This company needed a change, especially with its stock price lagging for years on end. In May, it hired a new CEO, John G. Lettko, who has extensive experience in organizations such as Electronic Data Systems
Since 1989, MedAvant has provided transaction services to the health-care industry, including doctor's offices, payers, medical laboratories, and pharmacies. Now it processes claims for more than 150,000 medical providers. Customers want to outsource such processes because it's more cost-effective and less prone to error.
Over the years, MedAvant built its business through a variety of acquisitions. Unfortunately, integration was haphazard, and, as a result, Lettko has quickly made changes to sharpen the company's focus. He cut 100 employees, renegotiated contracts, and consolidated each division's separate sales force into a single companywide unit. He also has been ridding the company of "bad revenue" (products or customers that lose money), writing down the associated assets or products.
What's more, Lettko is centralizing all claims through the company's Phoenix system, which can process transactions in real time on a massive scale. MedAvant had used several different platforms, creating a logistical nightmare; supporting several platforms just isn't cost-effective from an infrastructure standpoint. Consolidating everything makes it easier to launch new services, and should bring cost synergies as the customer base grows. Furthermore, it was a necessary step for MedAvant's new Envision Portal for Providers, which lets customers submit claims, verify patient eligibility, obtain referrals, and generate sophisticated reports on a single platform.
With these major changes, MedAvant has faced reduced revenues (then again, it is getting rid of unprofitable revenues). In the third quarter, revenues declined 21.1% to $17.8 million. As for the net loss, it was a huge $98.8 million -- the result of a big impairment charge as the company streamlines its operation.
While the company is certainly making bold moves, they're still in the early stages. It could easily take six months for the results to get traction. So, there is no rush to buy this stock. But if MedAvant continues to execute and can use its streamlined sales force to get more higher-margin revenues, shareholders may finally be seeing gains, not losses.
Though it would seem the company's taken some steps to complete some heavy lifting, the fact remains that MedAvant has struggled for quite some time. To turn the ship, short-term actions needed to be taken. What MedAvant should do in the long run is the real question, and unfortunately, there's no answer for it just yet.
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Fool contributor Tom Taulli does not own shares mentioned in this article.