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Business Observer Friday, Dec. 10, 2010 10 years ago

Medical Momentum

The medical billing industry is on the cusp of colossal shift. Susan Coles, who built a 25-employee firm from her bedroom in less than a decade, wants in on the action.
by: Mark Gordon Managing Editor

Business. Sudaco Physician Solutions, Sarasota
Industry. Health care, medical billing
Key. Company recently invested in software to assist doctor's offices with the implementation of electronic medical record systems.

One of the largest gambles Susan Coles ever took with her medical practice billing business, besides when she launched it in the first place, was to enter the world of electronic health records.

It was a move Coles, the founder and president of Sarasota-based Sudaco Physician Solutions, took with great trepidation in 2006. That aspect of the industry was in its infancy back then.

Four years later, however, Coles, is onto another risk: She has embraced the often panned $787 billion federal stimulus package President Obama signed into law in early 2009.

The stimulus bill, actually, has one provision that's like gold to a medical billing firm. It's the part where the Obama Administration reserved $19 billion for the health care industry to implement electronic health records and phase put out paper files.

That could mean up to $44,000 for each medical practice that turns in paper for an electronic system. Payments are expected to begin in January, initially at $18,000 per practice.

But there is a sense of urgency to the process because the payouts are scheduled to decrease each year through 2016. By then, if a doctor's office hasn't made the switch, it could be penalized with reduced Medicare reimbursements.

“We feel like there is an opportunity here for us,” says Coles, whose company has 25 employees. “We weren't looking to get into electronic health records but we want to do what's right for our clients.”

Sudaco, a play off Coles' full name, Susan David Coles, is going after the opportunity with full speed zeal.

In just the past few months, for instance, the firm bought an 8,600-square-foot building in Sarasota for $900,000, space that will more than double its current leased office; hired three people, with plans to hire several more in 2011; and began to lean heavily on its first-ever outside sales person to generate more business.

“This is the first time we are going out to look for customers,” says Coles, 42, who previously grew the nine-year-old firm through word of mouth.

Moreover, Sudaco committed more than $300,000 to a new software system that it hopes will help clients with the transition and stimulus payouts. The purchase was the culmination of a lengthy and intense research effort.

All of the moves add up to a calculated risk at Sudaco, which has nearly doubled its workload since 2007. In fact, the accounts receivables the company handles from all its clients has grown three straight years, from $43 million in 2007 to $60 million in 2008 to $84 million last year. Coles declines to discuss Sudaco's internal revenues.

“We've been very lucky,” says Coles, the daughter of an entrepreneur whose businesses included a Fort Lauderdale water park. “Our business has been steady.”

Big time

Sudaco isn't the only health care entity that seeks to capitalize on the electronic medical records provision of the stimulus package.

Indeed, one key sign of the money to be made in the industry is the arrival of venture capitalists. The list includes John Doerr, a prominent Silicon Valley entrepreneur and investor who recently founded an electronic medical records firm with his brother, a physician.

Big players also dot the Gulf Coast medical billing industry, a segment Coles calls fiercely competitive.

For example, MedAppz, a Kansas-based company with an office in Naples, was recently bought by MedLink, a publicly traded health care IT company. MedAppz signed a revenue-sharing deal with Naples-based ASG Software Solutions last year to provide a Web-based electronic record keeping system for doctors.

And last year Windsor, Conn.-based Origin Healthcare Solutions bought Lakewood Ranch-based Partners in Practice, one of the larger medical billing firms in the area. Windsor has offices in five states.

From a big-time perspective, there is also Tampa-based PaperFree Florida, a public-private partnership in Tampa run by the University of South Florida. PaperFree Florida received a $6 million federal stimulus grant in April to lead a paper-to-electronic transformation in doctors' offices in 20 Florida counties, including Hillsborough, Pasco and Pinellas.

Dr. Stephen Klasko, dean of the USF College of Medicine and CEO of USF Health, considers the transformation a revolution.

