American CareSource Holdings, Inc. (ANCI-NASDAQ)
May 22, 2009 Issue
The Most Powerful Name In Corporate News and Information
Continuing To Create Efficiencies In The Nationwide Healthcare System, While Driving Down Costs Of Ancillary Healthcare Has Generated Great Economic Benefit For American CareSource Holdings Clients
CareSource Holdings, the first national, publicly traded ancillary care
network services company, offers a comprehensive national network of
approximately 3,000 ancillary service providers at over 26,000 sites through
its subsidiary, Ancillary Care Services. The Company's ancillary network and
management provides a complete outsourced solution for a wide variety of
healthcare payors and plan sponsors including self-insured employers,
indemnity insurers, PPOs, HMOs, third party administrators and both federal
and local governments. Ancillary healthcare providers
offer services in over 30 categories, including
laboratories, dialysis centers,
free-standing diagnostic imaging centers, non-hospital surgery centers, as
well as durable medical equipment such as orthotics and prosthetics, and
Chief Financial Officer
Mr. Armond joined ACS in October 2007. As Chief Financial Officer, he has responsibility for the development and execution of financial strategy, business planning and analysis, accounting and administrative functions, as well as full P&L and cash flow oversight. Prior to joining ACS, from 2003 to 2007, Mr. Armond served as Chief Financial Officer of Data Return, LLC, a company providing enterprise-class strategic IT operations services. While there, Mr. Armond was instrumental in helping to lead the company through five consecutive years of growth and profitability, culminating in a successful strategic sale of the business in May 2007.
Interview conducted by: Lynn Fosse, Senior Editor, CEOCFOinterviews.com, Published – May 22, 2009
Mr. Armond: “A lot has happened in the last year. Most notably the company has continued its significant and rapid expansion of its business model. For the third consecutive year, the business has more than doubled in size from a revenue perspective. We added seven new clients in 2008. We expanded our revenues now to more than $58 million as reported in 2008. That was up from $23.5 million in 2007. Our record growth and significant expansion were due to new clients added as well as the expansion of some of our most long-standing relationships in the company. The one thing that has remained constant during this past year is the fact that the business continues to find ways to create efficiencies in our nation’s healthcare system. We have continued to drive down costs of ancillary healthcare, which has been a great economic benefit to our clients and their members who seek healthcare from our network of providers.”
CEOCFO: How do you drive down costs?
Mr. Armond: “Part of what we do and our target focus is to help middle market insurers, which might be PPO organizations, direct payers, regional insurers, other self-insured companies even, with their ancillary healthcare needs. What we effectively do is bring together a fairly diverse base of clients, today representing over eighteen million member lives in our network, and negotiate on their behalf with providers across 28 different categories of ancillary care. We help them collectively achieve the kinds of economy of scale that include great economics, improvements in cost and process of selling and administering provider-based relationships they otherwise would have to do on their own to enable them to compete against the largest insurers in the country--the Blue Crosses and United Healthcares of the world. Part of our play is that through working with us our clients are able to achieve typically anywhere from an 8 to 15% savings on their ancillary healthcare savings which is a big deal. Today, ancillary healthcare represents about 30 cents out of every dollar in national healthcare spending. It is a large and growing segment of the country’s healthcare expenditure, and our mission in life is to help drive efficiencies in that area and pass along those savings to our clients and their customers.”
CEOCFO: Why are new clients coming to you?
Mr. Armond: “Typically, when we are talking to a new prospect, an organization that we would hope to deliver our services to, it is usually the case that the client or prospect is trying to effectively develop, manage, and maintain at some level their own network of ancillary healthcare providers. That is a complex process because ancillary healthcare spans nearly thirty different categories of various forms of healthcare. These range from dialysis providers, laboratory and diagnostic work, various forms of infusion therapies, medical equipment, medical imaging, third party surgery centers, rehabilitation facilities and others. The diversity that exists across the sheer number of categories, and the growing number of providers across the nation, make this a fairly complex process for individual regional insurers to typically manage on their own. Therefore, more often now clients are turning to American CareSource to help them to manage that complexity. We have developed the broadest national network of ancillary care providers in the country. We participate fully in twenty-eight categories of ancillary care on a national level. Consequently, through our own contracting efforts with providers and ongoing management of those relationships, which includes quality credentialing, we deliver to our clients the diversity of providers efficiently and cost-effectively while allowing them to focus on their core business. We are able to demonstrate to our clients usually a double-digit sort of savings annually across the breadth of our provider network. That is a great value and a great benefit particularly in a climate where organizations are struggling to grow. The opportunity to manage cost without sacrificing care, choice, and quality of care, is really important and that has helped facilitate a lot of our success that we have realized this past year.”
