AthenaHealth, A Case Study, Part 1

AthenaHealth is the most interesting company in healthcare IT. They've developed the most stable, cash-producing, low-risk business model by solving one of the biggest problems in healthcare.

For the uneducated, AthenaHealth tries to offer an end-to-end suite of practice management services for doctor's offices spanning the administrative and clinical aspects of medicine. Not only does Athena provide software for scheduling and billing patients and electronic charting for physicians, they also offer a full suite of billing and AR management services. They also offer a variety of other services to help doctors more effectively run their practice.

Before Athena, most doctor's offices performed their own billing. They paid and managed administrative staff, who usually worked in office, to bill and collect on claims. Of course, these were relatively high turn-over staff, who had a tendency to steal and cause all kinds of daily operational problems. Even without strict regulatory requirements, billing was an enormous operational and management pain for doctors.

Athena started by providing web-based scheduling and billing software for doctor's offices. Soon after, they came to understand that billing was a much bigger problem for most doctors. And they realized they could perform billing functions for their clients better than their clients could do it themselves. Because Athena was already hosting all of their clients billing data on their cloud database, they built a UI to the data from the back-end and hired a team of medical billers to send claims and manage their clients' AR. Over the years, they've expanded the breadth and depth of these services. And obviously, they also built an EHR somewhere along the line.

Athena did $422M in revenue in 2012, and has a market capitalization of $3.3B today. They are widely renowned for delivering the best service at what they do. And they will always be, because 1) Athena has complete and seamless access to all the data and b) economies of scale. No one can deliver outsourced billing and AR management cheaper than Athena, period. It's like trying to compete with Walmart on price. It cannot be done. Athena has everything going for it, including direct access and the best economies of scale in the business.

Some may observe one existential threat for Athena: hospitals buying up clinics. As hospitals do so, they may try to coerce the physicians onto the hospital billing systems. However, hospitals will probably find it cheaper to stick with Athena. Even in health systems with 10,000+ employees, Athena can still do it cheaper because of the 2 key reasons outlined above.

Looking forward, Athena has enormous opportunities ahead of it. A few examples:

1) refer patients into clinical trials

2) sell statistical analyses of the data to pharmaceuticals and device makers

3) allow other companies to tap into their network via APIs to deliver ground breaking new products and services (see AthenaNet).

4) provide HIE-like connectivity (see AthenaCoordinator)

Regardless of which initiatives they pursue, Athena can continue to thrive off a beautiful cash cow business while building greater and greater network effects. Because of the size and nature of their business, they will always provide the best value for most physicians most of the time. They can utilize that large and growing base as a phenomenal launching point for all new products and services. This company has a very bright future.

My next post will cover how AthenaHealth compares to Jack Dorsey's Square.

Disclosures: 1) VersaSuite has competed with AthenaHealth on a few deals, though it has been a rare occurrence. 2) I intend to purchase AthenaHealth $ATHN stock in the next 90 days.