Athena Health: The History of the First Health 2.0 IPO

27 Sep Athena Health: The History of the First Health 2.0 IPO

1. The first sale of stock by a private company to the public.
   
2. Stock issued typically to raise capital and gain access to public markets
3. Sale of stock typically handled by underwriters who determine type, quantity, and price of stock sold
   

I have previously written on several occasions about one of my all-time favorite companies – Athena Health. It is appropriate to once again put finger to key to congratulate Jonathon Bush, Todd Park, Nancy Brown, Ed Park, Jon Hallock, and the rest of the Athenista’s for their recent IPO (September 20, 2007). It was the largest IPO of 2007 and bodes well for the ongoing wave of investment in healthcare information technology.

I find the history, growth, and now the prosperity of Athena to be fascinating. Athena was founded by my fellow IT co-conspirators, Jonathon Bush and Todd Park, Athena has steadily advanced over the last decade birthing the “software as a service” (SaaS) model within healthcare industry. I say “birthing” because I have watched the labor pains of Athena fairly closely over the last 5 years since first meeting Todd Park in Waterbury, CT on my first ever presentation with Medsphere. We discussed then, and watched again and again, as Athena began to take a bigger and bigger swipe at the “healthcare hairball”.

The hairball (or at least the part I am referring to) is the traditional general practice outpatient clinic. As you may be aware, ~80% of all medical care is delivered in an ambulatory office setting. The office setting is completely disparate – ranging from huge conglomerate multi-specialty practices (50-250+ MD’s), to medium-sized groups (10-49 MD’s), to the single shingle proprietors in Nowhere, ND. After somehow convincing Todd to leave a schlickety consulting gig at BAH to run a “single shingle” woman’s health clinic near San Diego (Dude, I am so interested to know what the pitch was), Jonathon and crew tried to figure out how to make money in modern medicine. Problem was, they simple could not figure out the utterly confused, calcified, morasse of health insurance reimbursement. After losing their shorts, they finally got wise and hired Todd’s younger brother Ed to put together some type of system to manage the reimbursement roulette.

Gumption after gumption, piece by piece, they were able to develop a software system that could actually manage the insurers and all their crazy denial rules. Those late night Mountain Dew runs started to pay off as they began to AGGREGATE data from various insurers to increase their percentage of first time claims approval. Soon, an emergent rules engine was developing based on the power of their ANALYTIC engine. This then allowed them to automatically ADVISE practices of insurance rule variations before they were submitted for adjudication. They began to share this software engine with the other clinics they purchased and soon were selling their services to affiliate organizations. (These three elements – AGGREGATE, ANALYZE, and ADVISE – are three core ingredients to Health 2.0 companies).

This was right around the time of SalesForce.com and the “Software is Dead” mantra been spewed by Marc Benioff. Jonathon and Todd were quick studies of this, as well as their excellent Rockefeller Venture investor, Bryan Roberts, who encouraged them in this direction. Since they were able to go into physicians offices and help them improve their claims collection by 10-15%, the model soon developed that they would not “charge anything” for the software, but rather take a percentage of the claims. Given the disparity in what they could save with what they cost, practices soon started showing that they could reduce costs by implementing the software (a salespersons dream!). As they began building momentum, they began to add more features, functionality, and ultimately their own electronic health record (which should be open source, Athena! See my argument here).

An interesting twist on the theme was that despite the incredible efficiencies gained by using Athena software, the physicians offices were still DROWNING in paperwork. Athena began taking on the service task of taking all the paper that flows into the office and scanning it into some electronic format. This service complete went non-linear as physicians flocked to get everything online through the innovative, hard labor approach. Athena employee count spiraled upward to meet the workload of processing over 4,000 pounds of paper per week! While this may seem counterintuitive of a software company to dive into this low margin service business (which in my mind belies their profitability problem) Jonathon and Todd correctly surmised that this was a major market need and highly demanded physician service. Athena has since optimized and improved its efficiency and margins will continue to improve.

By this time, Athena was making major waves in the press with this disruptive model, their CEO was running around in a Batman suit spurring on the troops, and then the ultimate coup – they hired the PR maven Jon Hallock who took the Athena MoJo to the next level. Given nearly a decade of claims experience with all the major payers, Athena published the ultimate transparency treatise called AthenaPayerView. This site objectively measures and reports on the performance of various plans in terms of their first time approval rate, processing speed, and general workability. It was not pretty site for some. Having been to several insurance industry conferences, I could see the palpable reaction to showing a little underwear. Interview after interview, antic after antic, deal after deal, they continued to build buzz right on threw the initial public offering.

It is a great story – with some great people making it happen – and they are doing great things for the industry. The many innovations of Athena (SaaS, success-based business model, Insurance rules engine, PayerView, etc) have been profound and will continue to reverb as the Athena network and its concomitant network effect grows. It has been fun to vicariously live the dream through my associations with the Athenista’s.

I wish them every continued success on the worldwide “hairball removal” tour.