Arcadia hopes health care reform means more revenue

The contentious health care debate in Washington is music to Marvin Richardson’s ears.

The CEO of Indianapolis-based
Arcadia Resources Inc. said the environment is perfect for his company’s fast-growing DailyMed pharmacy service.

DailyMed sorts a patient’s numerous medications and vitamins into packets labeled for the time of the day
they are supposed to be taken. The company claims the service helps patients comply with their doctors’ instructions
and avoid hospital visits caused by taking the wrong doses of medicines or taking them at the wrong times. That, in turn,
reduces costs for the institutions that pay for the care of homebound patients who take lots of medications every day.

Those institutions include federal and state governments, which are desperate to trim health care costs in order
to expand coverage and keep enough money available for all the services they provide.

“Are we going to
be helped by health care reform? The answer is yes,” said Richardson, who took over as Arcadia’s CEO in early
2007. “If we take costs out of the system, that argument goes very well in Washington.”

Richardson.

The trouble for Arcadia, however, is trying to keep its own costs down while it rapidly ramps up DailyMed. The service,
even though its sales grew 80 percent in the last year, still represents less than 10 percent of Arcadia’s total revenue.
The rest comes from home health care and medical staffing businesses, which recorded flat sales last year.

Arcadia
spent heavily to achieve DailyMed’s growth. The company’s overhead expenses rose 7 percent in the year ended March
31—11 percent in the fourth quarter alone.

Heavy spending doesn’t help Arcadia, which has lost money
for five straight years. Many of those losses have been largely on paper as Arcadia shed businesses and swung its focus onto
DailyMed. Arcadia’s cash flow crossed into the black last year.

But still, the company’s cash levels
fell by 75 percent in the past year to $1.5 million while it loaded up on $9.5 million in loans to power its DailyMed acceleration.

“We do need to manage our cash closely, but we are confident that we can,” said Matthew Middendorf,
Arcadia’s chief financial officer. “We’ll know over the next quarter or two.”

That’s
why he and Richardson are hoping increased cost-consciousness brought on by health care reform helps boost sales.

That makes sense to Kevin Hayden, president of state-sponsored business at Indianapolis-based health insurer
WellPoint Inc. His company recently signed a contract with Arcadia to use DailyMed for Medicaid patients in five states, beginning
in Virginia.

 “There’s no question that creative ideas to deal with medication issues for people
that have chronic conditions intuitively will lead to cost savings over the long term,” said Hayden from his office
in Madison, Wis.

WellPoint joins Minnesota-based UnitedHealth Group, the nation’s largest health insurer,
as Arcadia’s two private clients. Those big names give DailyMed credibility as it pursues more customers, Richardson
said.

DailyMed’s first customer was the Indiana Medicaid program.

That program includes Doris
Mangold, 56, a resident of Evansville. She takes 13 medications for a range of conditions including blood clots, back pain,
post-traumatic stress syndrome and obsessive-compulsive disorder.

Mangold likes the service because she no longer
has to mark on her calendar all the different days on which she needs to go to a pharmacy to get her different prescriptions
refilled.

“Everything comes straight to your door,” Mangold said, adding, “You don’t
have to run out 50 million times just to get your medicine.”

Arcadia touts that its DailyMed service, by
keeping patients on their medications, improves patients’ health, which reduces the need for other kinds of health care.

Indiana Medicaid hired researchers at Purdue University to quantify what if any cost savings the service achieves.
The results from that study will be ready at the end of 2010.

“All of this positive momentum with DailyMed
is … converging with the broader trends in health care and an administration and legislature focused on outcomes and
reform,” Richardson told investors in June.

But investors might need more convincing. Arcadia’s share
price remains stuck at about 62 cents.•