Opinion: The medical-records company is key to reforming health care
Wall Street’s buzzing today over short-seller David Einhorn’s newly picked fight with athenahealth Inc., the electronic medical records services company that has been a darling almost since its 2007 IPO. But the odds say Einhorn picked a fight he won’t win.
If there are any lessons from having covered the Web sector through the bubble, the 2000-2002 bust and the recovery that led to new highs, it’s that the two things that matter are the opportunity a startup pursues and the quality of its executives.
Athena ATHN -5.42% and CEO Jonathan Bush score well on both. And while its stock is expensive, the way all software-as-a-service stocks are expensive, Web history tells us strategy and execution trumps seemingly-too-high valuation nearly every time.
Why you shouldn’t care who the CEO is
Einhorn’s problem is not just that the health-care market is huge, or that the Affordable Care Act has added something like 9 million customers to the $3 trillion system. It’s that the system is in the process of being unpacked and unbundled, as the patient’s share of the bill gets larger and consumers get more price-conscious, while hospitals are pushed to eliminate the cross-subsidization of services that leads to charging $100 for an aspirin.
As it happens, Bush has a new book out about how that will work. And while his Republican-leaning vision is even more free-market than what former Obama health-care aide Ezekiel Emanuel has to say in his own new book, both point to a future where health care is much less paternalistic, consumers shop more carefully and are much more price-driven, and the pressure from the market (and, in Ezekiel’s case, from regulators) to move care from high-cost producers like hospitals to lower-cost producers like outpatient settings is intense.
Einhorn’s theory is that all of this favors Epic Systems — the leading maker of hyper-expensive, closed-network software sold to hospitals. Epic, Einhorn says, will keep athena out of moving into hospitals from its base serving doctors’ offices and clinics. The necessary corollary is that the hospital will keep its central place in health care.
If you believe this, ask yourself: How many times has a doctor recommended that you do something in a clinic or office setting that used to be done much more expensively in a hospital? A lot, if you’re like most people. That’s business that flows to athenahealth and its peers, and away from Epic and its peers like Cerner CERN -0.36% .
Now: How often has your doctor told you to ditch an office-based procedure to do the same work in a hospital? Never.
Strategically, Einhorn’s betting that the latter move is the trend.
Actually, the trend is to integrate care between hospitals and outside doctors — and for patients, rather than the hospitals, to control their own data as they more actively direct their own care and find cheaper options. That trend, too, disfavors giants and enables more-open, cheaper systems like athena’s.
The other thing to remember is that Bush is no ordinary CEO.
I’ve known Bush for nine years: Like many reporters, I took my first meeting because he was President George W. Bush’s cousin, and I was curious. He’s uncommonly able to inspire loyalty and instill a sense of mission even in the relatively mundane business of tracking medical care and collecting bills. This guy is no short-seller piñata like Overstock.com’s OSTK -0.40% Pat Byrne — he’s more in a class with Expedia’s EXPE -0.36% Rich Barton or Netflix’s NFLX -1.02% Reed Hastings.
Einhorn had some fun with a video of Bush doing shtick, and that’s fair — Bush does shtick, a lot. But investors have eaten it up — and so have customers.
Last month, for example, athena announced it had convinced Summit Medical Group, New Jersey’s largest medical practice, to move materially its whole business to athena, which has run Summit’s billing since 2010.
For Summit, greater automation is the key to reorganizing care , slashing utilization and hospitalization and trying to cut costs 20%. Picking athena to run a practice as big as Summit’s 200,000-patient base ends the notion that the onetime startup can’t manage operations at hospital-like scale.
Yes, athena trades at 85 times next year’s projected earnings. Yes, that’s a lot. But companies like Netflix, Amazon AMZN -2.15% , and Salesforce.com CRM -1.55% commanded similar multiples. Especially when the company is relatively small, as with athena’s $4 billion market cap, and investing heavily, it’s not that unusual.
The valuation suggests that Einhorn may have some fun with athena in the short term — shares are down 13% today.
But markets vote in the short term and weigh in the long term. And in the long term, profitably restructuring a $3 trillion, technology-starved industry weighs a hell of a lot.
Tim Mullaney doesn’t own shares of any companies mentioned. He writes on health care, economics and technology. Follow him on Twitter @timmullaney or contact him at tim.mullaney@outlook.com.
