Policy Cloud on Amsurg

AmSurg Corporation (AMSG - Analyst Report), which is expected to report 2Q08 financial results on July 22. Our current revenue and EPS estimates are $152 million and 39 cents, respectively, versus consensus estimates of $149 million and 39 cents.

AmSurg is pursuing a focused growth strategy based on the development and/or acquisition of ambulatory surgery centers (ASC) in partnership with physicians. We believe AMSG’s aggressive target of growing by 18 to 20 new sites is achievable. In addition, the company’s single specialty focus means that sites are typically small and, therefore, require less start-up capital with lower operating costs. With a relatively solid development and acquisition pipeline in place, supported by a relatively strong cash position, we believe AMSG expansionary growth will continue over the medium term.

However, ASCs are highly dependent on third-party reimbursement programs for payment on behalf of patients. We have concerns regarding its dependency on the Medicare program for payment given that the company currently derives 34% of revenues from Medicare and Medicaid. This program is subject to the vagaries of changes in federal government funding, which historically have been difficult to predict. The new ASC payment system became effective January 1, 2008 and is expected to negatively impact same-center sales growth by approximately 1% in FY08 according to management s most recent guidance.

Additionally, and notwithstanding integration and development risks associated with expansion, AMSG is also exposed to any changes in codes of practice and regulations that currently allow direct physician investment in freestanding ASCs, which, from a payer’s perspective, creates incentives for higher patient throughput. A related issue is the reliance on single-specialty physician professionals, vis-à-vis gastroenterologists and ophthalmologists, and the high concentration of facilities in key markets.

Read the full analyst report on AMSG