NovaMed: Taking care of business
More baby-boomers are going under the knife one day and returning to work the next … and they’re doing it all without setting foot in a hospital.
As surgeries have grown in number and become more common among the boomer generation, doctors have found owning outpatient facilities — called ambulatory surgery centers (ASC) — to be viable businesses, both for themselves and for their patients. Managing ASCs, however, has taken many physicians out of their realm.
Enter NovaMed Inc. (Nasdaq:NOVA), a Chicago-based company that has carved out a niche in healthcare by establishing partnerships with busier-than-ever surgeons. NovaMed operates 35 physician-owned ASCs in 18 states. It also markets optical products to more than 1,000 eye-care professionals across the country.
But the ASC is NovaMed’s bread and butter.
“The centers are convenient and physicians like working in them,” said Kathy Bryant, president of the Ambulatory Surgery Center Association, a national organization, in a phone interview. “They provide a high-quality surgical outcome in a more customer-friendly environment.”
Add efficiency to that formula and you have NovaMed’s mission in a nutshell. The company offers a multitude of services, ranging from strategic planning and equipment and technology certification to physician recruitment and budget development, so that its physician partners can focus more on patient care and still see the desired returns.
NovaMed’s revenue in the first half of 2008 totaled $69 million, up from $62.5 million in the first half of 2007. Net income in the six months ended June 30 totaled $4.5 million, a 50% jump over the same period last year.
Deutsche Bank analyst Darren Lehrich saw a “nice, clean” second quarter in which NovaMed’s cash flow continued to be strong and its earnings of $0.09 a share were in line with estimates. Earnings are expected to remain flat in the second half of the year, but the company’s $8 million stock repurchase plan announced in July should boost analysts’ 2009 forecasts.
NovaMed’s stock, which closed at $4.49 on Wednesday — has recovered since hitting a one-year low of $2.76 in January. That was only three months removed from the one-year high of $5.73 in October 2007. Lehrich blamed the fluctuation on the volatility of micro-caps in current market conditions, but in December 2007, the company announced it was selling three under-performing centers, and the impact of that news on its fourth-quarter results likely contributed to the stock decline.
Thomas Hall, NovaMed’s president and chief executive officer, said in a statement that selling the three ASCs was the right move for the long term, “as it allows us to reallocate resources to more productive opportunities.”
At the time, Hall pointed to plentiful cash flow and credit that would enable NovaMed to maintain its growth strategy for 2008. Since the sale announcement, the company added one location in Baton Rouge, La.
Costs to ASC patients vary depending on procedures, Bryant said, but Medicare customers generally save about 38% when choosing a center over a hospital. All ASC patients save on time and hassle, she added.
In today’s fragile economy, NovaMed knows those savings, along with the prospect of returning to work sooner to continue earning, will keep customers coming — and investors intrigued.
About the Author
Stephen Ellison is a freelance writer and editor based in San Jose, Calif. He was a copy editor, Web editor and writer for a Silicon Valley business weekly and is a regular contributor to a Northern California law magazine.
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