First Choice Healthcare Solutions Inc (OTCMKTS: FCHS)
To those who believe the medical services industry will survive in its current state, think again. The healthcare system in the United States may not be entirely broken, but it is certainly fractured, bringing dysfunction to almost every corner of the industry, including reimbursements, drug prices and patient satisfaction of services offered.
While focusing on patient factors may play nicely in the current political environment, the legislators and insurance companies that are causing such disruption are failing to recognize the most serious threat facing the medical industry: the fact that doctors are finding it difficult to earn a good living, and many of them are losing their businesses and fortunes because they simply do not know how to navigate through the hurdles associated with running a business. But, to be fair, medical degrees do not include a “buy one, get one free" program, whereby business degrees are bestowed on these professionals out of goodwill.
With that said, things are beginning to change in the industry, and First Choice Healthcare Solutions (FCHS) is proving itself to be the innovator that may change the direction of an entire industry - and it will be a welcome event if they can.
FCHS- Delivering an All-Inclusive Option
Many people will read this article and say that companies like First Choice have been around for years, providing the same services and treatments for patients that FCHS is currently doing. While technically correct in saying that many outpatient clinics offer similar services and procedures, very few, if any, do it as efficiently as FCHS. Perhaps that is the driving force behind the decision of doctors, patients and payers to migrate toward the business and care delivery platform that FCHS offers, providing each of those groups with measurable and improved benefits.
First Choice (FCHS) is a company that is focused on overcoming the abundance of inefficiencies within the industry; and has been building its business platform as a fully integrated, non-physician-owned healthcare delivery platform designed to remedy these issues.
FCHS is a not only a one-stop shop for diagnosis, treatment and recovery, they also act as the single provider for nearly all of the services involved. Patients that have been treated at a competing center find out the nasty truth behind what they thought they would be paying for comprehensive treatment.
A typical routine at a non-First Choice center will allow a patient to generate enough stacks of paper to generate a nice moonlight fire, since each of the components of that visit are essentially independent of each provider's service. There is a bill for facility fees, a charge for imaging services, a charge for medical procedures, charges for physician services, and charges for just about everything in between and after, including the tissue to dry their eyes after reading the bill.
First Choice is advancing their platform to change the way existing outpatient medical treatment centers do business. For those in the industry that fail to follow suit, many will become obsolete. It's true in any line of business: either disrupt or be disrupted. And, to those who are willing to compete against a mature FCHS, good luck.
Fully Integrated Platform
The FCHS discussion picks up where I last commented, playing the role of disruptor by providing a fully integrated services platform that is designed to generate multiple revenue streams. FCHS is a provider in the three essential services that patients seek: diagnosis, treatment and recovery.
From the diagnosis side of the equation, FCHS offers physician services, state-of-the-art imaging services and a multi-specialty collaborative care business model. With FCHS bringing nearly all of the essential elements of patient services together, the patient receives a cohesive and efficient manner of service from diagnosis to discharge, with FCHS doctors and specialists providing top notch medical treatment, facilitated by their ability to quickly coordinate treatments to maximize patient benefit and treatment efficiency. FCHS eliminates the need for patients to bounce between a physician’s office and an imaging center, because they have a state-of-the-art center is their office, thus saving them days of unnecessary waiting to complete essential tests.
With dedicated doctors on its payroll, FCHS can quickly advance to the treatment phase of patient services. During the treatment process, patients receive an uncompromising standard of care, ranging from conservative, non-surgical treatment to full scale surgical services – including services offered by its nationally ranked outpatient surgery center. FCHS also offers fully integrated DME (durable medical equipment) services for those patients requiring medically necessary care aids such as wheelchairs, crutches, walkers, braces and other equipment.
Once the treatment is complete, there is no need for the patient to find another facility to complete the required rehab program. First Choice offers physical and occupational therapy services through its state-of-the-art rehab facility on site at First Choice Medical Group. Future expansion plans call for FCHS to open up additional PT/OT centers to provide added travel convenience to its growing patient base in eastern Central Florida.
What Started FCHS Growth
While most people believe the life of a private practice doctor is filled with life's greatest luxuries, the truth of the matter is that while many of today's doctors are making a great living, they are not getting uber wealthy. Surgeons may be an exception and certainly have the ability to earn tremendous amounts of money, but those earnings come at a cost: long hours, inefficient billing practices, over-populated staffs, and inconsistent medical reimbursement rates that can wreak havoc in the physician's business model.
