Pulling The Reins On Health Costs

For a company that has two strikes against it, GMIS isn't faring too badly. Its two big areas--technology and health care--are currently on the Street's blacklist. Yet the stock has continued to hold up, refusing to fall below 13 a share, which was the initial public offering price in July, 1991.

Why? GMIS "is a new and thriving pure play in the hot business of curbing health care costs and has displayed consistent earnings growth in the past three years," says one New York mutual-fund manager. The company, which makes cost-containment software systems for health care payers such as insurance companies and HMOs, has consistently exceeded analysts' expectations, he says.

And, adds this pro, it may be a possible buyout target of some big companies, such as EDS and Policy Management Systems, both of which sell GMIS' products to their own customers. This pro says that even without a takeover premium, GMIS, now at 18, is worth 30 a share. GMIS President and CEO Tom Owens said he was unaware of any interest from either company. Policy Management Chief Financial Officer Bob Gresham would only say that PMS' business ties with GMIS are fairly new. An EDS spokesman said its relationship with GMIS is "excellent" but discussing other aspects was "premature."

Krishen Sud, an analyst at Needham & Co., notes that GMIS has rapidly diversified from a one-product company into a supplier of broader cost-containment products. Its major product, ClaimCheck, uses data bases and processing algorithms to spot billing errors. ClaimCheck is expected to produce sales of $10 million this year and $14 million in 1993, up from 1991's $5.5 million. GMIS has expanded this system to determine the appropriateness of medical procedures before they are done. And next year, it will introduce a system to profile the cost-effectiveness of doctors and health-service providers.

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