ExamWorks Has a Strong Pulse

 | Jul 13, 2012 | 2:30 PM EDT
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When you are sick, you go to a doctor -- or, perhaps, an emergency room. But who checks on the health of those organizations, and whether they are accurately assessing your case?

Turns out there is a thriving industry of companies focused on this very issue. And one of the more intriguing of the bunch is ExamWorks Group (EXAM), based in Atlanta. The company provides independent medical exams (IMEs) and related services to the insurance and legal industries, third party administrators and government agencies.

In addition to IMEs, the firm also offers its clients medical record retrieval services, physician bill reviews, surgical cost estimates, peer reviews and nurse file reviews as well as other ancillary services.

The company was formed in 2007 for the sole purpose of acquiring other companies in the IME industry. The executive team felt that the highly fragmented industry was ripe for consolidation that could drive revenues higher and improve margins through cost synergies. James Price has served as the firm's chief executive since 2010, and he was a director for two years before that.

Barclays Capital analysts note that the IME industry is composed of 500 private companies in the U.S. alone, with most generating less than $10 million in annual revenues.

To kick things off, in 2008, ExamWorks acquired CFO Medical Services, Crossland Medical Review Services, and Southwest Medical, all IME services firms.

Since then, ExamWorks has acquired more than two dozen additional companies, including IME Software Solutions, which is the No. 1 provider of software solutions to the industry. ExamWorks generates the majority of its revenues within the U.S., although it does have a small footprint in Canada and the U.K.

Of the company's three divisions -- IME Services, Review Services and Support Services -- IME is its primary focus, as it provides physical examinations performed by licensed physicians on the ExamWorks medical panel. It arranges these independent exams for a wide range of insurance purposes including bodily injury, automobile, workers' compensation, disability and federal insurance programs.

The company utilizes one of the largest medical panels in the industry, which has more than 13,500 independently contracted physicians and medical providers. And with nearly 30 different locations, it covers a broad geographic footprint. The company uses its own proprietary technology platform to streamline the process of scheduling appointments, reporting clients, and meeting all compliance regulations.

Meanwhile, the Review and Support Services departments are used for evaluating health care claims for accuracy and legitimacy, along with internal and external reviews of nurses, patients, and legal processes. Clients can receive a thorough and independent medical review and identification of unnecessary services, inappropriate charges, misrepresentations and abuse.

Millions of IMEs are performed each year, creating a global market of more than $5 billion -- based on a typical exam cost between $500 and $1,000. Add to that the existing landscape that provides for further consolidation along with an ever-increasing focus on cost containment and insurance fraud paints a tremendous opportunity for ExamWorks. The company went public in October of 2010, offering shares at $16 and raising $135 million in net proceeds.

Its ride has been bumpy since going public, and the shares are now trading below the initial offering price. But the stock has gained more than 45% already this year, so it appears that the ship has been righted. The roll-up firm has been able to grow revenues by more than 200% annually the past three years, while increasing operating income by nearly 50% during that same time frame.

With a market cap below $500 million, ExamWorks is still in an early growth stage, which means the stock may still experience some volatility. However, all signs are pointing toward the company having a healthy future, as long as it can avoid the usual problems of roll-up outfits, such as taking on too much debt for acquisitions and failing to assimilate the operations effectively.

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