Doctors, for the most part, have been left out of the national healthcare discussion, as the medical and insurance industries continue to evolve into unchartered territory. These practitioners, obviously the most vital component to the entire care delivery process, have been left holding the bag caused by many of the inconsistencies and ambiguities being realized in the current system. Prices for services, treatments, therapies and drug options tend to change by the day and payer, making it virtually impossible for a doctor to concentrate on what he or she does best - providing patient care. Distracting them from patients are the overwhelming administrative burdens that have entwined themselves into private practice, causing doctors to spend more time trying to solve business challenges than they spend on seeing patients. It's no wonder that FCHS is quickly becoming the option of choice for doctors, specialists, surgeons and medical technicians. FCHS provides each of these professionals with the option to do what they do best, practice medicine and provide specialized medical services – all while providing patients with best in class care and attention.
Doctors are recognizing that the value in teaming with FCHS is more than just a secure and lucrative income. First Choice gives them back their lives, offering a consistent work week, time to enjoy with families and hobbies, and most of all, the ability to lift an enormous amount of weight off their shoulders by not having to operate and manage their own private medical practice. The administrative challenges have become enormous, and as more and more patients are seeking treatment through subsidized healthcare, the trend toward longer hours and increased business complexities will rise.
What Is Fueling FCHS Growth?
While doctors and specialists are acknowledging that the First Choice platform is a better personal option on many levels, they still need to be assured that the drivers are in place to optimize their financial potential.
In the United States, the rising demand for Orthopaedic care is clear. At FCHS, these demands are being met by highly qualified providers who are being brought under the First Choice umbrella of services. These practitioners are able to take advantage of FCHS's fully integrated ancillary service offerings that enhance patient care, convenience and experience.
We know doctors are smart, but sometimes they still need help to effectively treat a patient’s illness, disability or injury. By joining First Choice, they benefit from a consistent salary with bonus potential, as well as a multi-specialty team of providers to assist them in a coordinated mission to deliver superior, patient-centric care and achieve the best possible outcomes.
FCHS's future growth will be fueled by several key factors: benefiting from hiring highly qualified talent, introducing bundled payment programs and expanding their care services to include additional comprehensive ancillary offerings. Through its planned bundled payment programs expected to begin being offered later this year, FCHS’ management believes that it will have the ability to leverage all elements of its healthcare platform to deliver potential cost savings in excess of 15% for payers (insurance companies, large self-insured employers and the government) while maintaining the Company’s forecasted margins.
FCHS Flagship Platform
The flagship platform created by FCHS on Florida's fast growing Space Coast is a testament to the Company's ability to execute an efficient care delivery model for a community, one that can be replicated anywhere in the country.
Combined, FCHS medical practices, First Choice Medical Group, The B.A.C.K. Center and Crane Creek Surgery Center, represent the Space Coast’s largest Orthopaedic and Spine Medical Centers of Excellence, managing over 100,000 patient visits per year and targeting 5000 surgical procedures annually. With five practice locations across eastern Central Florida, FCHS’ flagship platform includes 23 world class providers, including seven Orthopaedic and Spine surgeons. It is also noteworthy to mention that Crane Creek Surgery Center has been recognized by Becker ASC Review as one of the Top 61 Ambulatory Surgery Centers in the nation.
Specializing in General Orthopaedics, Orthopaedic Surgery, Spine Surgery, Spine Care, Sports Medicine, Neurology and related Interventional Pain Care, the Centers also combine an incredible array of bundled ancillary services in its state-of-the-art facilities, making them truly an innovation in progress. Receiving comprehensive care services from diagnosis to treatment to recovery from one provider is quite complex, but FCHS accomplishes the feat by offering the aforementioned collaborative physician services, physical and occupational therapy, MRI, X-ray and DME services.
First Choice estimates that Brevard County supports upwards of $150 million in total Orthopaedic and Spine care demand, a large portion of which the FCHS centers are working to capture.