“That revolution,” Klasko says in a statement, “is about transforming health care into a non-paper, decision-supported way of doing business so that...we're not writing things down on pieces of paper and hoping that people get it right.”

Hospitals up and down the Gulf Coast, meanwhile, also plan to make the transition. Tampa General Hospital, for one, plans to spend at least $100 million to go from a paper to an electronic system.

It's a massive, hospital-wide effort officials launched two years ago and will stretch outside the hospital, to some local medical practices. “The government has made it pretty clear that this is the way to go,” says Elizabeth Lindsay-Wood, a senior vice president and the hospital's chief information officer.

Still, whether it's a big hospital like TGH or a small business like Sudaco, there seems to be one constant theme: Doctors are nervous about the transition from paper to electronic records, given the life-and-death issues that could be at stake.

Says Lindsay-Wood: “It's scary and a little nerve-racking to make such a dramatic change.”

Getting started

Coles is also anxious about how doctors will adapt to the transition. But she plans to channel that energy into Sudaco.

A Sarasota native, Coles grew up in an entrepreneurial environment but says she never thought of herself “as a person who would run a business.” Instead, Coles began her career in the medical bill-coding department of a 30-doctor Sarasota cardiovascular practice. Coles worked her way up there, to the point where she ultimately ran the billing department.

In 1995 Coles joined a local medical billing firm, where she did much of the same work. After more than five years in that role, however, Coles saw a need in the medical community for another outsourced billing firm that could be an extension of the practice it works for. Says Coles: “I knew I had a service I could provide.”

Coles started the business in the bedroom of her home in 2001, when she picked up clients through relationships in the industry. She was cautious and frugal in the beginning, unsure of how the business would work out. She designed her own logo and had business cards printed at a Sir Speedy around the corner from her home.

“It was a little bit overwhelming, but it was also fascinating,” says Coles. “When you do it yourself, you get to learn every intricate part of the business.”

The company, then called Comprehensive Billing Solutions, grew quickly. Within two years, Coles moved it into a 1,700-square-foot office. More fast growth soon pushed Sudaco into a 4,000-square-foot space.

'A different world'

Sudaco made a major shift in 2006, when it got into electronic health records. Around that time Coles also hired her sister, Lisa Chador, an IT executive who had run billing and collections for Riscorp, a Sarasota insurance firm later bought by Zenith.

Chador's charge was to lead Sudaco into the electronic medical records age without sacrificing the company's customer service-focused approach. “We consider ourselves to be part of the practice,” says Chador, who has an MBA in finance. “But it's a much different world when you do electronic health records.”

The first ticket into that world was to invest heavily in a backup data system to protect all the records Sudaco planned to store for clients. It chose Qwest CyberCenters in Tampa, where it now stores data that fills 20 servers. “We knew we were in the big leagues,” Chador says. “Now all our gear is as secure as the big boys.”

There was also the matter of selecting a software vendor to provide the system that would support Sudaco's clients in going from paper to electronic. Chador and Coles researched their options for months. They went to trade shows, met with vendors and even hired a consultant to help narrow down the options. “There are a lot of horror stories in the industry,” says Chador about choosing a software package poorly.

One of Coles' worries paints an even bigger picture: Will Sudaco grow too fast with the onset of electronic health records?

“My business isn't [only] about growth,” says Coles. “My business is also about service and results.”

Just Say No

Turning down clients, especially in a recession, sounds crazy.

But Susan Coles says the art of saying no is the greatest entrepreneurial lesson she has learned in the nine years she has run Sarasota-based Sudaco Physician Solutions, a medical billing firm. In fact, the loss of revenue has turned out to be a win in that Coles hasn't had to sacrifice Sudaco's beliefs and values.

“Over the years we have been less and less willing to compromise our process to win a client,” Coles says. “We have a tried and true operation and our clients who have the most success allow us to lead and understand the value of what they are paying for. If the prospect requires you to change how you do business they are not a good fit.”

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