to purchase and implement electronic health records. The current market leaders, with about 10% of the market each, are privately held EPIC Systems and eClinicalWorks.

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Shares of Athenahealth, co-founded by Jonathan Bush, a cousin of former president George W. Bush, and Todd Park, currently the country's Chief Technology Officer, have nearly tripled in value over the last five years and currently trade around $130. 

Cloud-based solutions such as Athenahealth, also called Software as a Service, can be upgraded centrally and implemented more quickly than other solutions.

Athenahealth's ability to compete against General Electric (GE) and hospital-specialty companies like Cerner (CERN) in this market has to do with improving its connections to hospitals and hospital chains, which prefer to do business with suppliers they know.

to that end, Athenahealth's first report on market changes dealt by Obamacare, the Hospital ACA Monitoring Project (HAMP) created in conjunction with the Robert Wood Johnson Foundation, is part of an effort to gain more credibility among these decision makers. The report shows there has been little change in hospital utilization since implementation of the Affordable Care Act exchanges, but states that accepted Medicaid funding are seeing fewer self-paying patients -- which often wind up being bad debts -- than those that did not.

The irony in this result is that many of the largest hospital companies, whose shares have been rising over the last few years, are based in states that did not take the Medicaid expansion money. They do benefit from having more insurance-paid patients, but they don't draw the full benefits of the law due to decisions made by the states where they operate.

Hospital Corp. of America (HCA), the largest hospital operator, is based in Nashville but owns hospitals in England as well as the U.S. Community Health Systems (CYH), the second-largest hospital operator, has the majority of its hospitals in non-Medicaid states and is based in Franklin, Tenn. Tenet Healthcare (THC), the third-largest chain, is based in Dallas and has most of its operations in non-Medicaid expansion states such as Florida, Texas and the rest of the Southeast. 

The main beneficiaries of the Medicaid expansion turn out to be hospitals run by private foundations like the Cleveland Clinic in Ohio and Mayo Clinic in Minnesota, and privately held chains like Steward Health Care in Massachusetts.

Despite a rise in hospital and health automation stocks, in anticipation of changes from Obamacare, in short, the gold rush is far from over.

At the time of publication the author had no position in any of the stocks mentioned.

This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.

TheStreet Ratings team rates ATHENAHEALTH INC as a Hold with a ratings score of C. TheStreet Ratings Team has this to say about their recommendation:

"We rate ATHENAHEALTH INC (ATHN) a HOLD. The primary factors that have impacted our rating are mixed ? some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its robust revenue growth, solid stock price performance and good cash flow from operations. However, as a counter to these strengths, we also find weaknesses including deteriorating net income, disappointing return on equity and feeble growth in the company's earnings per share."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • The revenue growth came in higher than the industry average of 6.2%. Since the same quarter one year prior, revenues rose by 29.8%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
  • Compared to its closing price of one year ago, ATHN's share price has jumped by 42.12%, exceeding the performance of the broader market during that same time frame. Although ATHN had significant growth over the past year, our hold rating indicates that we do not recommend additional investment in this stock at the current time.
  • The gross profit margin for ATHENAHEALTH INC is rather high; currently it is at 58.16%. Regardless of ATHN's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, ATHN's net profit margin of -4.94% significantly underperformed when compared to the industry average.
  • The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed when compared to that of the S&P 500 and the Health Care Technology industry. The net income has significantly decreased by 1250.7% when compared to the same quarter one year ago, falling from $0.70 million to -$8.06 million.
  • Current return on equity is lower than its ROE from the same quarter one year prior. This is a clear sign of weakness within the company. Compared to other companies in the Health Care Technology industry and the overall market on the basis of return on equity, ATHENAHEALTH INC underperformed against that of the industry average and is significantly less than that of the S&P 500.

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