This Man Says He's Building The 'Healthcare Internet' And The Controversy Over Him On Wall Street Is Huge

Athenahealth CEO Jonathan Bush is enthusiastic.

Watch his recent talk at Google, or his TEDMED talk from last year, or any of his many appearances on CNBC, and you immediately notice that he isn't like most public CEOs.

His hands and body are up and down and back and forth, his speech is peppered with asides and off-color comments.

Bush is the kind of CEO that says his company's stock is worth $1,000 a share before backing off that comment and admitting that, well, who knows what its really worth?

Bush has huge goals for Athenahealth, saying the company's ambitions are nothing short of building the healthcare internet. Bush even wrote a book about it: "Where Does It Hurt? An Entrepreneur's Guide to Fixing Health Care."

Wall Street has been on his side for the last few years, but recently some have started to wonder what the deal is with Athenahealth.

So have we.

What Athenahealth Does

Athenahealth is headquartered in Watertown, Massachusetts, and was co-founded by Bush and Todd Park in 1997. The company began as a women's health company that offered an alternative, holistic approach to maternity care.

Today, Athenahealth markets itself as a software-enabled-service company.

The company's software helps medical practices manage care, process billing, and communicate with patients.

Steve Rubis, an analyst with Stifel Nicolaus, told Business Insider that basically, Athenahealth helps doctors get paid.

Athenahealth is primarily used by doctors in ambulatory settings, or small doctors offices where patients are treated on an outpatients basis.

The idea is that care providers sign up to use Athena's network, and Athena gets a cut when they use the network to, say, get reimbursed from an insurer or communicate directly with patients. A physician using Athenahealth's services will collect a patient's copay, bill an insurer, and get reimbursed for services all using the apps, instead of mailing these forms out for processing and waiting for reimbursements to be mailed back.

"Revenue cycle management," is what Rubis called this process in a conversation with Business Insider.

Competition And Ambition

Epic and Cerner are two giants in the healthcare software space that provide IT infrastructure for healthcare providers and hospitals using enterprise software. Almost everything Bush says about Athenahealth is an effort to position it as the anti-enterprise.

But Athenahealth's ambitions are very real. In a talk at MIT last year, Bush said, "What we think we're doing is building the healthcare internet."

In interviews and speeches Bush has talked about how the current healthcare system, "isn't an expression of our humanity."

Bush says that if Americans are going to spend 18% of every dollar they earn on healthcare, they ought to be able to decide how they spend those dollars. The current system, Bush argues, prevents this from happening.

And it's this system that presents problems for Athenahealth's ambitions.

Athenaheath's Vision

Athenahealth is after a complete reinvention of how healthcare is dispensed, received, and selected.

Bush speaks a lot about his experience driving an ambulance in New Orleans, and how treatment options seemed too limited, as patients often just needed treatment that could, but wasn't allowed to be, dispensed outside of a hospital.

Bush and his team driving the ambulance also got paid for driving a patient to the hospital, not for treating them even if they could. The incentives, Bush argues, were not in line with what seemed to be the goal: helping people.

The problem with Athenahealth's ambitions, however, is that the entire healthcare system works within a number of accepted practices that are hard - if not seemingly impossible - to change.

Currently, when you go to the doctor any proposed treatment is assigned a procedure code which is sent to an insurer and either accepted or declined. There are thousands of procedure codes.

Athenahealth wants to streamline an industry that is averse to streamlining. In his talk at Google, Bush says the success of the Massachusetts healthcare system over the last twenty years ultimately created institutions that are, "the personification of the problem."

In Massachusetts, Bush says, there is too much healthcare that is too expensive, and now with an outsized workforce, too politically influential.

Bush says this is a problem not only for healthcare in the U.S., but for how Athenahealth can become the company Bush thinks it can be - a lean, flexible, cloud-based healthcare services company.

Stock History

Athenahealth debuted on the Nasdaq on September 20, 2007, just about one year before the financial crisis sent the markets tumbling. For most of its first three years as a public company, Athenahealth traded in the $20s and $30s.

