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Advanced health is a second generation physician practice management company. I call it second generation because they partner with physician practice groups, rather than acquiring them. This is the model for the future because it is an investment in global risk contracting. Global risk contracting puts primary care physicians (PCP's) at finacial risk for all aspects of the patients care. HMO contracts traditionally put the primary care physician at finacial risk only for office expenses. In this traditional model there is not enough financial incentive for PCP's to expend the time needed to reduce an inpatient stay by a day, for example, or to call a specialist and work out a followup plan which involves more care given by the PCP and less by the specialist. In short, the PCP as gatekeeper model has failed. PCP's only pretend to gatekeep because insurance companies only pretend to pay them to do so. The other important element (besides motivation) in understanding the costs of medical care is means. PCP's may want to practice cost effective medicine, but they usually lack the information AT THE TIME OF DECISION-MAKING to make correct decisions. Advanced Health addresses both of these elements. Their wireless electronic notebook provides doctors with the costs and efficacies of treatment alternatives along with insurance information (what is covered, what is not, who the vendors are) so that PCP's can make informed decisions. The investor packet which comes from ADVH has some scholarly articles published in professional journals written by the CEO about how to optimize physician decision-making. Imho, physician-controlled global risk contracting respesents the future of the medical profession, at least if the MD's have their way. At present, a typical global risk model involves the insurance company and the PCP's splitting the risks and rewards 50-50. But physicians see this as an intermediate step on the way to having large doctor groups go directly to employers to compete with HMO's for contracts. In the final analysis, who needs HMO's? Patients loyalty is to their PCP's. Employer's loyalty is to whomever can provide the best value for the health care dollar. Physician-controlled global risk contracted groups satisfy both parties better than HMO's. From the patients' view, it is a question of who do they want to make the decisions about what medical care is necessary vs what is superfluous? Do they want it to be their doctor, who knows the most about them, or do they want it to be an insurance company bureaucrat who is following an agorithm? The adversarial relationship between these bureaucrats and PCP's is much more costly than simply giving PCP's financial incentives to practice cost-effective quality medicine. The cover story of AMA NEWS, August 15, 1994 is all about global risk contracting. Included are the statistics, that the average PCP, who has an average claims experience, with double his or her income with global risk contracting. Personal experience confirms these data. When ADVH contracts with PCP groups, it is my understanding that ADVH gets management fees and half of the groups profits. I should also mention that ADVH also has contracts with specialist groups, not just PCP's. I won't go into detail about that at this time. The average analyst has predicted EPS of about $0.46 per share for ADVH in 1997. My own guess is that it will be 50% higher than that. ADVH has already earned 8 cents per share in Q1 (vs estimate of 4 cents) and 14 cents per share in Q2 (vs estimate of 7 cents). Looking to the future, ADVH will surely increase the number of doctors with which it has affiliations. Maintaining ownership of their practices is critically important to PCP's. It is their livelihood, not just some asset that can be disposed of at an attractive price. "Same store" growth will be tremendous, as PCP groups do more global risk contracting, and eventually contract directly with employers. Imho, this company may become a blockbuster. There is an enormous potential for growth in the PPM market. I bought in at 10 and sold at 17 earlier this year. I then put 20% of my entire portfolio into ADVH at avg of 18 13/16 on 8/6, guessing that the Q2 earnings would be terrific. A good guess. This time I am in for the long haul. Let's start a thread. TDD | ||||||||||||||
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