Outpatient Facilities Have the Edge: 2 Stock Choices - Analyst Blog

Recent revelations on the Veterans Affairs (VA) front have once again underlined the paucity of sufficient healthcare facilities in the US healthcare system. Usually, the focal point of such discussions is hospitals, but the attention has shifted to outpatient clinics.

VA Controversy

The controversy erupted following revelations that certain officials at veterans hospitals across the nation had been engaging in scheduling practices which can only be described as questionable. The appointment timings of patients were being changed to create secret waiting lists.

Two senators have reached an agreement which authorizes the acting Veterans Affairs secretary to increase access of healthcare facilities for veterans. A new Bill has been formulated which allows VA to lease an additional 26 healthcare facilities across 17 states.

The most worrying outcome of these investigations is the fact that these scheduling practices led to long wait times for veterans. The Bill will also enable veterans who have been waiting for 30 days or more or those who live 40 miles or more away from a VA hospital or clinic to use the services of private doctors. These doctors must have registered for military TRICARE, Medicare or any other government health program.

Cost Advantage

There is a massive difference in costs between hospitals and clinics when it comes to surgical procedures or diagnostic tests. In fact the same services can be 10 times costlier in a hospital compared to a stand-alone physician center. According to data from Wellpoint, Inc. ( WLP ), a spine MRI at a stand-alone physician center costs around $319 to $742, while it costs between $1,591 to $2,226 at a hospital.

Additionally, a study published in a recent issue of Health Affairs has shown that surgical procedures at outpatient surgical centers, also called ambulatory medical centers, have an edge over those conducted at hospitals. The study found that patients' expenses are 25% lower at ambulatory centers. Despite lower costs, the satisfaction level of patients was the same when compared to similar procedures at hospitals.

Our Choices

It is clear from these factors that outpatient clinics or surgical centers can fill a crucial gap in the healthcare system. On one hand, they can cater to the large numbers of patients whom hospitals are unable to cater to. At the same time, they offer several procedures at lower costs, making them cost effective options for patients.

Below we present two stocks which possess the potential to grow in such an environment, each of which also has a good Zacks rank.

US Physical Therapy Inc. ( USPH ) operates outpatient physical and occupational therapy clinics which offer post-operative care and treatment for a variety of orthopedic-related disorders and sports-related injuries. The company has two clinics which offer outpatient treatment for non-surgical treatment of degenerative joint disease as well as other related diseases.

The company also provides physical therapy services for third parties. It purchased a majority interest in a physical therapy business which has 12 clinics in December 2013. During the same month, it bought a 90% stake in ARC Physical Therapy+.

US Physical Therapy holds a Zacks Rank #2 (Buy) and has expected earnings growth of 7.40%. The forward price-to-earnings Ratios (P/E) for the current financial year (F1) is relatively high at 20.33.

AmSurg Corp. ( AMSG ) is a leading operator of single-specialty practice-based ambulatory surgery centers (ASCs). The company develops, acquires, and operates practice-based ASCs in partnership with physician practice groups throughout the U.S.

At the end of Dec 2013, AmSurg operated 242 ASCs located in 35 states and the District of Columbia. Among these ASCs approximately 65% performed procedures in a single specialty and 35% performed procedures in more than one specialty, or multispecialty.

Apart from a Zacks Rank #3 (Hold), AmSurg Corp. has expected earnings growth of 9.80%. It has a P/E (F1) of 20.45.

Outpatient facilities are poised to play an increasingly important role in the healthcare system. This is why these stocks would make good additions to your portfolio.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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