CEOCFO: Are your potential clients looking for alternatives, or do you have to go to them to explain the need?
Mr. Armond: “There is a growing awareness ancillary care and its importance in the broader healthcare setting. Today, it comprises a $575 billion dollar annual market. So certainly, there is an awareness about the importance of ancillary care. It is generally a category of healthcare that is expanding. People are looking for choices beyond the traditional hospital based system or physician based system that will afford quality, convenience and better economics, so consequently our clients are certainly in tune with that. As the number of our clients grows across the country, the awareness of what we do and the value we bring from the American CareSource Holdings brand, is growing as well. We take pride in the fact that we have highly reference-able clients. Often times as we are developing new client relationships we will have a prospect talk to some of our existing clients about their experiences, the value that we bring to the table in the form of both cost savings as well as other efficiencies and improvements in cash flow. Their references are very powerful. The big picture yes, they are aware of the importance of ancillary healthcare, its size and magnitude, the growth in that area. They are aware of how painful it is to try managing and maintaining such a diverse network on their own. They are looking for solutions and consequently, we are in a great place to capitalize on that.”
CEOCFO: What is the market for the smaller regionals that you are addressing?
Mr. Armond: “It is a very large market. Today, what we consider to be the regional healthcare market are those insurers that are outside the top five or top ten group of insurance companies, such as Blue Cross, United, Cigna, and Aetna. The market below the top five or ten insurers in the country represents about 120 million insurable lives. Today within our network, we represent roughly 18 million of those lives. For us certainly we have grown a lot and our influence across 18 million lives is now certainly substantial. It helps us to achieve scale and the kind of economics that an individual large-scale insurer would receive. For example, the 18 million lives in our network are very comparable to the aggregate number of lives in Aetna’s or Cigna’s network. Consequently that has helped us to work within our provider network to achieve scale economics and then to help our regional insurance companies and other clients become that much more competitive against the larger players.”
CEOCFO: Where are you geographically?
Mr. Armond: “The business got its start in Texas. We are a Dallas Metroplex based business; our headquarters is here. A few of our key clients and most long-standing clients are located here in Texas so that was an area of strength from which we began to expand. One of the things we have done a very effective job of, especially over the last year, is to continue to expand the reach of our client base across the country. Just in the last twelve months alone, we have entered into new client relationships in the Midwest in the Chicago and Indiana areas. We entered into relationships with new clients in the northeast; one recent new client is headquartered in Philadelphia. We have entered into relationships with others in the southeast in Florida, and with more nationally oriented PPOs. From that point of view, we have leveraged our base of strength in the south and southwest and now we are beginning to expand nationally across some key regions. One of our primary objectives on a go-forward basis is to truly establish ourselves as a more robust national business. We are already operating and realizing claim flow through our provider network in all fifty states. That has certainly put us on the national map. Going forward, we really have an opportunity to continue deepening our provider network in some other key areas like the west coast, farther into the southeast and some other important areas of population growth. That is certainly on the strategic roadmap for 2009 and beyond.”
CEOCFO: Would you tell about your plans for additional services?
Mr. Armond: “We are already participating very broadly across 28 categories of ancillary care. What is next for us from a service and capability point of view, is to be able to more proactively reach the consumers of healthcare. Think about folks who are making decisions about where they seek healthcare and the form that that healthcare takes. If I am making a choice to go for some outpatient surgical procedure, where should I go, and why should I go there? How do I ensure that this facility operates at a high-quality standard? When I do make that decision, what sort of costs are involved? There is so little cognizance in most Americans minds about the costs entailed in healthcare, I think that this represents the next big opportunity for our business, which is to enable that consumer or member to reach out to us to get a lot of value-added information along those lines that I just articulated. We can enable them to make a good sound informed choice that is going to benefit them, both from a quality perspective and a cost perspective. Today, I think most Americans do not recognize often times that they have a choice in healthcare and what their options are. Often times if their doctor says to go somewhere because they need a certain procedure done then that is where they go without understanding the consequences across many of those dimensions and what that means. We have a great opportunity to do that. In fact, we are calling this service our Anci-Concierge™ service. It is effectively a service that would enable the member to reach us and reach qualified professionals in our organization that could help provide proactive advice to the member about quality, choice, and the economics. We may even go so far as to make the appointment for the member to help facilitate and make the process a lot easier. That is where we are going.”
