A flurry of deals in the last two months promises to reinvent Apollo Medical Holdings Inc. as a managed care organization ready to prosper under the post-reform health system. The Glendale company originated as a hospitalist group providing physicians who specialize in overseeing care to inpatients at hospitals and nursing homes. And even though that market continues to prove lucrative, Apollo plans to leverage its expertise managing doctors to build a business managing care for Medicare patients. On March 14, the company launched a chain of doctor clinics in the L.A. region, purchasing three clinics and starting another from scratch. A week later came a partnership with Rite Aid Corp., the national drug store chain based in Camp Hill, Penn., to provide care for patients with chronic conditions through the pharmacies. Apollo also announced a “strategic relationship” with Fresenius Medical Care North America, a chain of dialysis clinics based in Waltham, Mass. The deal included an investment for as much as $12 million by Fresenius, which in exchange, gained a seat on the Apollo board. That investment was a follow-up to a May 2013 agreement in which Apollo agreed to provide care management for patients with end-stage kidney disease treated at Fresenius facilities. In December, Apollo signed a similar deal with Boehringer Ingelheim Pharmaceuticals Inc. for the treatment of chronic pulmonary disease. The deals come about one year after the company formed a subsidiary called ApolloMed ACO, or Accountable Care Organization, an entity that tries to tie together hospitals, primary care doctors, specialists, labs and even pharmacies to provide cost effective care for Medicare fee-for-service patients. Health care reform offers financial incentives for ACOs. “In our grand plan for an ACO, we need the hospitalists, and now we have the outpatient clinics and care coordination,” said Chief Executive Dr. Warren Hosseinion. “There are other pieces to the puzzle such as home health, nursing homes, hospice and transportation. Some of those we will own, and some we will work with.” With ACOs, the government pays a lump sum to provide care for a patient. If the organization can provide care for less than that sum while still hitting certain quality benchmarks, it makes money. Patients are usually channeled into ACOs by referrals from their primary care doctors. Jim Lott, executive vice president at consultancy Cope Health Solutions in downtown Los Angeles, said the arrangement carries significant risk, since the ACO will lose money if a serious disease or operation sends costs spiraling out of control. “The network that Apollo is trying to put together would take the responsibility for all the health needs for the patient,” Lott explained. “At the end of the year they are rewarded for savings below a threshold, or they will have to eat it if they don’t meet certain metrics.” Stock issues Apollo was founded in 2001, originally to provide “hospitalist” doctors who coordinate the specialized care inpatients receive in hospitals. It later branched out to manage other doctor practices. Today it has about 30 full-time employees and 1,000 physicians in its network. The hospitalist niche still represents a profitable opportunity, but Apollo faces competition from larger players. For example, IPC The Hospitalist Co. Inc. in North Hollywood has developed a “roll up,” or growth by acquisition business model. Last year it bought 19 hospitalist practices for $124 million, according to its annual report. Other large hospitalist companies include Cogent HMG in Brentwood, Tenn. and In Compass Health Inc. of Alpharetta, Ga. But Apollo, with a total market capitalization of $21 million, doesn’t have the size to compete against these takeover companies. For fiscal 2013, the company reported a loss of $8.9 million on revenue of $7.8 million. However, its most recent quarter ended Oct. 31 shows improvement. For the fiscal third quarter, Apollo reported revenue of $2.6 million, an increase of 33 percent compared to the same quarter a year earlier. Net losses totaled $1 million (-3 cents a share), a 79 percent shrinkage from the $4.7 million loss (-14 cents) for the same quarter a year earlier. The company’s stock trades over-the-counter and, with the exception of a few brief spikes, has traded below $1 for the last five years. No analysts follow the company. But with the Fresenius investment, the company has plenty of capital, said Kyle Francis, chief financial officer at Apollo. “Fresenius invested in us because they saw a good business opportunity,” Francis said. “We’ve demonstrated we can save money with patients and we are shaking the tree compared to other business models.” Apollo believes it can make money even with serious chronic conditions, and highlights its Rite Aid deal as exemplifying the strategy. Patients with long-term conditions such as congestive heart failure and diabetes are recommended to the program by their ApolloMed ACO doctor. Rite Aid pharmacists and specially trained “care coaches” at the pharmacies will meet with the patient on an on-going basis to teach them how to self-manage their health. Services include comprehensive medication reviews, weight loss information, exercise coaching and programs to quit smoking. Francis, the chief financial officer, said that under the deal, Rite Aid won’t pay ApolloMed anything, but hopefully the program will improve care and limit costs for these chronic condition patients. For its part, Rite Aid will receive additional business from the patients. “We are aligned with groups that provide patients with the best services in the marketplace,” Francis said. As evidence that its strategy works, Apollo points to data from the federal Centers for Medicare and Medicaid Services that found in its first 12 months of operation, ApolloMed had expenditures of $3.1 million less than the agency’s benchmarks for care. The ACO has about 30,000 patients signed up. Apollo did not disclose data on the average payments per patient. “Uniformly, when you provide great patient care that leads to more efficient care, which translates into savings,” said Hosseinion, the chief executive. Meanwhile, the company’s ACO strategy continues to attract customers. Last October, ApolloMed ACO signed an agreement to add Pacifica Hospital of the Valley, a 231-bed acute care facility in Sun Valley, to its network. Under the agreement, ApolloMed will send patients to Pacifica while also coordinating care both before and after they leave the hospital. Apollo will provide hospitalist doctors, case management expertise and clinical data,. “What I’ve learned is you have to be persistent,” Hosseinion said. “We were doing managed care before the industry was onto it. It’s an opportunity because people are coming to us and asking questions, and we can help them develop outpatient care delivery.”
Apollo Climbs Industry Peak
