When I first heard about this company, my first thought was, “Well, it sure ain’t sexy.”

My second thought was: “It doesn’t have to be.”

Today, I’d like to introduce you to a Chicago-based company in the health-care arena that has, frankly, a remarkably boring business. What’s exciting, however, is the earnings potential that this not-so-exciting company offers. This company has an outstanding product and huge potential for growth.

The first thing investors need to understand is that the ongoing health-care debate — whatever its intentions — has presented information about the business of health-care that led the public to draw questionable conclusions. The theme of the health-care debate was that health care is expensive and that the industry was making huge profits.

I’m not sure either of those points is accurate.

Now, arguing about it — and I’d counter both of those contentions — isn’t going to make anyone any money. What has the potential to make us money, however, is this fact: It is irrefutably true that health-care costs inevitably rise, and that the sector as a whole grows faster than the rest of the economy.

That’s all we really know about health care. Neither is the end of the world. If any other sector grows faster than the economy as a whole we generally think of it as a good thing.

But I digress. Now, let’s discuss profits for a sec.

Some people, yes, do extremely well in the health-care business. Good for them — I think they’re paid well because they perform well, and I have no problem with that. But the broader reality is that, physician and executive salaries notwithstanding, the margins for health-care providers is actually very small.

Tenet Healthcare (NYSE: THC), for example, which operates about 50 hospitals, had revenue of $9.0 billion in 2009. It turned a profit of $187 million, a razor-thin margin of only 2.1%. Or take Community Health Systems (NYSE: CYH), which owns or operates 122 hospitals. Its 2009 revenue was $12.1 billion; its profit came in at $243.2 million, which works out to an even thinner margin.

To contrast that with other companies of similar size, consider Cabot Oil and Gas Corp (NYSE: COG). It has roughly the same market value, but its 2009 net profit margin was 16.9%. Tech companies and pharmaceutical companies see even higher margins than that. The current state of the health-care business is like that of groceries or agriculture: It’s easy to generate a lot of sales, but it’s hard to turn much of a profit.

So, clearly a hospital would do anything it can to boost its margins. Even “nonprofit” community or faith-based hospitals aren’t immune from making money — that’s how they pay for new equipment, larger staff or other expansion.

That’s where Accretive Health comes in. The company offers a highly specialized system that enables hospitals and physician offices to collect the money it is owed more efficiently. It speeds up the “revenue cycle,” the period of time that elapses from the day medical service is provided until the day the provider is paid.

Medical billing can rightly be counted among the most complicated, convoluted and inefficient financial processes in the business world. Insurance companies and self-insured health plans have their reimbursement procedures, which are followed most of the time. The Medicare program and other government payers have their procedures, which are followed most of the time. And then there are patients, who may or may not even understand that they owe money in the first place.

Add into that morass the fact that services may be provided in different places and billed by different providers. And let’s not forget that not only is every case a matter of life and death, but it is a different matter of life and death — and the entire transaction must be kept confidential under federal laws.

The result is that some hospitals have only a rough estimate of whether they are being paid what they are actually owed. In some cases, hospitals may not even know what they are truly owed in the first place. They just hope that enough revenue trickles in to keep the lights on.

Accretive Health can do better than guess and hope. It uses a powerful combination of people, processes and technology to ensure that every step of the billing process is done accurately and efficiently. The solution offered by Accretive Health basically makes sure the hospital knows what it is owed and then gets paid for it. Once the Accretive system is implemented, hospitals and medical-service providers can expect to see a +4% to +6% increase in their cash collections against the amount they are contractually owed. To put it another way, Accretive rakes in money that these health-care providers are leaving on the table.

Accretive currently has 22 customers that represent a total of 59 hospitals, and its systems oversee the timely collection of $13.6 billion in annual revenue for those clients. In 2009, its services brought in $510.2 million and a net profit of $14.6 million. That’s a margin I expect to see widen as the company scales up.

And that’s what’s exciting here: The growth potential. Accretive has increased revenues +358.8% since 2005. But it’s sustainable. In fact, there’s no reason that such growth — +46.4% on a compound annual basis — cannot continue indefinitely. After all, the nation has 5,815 hospitals, of which Accretive has only a 1.0% market share. And there are hundreds of thousands of other medical clinics where the nation’s 815,000 doctors work that also could benefit from Accretive’s expertise.

A second point of excitement about this company is the driver behind its “boring” business. It’s not just profits, it’s compliance.

Health-care compliance is a booming industry. Not only has the White House allocated $16 billion to switch the nation over the digital medical records — a system with which health-care providers must comply — but the administration also has just given the health-care system a massive top-to-bottom rewrite. Now, that might not change the way you receive your health care, but that doesn’t mean your health-care providers aren’t going to have to come into compliance with ObamaCare’s myriad new rules. And many of these rules change as they phase in over time, meaning health-care billing systems will need massive annual upgrades for years to come. Hospitals that don’t keep up will not only be out of compliance, they will risk a significant erosion of profits.

Health care is an art, but it is first a business. If the back office is not taken care of, then the ability to take care of patients is compromised, sometimes severely. The recent changes to the health-care system have some medical executives worried about their ability to deal with the new rules and stay in business. Adding +4% to +6% to cash collections likely will be greatly appealing to thousands of hospitals, which will be all too pleased to outsource this function if it means better results.

That’s great news for Accretive Health, which is expected to go public any day. It’s scheduled to trade on the New York Stock Exchange under the ticker “AH.” The $200 million offering is being underwritten by Goldman Sachs, Credit Suisse, J.P. Morgan and Morgan Stanley, among others.
No, it’s not a very sexy business. Revenue cycle management and the fine print of health-care billing is less than scintillating. But Accretive’s long-term potential looks very alluring, and growth-oriented investors might want to consider these shares for the long term.