Monday, January 19, 2009

Healthways Crawls Back

As regular readers know, the Disease Management Care Blog likes to keep an eye on Healthways' financials. Because it's a publically traded disease management organization, the DMCB thinks its rising and falling fortunes are a bellwether for the rest of industry, particularly the privately held companies (an example might be LifeMasters) and the entities that are subsidiaries in in larger companies (an example might be McKesson).

It took a while for the DMCB to catch up with the latest report that was released on January 8. Briefly, it looks like 'top line' revenue for the three months ending November 30 is up compared to a year earlier by almost $10 million. By the time all this money trickled though the organization, there was a net of $12.6 million, which was also up compared to last year by over a million. The number of covered lives in the U.S. and internationally is up, internal costs are being pared, there has been 'continued improvement in result from the Hedicare Health Support pilot (comment: does that mean losses and/or foregone fees are not as steep as anticipated?) and Silver Sneakers is expanding. Debt is down but so is their cash on hand (from about $35 million to just over $4 million).

Not bad. Healthways may be crawling back. And it would appear the street agrees. The image below may be blurry but check out the slight upward trend in the stock price waayyyy over on the right. There's also an analysis from that crazy guy Cramer here. That's pretty good for a company in today's markets.

As discussed many times, the DCMB is generally bullish on the disease management industry. More companies are seeking self-insured arrangements (that include disease management), disease management organizations can scale telephonic coaching with maximum efficiency better than anyone else, the DMCB doesn't think most health insurers ultimately want to own clinical care programs and last but not least, health care reform is tilting in the direction of care management for chronic illness.

The disease management industry is also tied to the health insurance business cycle. Such are the fortunes of a maturing industry with good years and bad. In the short term, the DMCB expects growth to be blunted as a) unemployment continues to climb and persons lose the insurance that's paying for their disease management and b) insurers push back on price. Healthways is also dealing with a potentially expensive lawsuit that could theoretically result in ' treble damages plus up to $11,000 per false claim .' Yikes

In the long term, however, prospects for the core business of helping healthcare consumers manage their chronic illness remain good. P/E ratio still around 8 and the stock may be on a rebound. Draw your own conclusions.

The DMCB does not knowingly invest in the disease management industry and, like many amateurs trying to build a retirement fund, relies on a professional financial manager to help it lose its money.

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