The bad
athenahealth, Inc (NASDAQ:ATHN) competes in a crowded field. Competition is coming from small start-ups as well as more established players. One example is General Electric Company (NYSE:GE). GE sells a full suite of EMR and billing products that compete directly with Athenahealth. GE Healthcare brought in more than $18 billion in revenue. This includes a variety of products, and GE is by no means a pure play in this sector, but EMR systems represents an area of potential high growth within the division.
Athenahealth has debt of around $105 million and cash on hand of about $48 million according to Yahoo! Finance. It pays no dividend, while GE pays a fairly generous 3.30% yield and a reasonable P/E of around 17. GE may not be a pure play in the sector, but you get less risk with some exposure in the space.
The ugly
The EMR space is just begging for a disruptive technology that will make it palatable to healthcare providers. No company makes a product that really caters to healthcare providers. The typical healthcare provider doesn’t want to sit around typing into a computer or iPad. Healthcare providers want to use their time more effectively than that, since they are being squeezed with lower reimbursements by third-party payers. Patients absolutely hate when you don’t pay attention to them and instead constantly stare at a computer screen; I don’t blame them.
There are a number of new companies that are offering free cloud-based EMR systems. Practice Fusion promises that it will always be free to healthcare providers. It hopes to make money by selling ads. I have personally tried Practice Fusion’s EMR system and Athenahealth’s EMR system, and despite some glitches on occasion, it is at least as good as anything offered by athenahealth, Inc (NASDAQ:ATHN) for the average small practice struggling with increasing overhead costs.
If you can get the system for free and qualify for “meaningful use,” then that works for the average solo practitioner. Practice Fusion is cloud-based in its entirety which makes it attractive to people who practice at multiple locations.
Hypothetically speaking, if a certain internet company that happens to make most of its revenue from selling ads on the internet would enter the EMR space, that would be a game-changer. Healthcare providers are looking for some company with a superior user interface to come in and disrupt and innovate. Such disruption could spell certain doom for most EMR suppliers. I don’t see how Athenahealth could really survive that.
The only potential upside to such a scenario is that it could be a takeover candidate, and as such, it would definitely command a premium.
Bottom line, short-term, there is a lot of competition in the space, but athenahealth, Inc (NASDAQ:ATHN) has held its own. Long-term, though, the potential for an innovator to come in and disrupt makes it a shaky investment, especially at its current valuation.
Erick Santos, M.D., Ph.D. owns shares of General Electric Company. The Motley Fool recommends Athenahealth. The Motley Fool owns shares of General Electric Company.
The article This Company Is Facing Some Serious Long-Term Challenges originally appeared on Fool.com.
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