Athenahealth Wins a Major Client

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Leading vendor of cloud-based services for physician practices and inpatient settings, Athenahealth, Inc. (ATHN) recently announced that Children’s Hospital Los Angeles Medical Group had chosen Athenahealth’s remote medical billing offering (athenaCollector) to improve its revenue cycle management. The group already utilizes the healthcare related business intelligence offerings, useful for financial reporting, provided by Anodyne Health Partners, which is owned by Athenahealth.

Children’s Hospital Los Angeles Medical Group is a multi-specialty freestanding pediatric practice of 500 medical practitioners. It mainly provides care at Children’s Hospital Los Angeles, cited as an outstanding children’s hospital in California and one of the best in the nation.

Athenahealth’s web-based deployment provides a low-cost scalable service while its flexible rules engine leads to higher efficiency in claims settlement. The Software-as-a-Service (SaaS)-based approach allows for a more flexible delivery mechanism that is expected to help Athenahealth win deals. The company has traditionally enjoyed high customer satisfaction rates, which facilitates a larger number of referrals.

Athenahealth’s unique business model makes it a strong provider of RCM services (athenaCollector) designed for physician practices. Its EHR product (athenaClinical) is a key player in ambulatory settings.

We believe that sales of athenaClinical are likely to remain robust. In addition, the company will harness its newer products, namely athenaCommunicator and athenaCoordinator.

The company should benefit from its extensive athenaCollector client base, as only a minority of its subscriber base also utilizes athenaClinical. Cross selling represents a real growth opportunity in the near term. In this regard, Athenahealth has made rapid strides in capturing the EHR business of physician practices. However, this segment is shrinking, as hospitals increasingly absorb physician’s medical practices.

Athenahealth is geared to enter the enterprise segment through its strategic alliance with Microsoft (MSFT) and the acquisition of Proxsys, both completed in 2011. The company has recently signed on, and executed several enterprise-sized deals, which provide it with a credible and referenceable client base.

Though the federal stimulus will gradually wind down, the replacement market has been growing. Competition is fierce and larger competitors may benefit from the incumbency factor. Industry stalwarts such as Cerner (CERN) offer long-standing seamless products integrating inpatient and ambulatory-care systems. Quality Systems (QSII) and Allscripts Healthcare Solutions (MDRX) are two other well-known competitors in a crowded field.

We currently have a Neutral recommendation on Athenahealth. The stock currently retains a Zacks #4 Rank, which translates into a short-term Sell rating.

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