When the calendar turned to 2012, things really started to get interesting for the stock.

By the end of 2012, Athenahealth had seen shares trade from about $50 to more than $90, eventually starting 2013 at about $75. By the end of 2013, those shares would be worth $130.

This chart shows Athenahealth stock from the beginning of 2012 through 2013.

Early this year, the stock was bid up to $195 before violently selling off amid weakness in shares of internet-based companies, with the stock's decline eventually punctuated by hedge fund manager David Einhorn's short presentation, or bet that the price of the company's shares would fall, at the Sohn Investment Conference in early May.

Here's Athenahealth's year-to-date performance, and you can see the sharp rise through February and subsequent tumble to its early May lows.

Goals Not Guidance

In his short presentation on Athenahealth, Einhorn said it is, "is an excellent company with an excellent product, run by a well-meaning and honest, though occasionally promotional, CEO."

Einhorn added that the world may be better off if Athenahealth succeeds, and said, "I am in no way rooting for it to fail."

But looking at the company from a purely financial and performance-based perspective, the justification for nearly $200 stock did not make sense.

Einhorn highlighted the following slide from a 2012 Athenahealth presentation.

At the top, it says "our goal" is 30% annual revenue growth. And this is an aim that the company often repeats.

But it's a goal, not guidance (or a projection from management about what they expect their financial performance to be in upcoming periods).

Einhorn subsequently points out that Athena's revenue and earnings goals, as well as its margins, have disappointed.

"I'm not giving guidance of 30%," Bush told CNBC's Jim Cramer last month. "It's worth a shot every year and some years we've grown more than 30% and some years less."

In his talk at Google, Bush said that the next generation of companies aren't going to grow "like a Google," but will grow faster than companies did in the past. A 30% growth trajectory, it them would seem, is almost a necessity for a company looking to entrench itself in an industry as staunch as healthcare.

Wall Street's Bull Case

Last month, Steve Rubis at Stifel Nicolaus initiated coverage on Athenahealth with a "Buy" rating at a $155 price target.

Rubis wrote that, "Given the company's underpenetrated addressable market in terms of revenue and physicians, we believe the company is poised to drive growth for the next several years."

Rubis notes that in the physician, hospital, and patient communication markets, the company has penetration of about 5.7%, 2%, and 3.6%.

In his TEDMED talk given last year, Bush cites the success of Whole Foods co-founder and co-CEO John Mackey, who has a great company and a great brand... and has 2% market share in the grocery space.

Bush's central argument: if you build the best product, customers will find you.

In his research note, Rubis writes that, "Over the long term, we believe the company's primary focus lies in developing the digital backbone of healthcare information exchange."

Rubis told Business Insider that Athenahealth sees enterprise services offered by companies like Epic and Cerner as commodities. It's Athenahealth's apps services that the company hopes will be layered over that.

Wall Street's Bear Case

According to data from Bloomberg, of 27 Wall Street analysts covering Athenahealth, only two have a "Sell" or equivalent rating.

One of those is Bret Jones, an analyst at Oppenheimer who currently maintains an "Underperform" rating on shares.

Like Einhorn, Jones still likes Athena's business model generally, writing that he views its business model as superior to traditional BPOs, or Business Process Outsourcing firms.

Jones writes that, "We believe Athena's margins are structurally disadvantaged relative to pure SaaS companies and Street growth expectations are simply too high."

A good company with a good business, but a valuation that is overheated.

What's Next

Since Einhorn's presentation, shares of the company are roughly unchanged, up about 3%.

But even after a steep decline, Athenahealth shares are still expensive for a company that earned a profit of just $0.07 per share last year.

Athenahealth was among the market's highest flyers in 2013 and into the early part of this year, but after a more than 40% peak-to-trough loss, and a very public short presentation, people have begun to take notice.

In the wake of a steep decline in its share price, and a public short presentation by Einhorn, the spotlight will now squarely be on Athenahealth and its charismatic, if sometimes enigmatic, CEO. Stay tuned.