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Leading vendor of cloud-based services for physician practices and inpatient settings, Athenahealth, Inc. (ATHN - Analyst Report) recently announced that it won three number 1 best in KLAS slots for the 2012 awards in the Software and Services annual report.

Specifically, the company took the number 1, Best in KLAS for the following:

- AthenaCollector (practice management) in two niches, namely practices with 11 to 75 doctors and practices with 1 to 10 physicians.
- athenaClinicals (electronic health record) for practices comprising of 1 to 10 doctors.

These awards were handed out following an evaluation process comprising of performance-related information, private interviews and other measures. The Software and Services report of the 2012 Best in KLAS Awards found that 93% of clients would repeat purchase of athenaCollector while 95% would again buy athenaClinicals. Some 38,000 providers were using offerings provided by Athenahealth in 2011 and 85% of qualified providers met Stage 1 of meaningful use criteria.

Founded in 1996, KLAS is a research organization whose purpose is to enhance delivery of healthcare. It provides reports based on its own data analysis.

Athenahealth’s web-based deployment provides a low-cost scalable service while its flexible rules engine leads to higher efficiency in claims settlement. The Software-as-a-Service (SaaS)-based approach allows for a more flexible delivery mechanism that is expected to help Athenahealth win deals. The company has traditionally enjoyed high customer satisfaction rates, which facilitates a larger number of referrals.

Athenahealth’s unique business model makes it a strong provider of RCM services (athenaCollector) designed for physician practices. Its EHR product (athenaClinicals) is a key player in ambulatory settings.

We believe that sales of athenaClinicals are likely to remain robust. In addition, the company will harness its newer products, namely athenaCommunicator and athenaCoordinator.

The company should benefit from its extensive athenaCollector client base, as only a minority of its subscriber base also utilizes athenaClinicals. Cross selling represents a real growth opportunity in the near term. In this regard, Athenahealth has made rapid strides in capturing the EHR business of physician practices. However, this segment is shrinking, as hospitals increasingly absorb physician’s medical practices.

Athenahealth is geared to enter the enterprise segment through its strategic alliance with Microsoft (MSFT - Analyst Report) and the acquisition of Proxsys, both completed in 2011. The company has recently signed on, and executed several enterprise-sized deals, which provide it with a credible and referenceable client base.

Though the federal stimulus will gradually wind down, the replacement market has been growing. Competition is fierce and larger competitors may benefit from the incumbency factor. Industry stalwarts such as Cerner Corporation (CERN - Analyst Report) offer long-standing seamless products which integrate inpatient and ambulatory-care systems. Quality Systems Inc. (QSII - Analyst Report) and Allscripts Healthcare Solutions, Inc. (MDRX - Analyst Report) are two other well-known competitors in a crowded field.

We currently have a Neutral recommendation on Athenahealth. The stock currently retains a Zacks #4 Rank, which translates into a short-term Sell rating.

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