Revenue Growth Actual and Forecasted
Historical and projected revenue growth has been impressive. FCHS has maintained a 40% plus compound annual growth rate since 2013, with revenue increasing from $6.51 million in 2013 to over $19.52 million in 2015. Total revenues reported for the first nine months of 2016, ended September 30, 2016, were $22.52 million, which positions the Company well to end the year on very solid financial footing. Looking ahead, management has issued revenue guidance of $40-$45 million in 2017, facilitated by increased surgical and service revenues.
Actual revenue in 2014 was $7.05 million, derived from 1,719 patient surgeries, which delivered an Average Patient Value (APV) of $4,103. (APV is factored by dividing total patient service fees – which is comprised of all medical and ancillary service fees – by the total number of surgeries performed in a given timeframe.)
Surgical procedures increased to 2,060 in 2015, bringing in $17.7 million in total patient revenue. As of September 30, 2016, FCHS had already surpassed 2,045 surgical procedures and realized revenues in excess of $20.7 million with APV rising to $10,133, a 146% increase since 2014. Full year estimates for 2016 are 2700 surgeries and $27.3 million in total patient service fees.
For 2017, FCHS is guiding toward 4000 surgical procedures and total patient revenue of $40.5 million.
Corporate Structure and Management
Trading under the symbol “FCHS,” the Company has approximately 26.2 million shares outstanding, with an estimated float of 18.59 million shares. Insiders currently enjoys a 28.7% ownership stake, comprised of 7.52 million shares of common stock. Institutional ownership sits at 6.9%.
The market cap is approximately $43.37 million after recently closing at $1.65 a share, and has a current EBIDTA of 6.91 (estimated for remainder of 2016). From an options and warrants perspective, if all options and warrants were exercised, FCHS would have total outstanding shares of 31,960,280, and would benefit from an additional $10.8 million in cash from the option and warrant exercises.
The management team has the expertise to deliver on its ambitious plans, with Chris Romandetti, Chairman, President and CEO, leading the way with over 30 years of business development and management experience. He is supported by Kris Jones, VP of Medical Operations, and Timothy Skeldon, CPA, as Chief Financial Officer. The management team is rounded out by Richard Newman, MD and Richard Hynes, MD, both named as Medical Directors of First Choice Medical Group and The B.A.C.K. Center, respectively.
FCHS in 2017
Investors have every reason to expect value creation throughout 2017, as the Company capitalizes on its strong cash position, profitability status and its year-over-year compound annual revenue growth of over 40%. The Company has guided toward increased margin expansion, and continues to build out its world class facilities that are served by an equally impressive team of world class providers. FCHS remains one of the only true fully integrated care delivery providers, and IS the only non-physician owned healthcare delivery platform company that currently trades on the public markets.
On the growth side, investors should look for accelerated numbers of surgeries and the expansion of ancillary services as key growth markers. The platform is replicable in new markets and has the cash on hand, $6.59 million as of September 30, 2016, to finance growth. The Company also has non-dilutive financing options available should management choose to access that line of funding.
From the beginning, I've said that companies that fail to disrupt will be disrupted. FCHS is in a prime position to become the innovator in an industry that is searching for a better way to perform services and make a profit at the same time. The market cap of $43 million is curious, and investors should see the current lack of interest as a buying opportunity for shares. The Company has accelerating growth, an innovative business plan, a market that is demanding better services, and a strategy that is addressing many of the dysfunctional elements of the current Healthcare Services industry in the U.S.
While FCHS will require some time to grow, as the momentum continues to build, the Company may be on a path for an appreciated growth spurt, one that can place several new centers into operation and deliver multi-millions of dollars in additional market cap.
Investors seeking opportunities to buy fundamentally strong companies in a sector that is expected to grow sequentially year after year, First Choice should be of immediate consideration. At current share prices ranging in the $1.65 area, FCHS appears to be undervalued related to its peers and has earned consideration for an upward correction.
Disclosure: This article was written by Kenny Soulstring, and it reflects my own opinions and unique articulation. This article is not intended to offer investing advice, guarantee 100% accurate predictions or to be interpreted as providing a personal recommendation. What I can guarantee, though, is accurate research, thoughtful analysis and an enthusiasm about any stock that I cover.
I wrote this article myself and it includes my own research and expresses my own opinions. I am not receiving compensation for it (other than from CNA Finance). I have no business relationship with any company whose stock is mentioned in this article.
Additional Disclosure: I am long FCHS and may purchase additional shares within the next 72 hours.
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