With Web-based technology, docs figure out a way to feel your pain

PainCare Holdings Inc. is on the acquisition path.

The health-care services company based in Orlando, Fla., has made more than 20 acquisitions and partnered with more than 30 practices since its founding in 2000. Acquisitions have focused on medical practices and ambulatory surgery centers across the country. But when PainCare wanted to get into the intraoperative monitoring business it looked to Northern Colorado.

PainCare acquired a majority stake in Fort Collins-based Amphora LLC on Feb. 2, marking the company’s third acquisition since the start of the year. For its 60 percent stake in Amphora, PainCare paid $6.5 million at closing and will pay up to an additional $8.5 million during the next four years.

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Intraoperative monitoring – known in the industry as IOM – is considered to be a rapid growth area in the health-care field. IOM technology reduces neurological complications during surgery by monitoring a patient’s nervous system during the procedure.

John Bender, Bruce Lockwood and Richard Flores started Amphora more than two years ago. Bender and Lockwood, both physicians, trained in electrodiagnostic medicine during their residencies. At the time, the applications for electrodiagnostic medicine were limited. A common use was in the diagnosis of carpal tunnel syndrome.

“The ideas are not new but the applications are burgeoning,” Bender said of the IOM technology. “In the past 10 years, it’s proven itself.”

Amphora is at the leading edge of the technology. With a Web-based system, the company monitors surgeries dealing with the spine, brain and sometimes orthopedics. One of the company’s 12 technicians is on-site at the surgery, while either Bender, Lockwood or both monitor the nervous systems in real-time from their office.

This combination of on-site and remote monitoring allows the company to provide a high quality of service for more surgeries at a lower operating cost.

Bender and Lockwood estimate that they monitor around 2,000 surgeries per year – averaging seven or eight procedures per day. Each doctor can monitor more than one surgery at a time, if necessary.

The company monitors operations all over Colorado and in Wyoming – including at North Colorado Medical Center, Poudre Valley Hospital and McKee Medical Center. It maintains offices in Englewood and Cheyenne, Wyo.

The practice has been doubling in size each year, according to Lockwood.

“As soon as one surgeon gets monitoring, the others want it, too,” he said. “It’s an educational learning curve for the health-care providers.”

High growth potential

Because the applications for IOM are still expanding, the area has a high potential for growth. A report from investment firm First Albany Capital labels IOM as a “cutting-edge form of technology.”

“The IOM industry, as a whole, is really in its infancy,´ said David Bowen, vice president of business development for PainCare. “There are a whole slew of opportunities for growth.”

PainCare’s model is based on sustained growth and high margins, which bodes well for the expansion of Amphora. According to PainCare CEO Randy Lubinsky, the company’s model is to acquire practices that have 25 percent to 35 percent operating margins and to grow those acquisitions by 25 percent to 50 percent during the first two years and at least 7 percent for every year after that.

Despite its usual focus in pain management practices, IOM became a major target for PainCare. Lubinsky described IOM as the company’s third profit center. Being its only IOM acquisition to date, Amphora will become the main driver of that center.

In its press release, the company estimated that Amphora would generate about $7 million in revenue with $5 million in operating income annually. With its 60 percent ownership, PainCare stands to gain $4.2 million in annual revenue and $3 million in annual operating income – providing a 70 percent operating margin, according to the First Albany report.

Despite PainCare’s controlling stake in the company, little should change for Amphora.

“When we acquire a practice, we don’t try to change the practice,´ said Lubinsky during the UBS 2006 Global Healthcare Services Conference. “We just leverage the very large patient base that the physician has established by bringing in additional ancillary services.”

What PainCare brings to Amphora is a national presence. Lockwood said Amphora – which will soon be renamed – stands to grow tenfold during the next three years as a result of the acquisition.

“We do have immediate plans to recruit technologists and professionals in the Northern Colorado region,” Bowen said.

For the time being, PainCare will provide the necessary training programs for its technologists. Bowen said the company would look at developing other training methods in the future. He estimates that there are only 1,100 certified technologists in the IOM field nationally.

While he couldn’t give exact hiring or growth numbers, Bowen said that the company plans to continue growth in its IOM business.

“PainCare’s goal is to become the leader in providing IOM services,” Bowen said.