Technology can be a brutal disrupter of business. Look at what the Internet has done to industries like travel and retail.
Another target for disruption has been the health-care industry. Despite cutting-edge solutions from companies like WebMD (NASDAQ:HLTH) and Trizetto (NASDAQ:TZIX), the industry is nonetheless staunchly defiant of digital solutions. The bulk of these solutions would create opportunities for patients, physicians, and others to process transactions at faster rates -- eliminating overhead costs associated with human laborers and reducing supply-chain length.
Why the defiance? It's hard to know for sure, but some would-be culprits include nascent or proprietary technologies that are still unproven -- at least in the minds of decision makers -- and confidentiality concerns that are swelling in response to a changed regulatory environment. Plus, companies might be inclined to just attempt such solutions in-house.
Yesterday, another player in the space, ProxyMed (NASDAQ:PILL), announced its earnings report, perhaps lending at least some credence to the issues suggested above. In the fourth quarter, ProxyMed posted revenues of $22.6 million, up 23% from the same period in 2003. But there was a $1.6 million net loss in the fourth quarter, which was an increase from the $1.4 million loss in 2003.
The company attributed $700,000 of fourth-quarter expenses to Sarbanes-Oxley, a Securities and Exchange Commission review, and a civil litigation settlement. It's worth noting that net of one-time expenses related to Sarbanes-Oxley compliance, the fourth-quarter net loss looks better, coming in at roughly $900,000.
The company also faces significant regulatory complications and costs related to compliance with the Health Insurance Portability and Accountability Act, or HIPAA -- legislation requiring information and transaction security among platforms of the sort ProxyMed produces. Between Sarbanes and HIPAA, cost outlays throughout the year apparently totaled in excess of $2 million. According to management, these are one-time costs, and they're likely to result in significant savings in future years, given that HIPAA compliance should logically result in an increased ability to complete transactions.
For 2004, the company posted a 26% increase in sales to $90.2 million. The net loss for 2004 was $3.8 million, comparing relatively favorably with last year's $5 million loss.
Basically, ProxyMed is the developer of a technology platform called Phoenix. It is a way to securely connect primary care providers with payers. Phoenix streamlines the process: It allows processing of about 300 million transactions per year.
While the company has dealt with its regulatory costs and is continuing to see growth in its business, there are many questions lingering for investors. The company, for example, is looking for a new CEO. And the company has not issued financial guidance. So far, Wall Street is skeptical -- and it should be until it gets more clarity, since the stock price fell 6.4% to $7.90 on the news.
Fool contributor Tom Taulli does not own shares mentioned in this article.