CEOCFO: Are members working directly with you for the ancillary care, or are they working through their provider, and how would they be doing that with the new Anci-Concierge™?
Mr. Armond: “Oftentimes today, they may be working with their insurance company, so the insurance company or the payer in this case. They may be able to call their insurance company and get that kind of advice, but I am not sure anyone is doing a great job of that. For us, this is a great opportunity to educate the consumer and provide a lot of valuable information and to help make the process of accessing high quality, cost-effective healthcare a more consistent and customer-focused process, which benefits everyone. It benefits the payer because it continues to help drive down costs in their system, they have lower insurance bills that they pay for the same service. It benefits the member because they are gaining access to the highest quality care at the best price, and again the access to information that they probably would not have otherwise. If you are a provider in our network, this is an opportunity to gain share. You may not have seen that member for that outplacement procedure, or the benefit therefore of that business, and thus you may have missed an opportunity. However, by being a provider in our network, and by us helping to facilitate the process of being able to provide direct care to the highest quality most cost-efficient providers, everyone wins. Of course we win too. We benefit from that process as part of our service offering and it is how we make a living. Every piece of the value chain benefits from this and that is why we think it is such a great thing.”
CEOCFO: What is the financial picture of the company?
Mr. Armond: “The financial picture from our perspective has been exceptional. We talked about the growth earlier and our business expanded from $23.5 million in 2007 to over $58 million in 2008. That represented significantly greater than a doubling of business. We completed our first full year of profitability; we were profitable every quarter throughout 2008. We have been profitable for the last 7 consecutive quarters. We announced earnings per share last year of $0.21, which represented a $0.27 per share improvement from the prior year. We generated record cash flows in the business. Our cash expanded from a little over $4 million in 2007 to greater than $10 million in 2008. We have no debt; we remained debt-free throughout that time, which makes our balance sheet extremely attractive to current and would-be investors. In the process, we have established a great credibility with Wall Street. A few other accolades; last year we moved the company from being traded on the AMEX to NASDAQ. We completed that process in the latter part of September of last year. Coincidentally we were recognized as the number-one performing company on the NASDAQ Capital Market in 2008. In addition, we were recognized by the Dallas Morning News as being the top performing company in all of north Texas in 2008. Those were a few of the financial feathers in our cap from last year, which has capped a tremendous financial progression for us in our evolution so a lot of good things happened.”
CEOCFO: Final thoughts, why should potential investors pay attention to American CareSource Holdings?
Armond: “We are
the only organization that we know of in the entire country that is doing
what we are doing. American CareSource is the only national ancillary
healthcare system offering the regional payer community access to a broad
network of ancillary providers along with a value-added suite of services,
and quantifiable medical and operational cost savings to payers. Also, by
assuming the responsibility for the most complex and costly interactions
between payers and providers, which includes contracting, credentialing,
collections, resolutions of disputes, payment processing; American
CareSource is able to leverage our economies of scale and technological
superiority to drive down medical and operational costs. Finally, only
American CareSource is able to immediately enhance the breadth and depth of
our clients’ ancillary services. We do this by tailoring the network to
optimize their cost, and these results are achieved without charging access
fees or requiring any investments on behalf of our payer clients. All of
this is done without disrupting any of our clients’ members because we
augment rather than replace their existing provider relationships. No one
else in the country is doing those things. This is unique to our business
and consequently, we are positioned really well to go after the balance of
those 120 million member lives that are out there and continue our rapid
“The one thing that has remained constant during this past year is the fact that the business continues to find ways to create efficiencies in our nation’s healthcare system. We have continued to drive down costs of ancillary healthcare, which has been a great economic benefit to our clients and their members who seek healthcare from our network of providers.” - Steven J. Armond
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