ArthroCare (Austin, Texas), a manufacturer of minimally invasive surgical products, said it has acquired DiscoCare (Margate, Florida), a third-party billing and reimbursement service provider, for $25 million in cash, plus potential future milestones.

Mike Baker, president/CEO of ArthroCare, besides discussing the acquisition of DiscoCare during an afternoon conference call last week, also confronted recent rumors about ArthroCare and DiscoCare head-on.

In recent weeks, according to a research report written by David Lebowitz of Sanders Morris Harris (SMH) Capital, ArthroCare’s share performance has been negatively impacted by rumors surrounding reimbursement of the company’s spinal products, “with the relationship with DiscoCare being at the center of the maelstrom.”

Normally, Baker said, the company wouldn’t address such rumors during a conference call, but because “so many of these stories have been related in one way or another to DiscoCare,” he wanted to address them directly.

“In the course of considering the acquisition of DiscoCare we have not only conducted the normal, extensive, due diligence as we would with any acquisition, but we also completed additional due diligence work focused on the false and misleading information underpinning these stories,” Baker told listeners.

“DiscoCare currently provides third-party billing for ArthroCare devices. They do not handle billing for surgeon, hospital, or other facility fees and they do not code procedures for physicians, hospitals or other facilities. There are some third party billing firms that provide these billing services . . . but DiscoCare is not one of them. DiscoCare does not make payments or receive payments from physicians, hospitals, or other facilities, and they never have.”

ArthroCare said the acquisition will allow the company to “significantly expand” its internal reimbursement capability and to leverage these services across all divisions. The deal is not expected to have a material impact on 2008 earnings.

The company also reaffirmed its guidance for 4Q07 and the 2008 calendar year, indicating that it expects GAAP diluted earnings per share for the fourth quarter to be between 48 cents and 50 cents. GAAP diluted EPS for the full calendar year is expected to be $1.48 to $1.50.

“Securing adequate payment is a key challenge for all medical device manufacturers but critical for ArthroCare since our core strategy is the development of breakthrough medical devices and device therapies, which do not automatically gain reimbursement,” Baker said. “This acquisition will significantly enhance our capabilities to support all of our businesses with a reimbursement service offering and to do so cost effectively.”

The acquisition closed Dec. 31 and ArthroCare expects the integration of DiscoCare’s operations to be completed by the end of the first quarter.

“Many of the larger medical device firms have significant internal reimbursement support capabilities, and as you would expect, the ability to offer high quality reimbursement support is an increasingly important competitive factor,” Baker said.

“Physicians who work with DiscoCare have more success in obtaining reimbursement since DiscoCare usually obtains a pre-approval for the case before it is performed and then follows up until the case is actually reimbursed,” he added.

For 2008, ArthroCare expects revenue growth of at least 20%, a 200 basis point improvement in operating profit margin and a 24% corporate income tax rate.

According to Baker, several recent news articles also have asserted that ArthroCare’s plasma disc decompression (PDD) procedure is experimental, which he says is “factually incorrect.” PDD was cleared by FDA and CE-Marked in 2001, he noted, and the company reports that more than 150,000 patients have been treated with the product.

Baker said several press reports have also indicated that the Massachusetts Attorney General office is conducting an inquiry into ArthroCare or DiscoCare. He said ArthroCare has confirmed that there is no such inquiry.

According to Lebowitz, “the company’s direct commentary with respect to these rumors is likely to mitigate some of the tension that has been affecting the shares. Although it could take some time until the Street gets beyond the recent rumors, we do expect to see better stock performance in the coming weeks.”

In other deakmaking activity:

• Solis Women’s Health (Austin, Texas) said it has acquired BenOra Imaging (Phoenix), which it says is the “oldest dedicated breast diagnostic facility in greater Phoenix, and a national pioneer in the delivery of women’s imaging.”

Financial terms of the deal were not disclosed.

Wayne Hansen, MD, Richard Vanesian, MD, and Michele West, MD, lead BenOra and will continue as the principal physicians in the center, the company noted.

Solis is a healthcare provider focused exclusively on the screening and diagnosis of breast cancer.

• Freudenberg-NOK General Partnership (Plymouth, Michigan) said it has acquired the assets of Anura Plastics Engineering (Baldwin Park, California) “in order to expand the business of plastic and silicone molded products for the healthcare, medical, and biotech markets.”

Financial terms were not disclosed.

• LHC Group (Lafayette, Louisiana), a provider of post-acute healthcare services primarily in non-urban U.S. markets, reported acquiring 100% of the assets of Access Home Health Agency (Springfield, Missouri), representing LHC’s entry into Missouri.

The service area of this acquisition spans 20 counties in Southwest Missouri, with an estimated population of 857,000, nearly 15% over age 65. Total Medicare revenue for 12 months for this agency is about $2.9 million, the company noted.

LHC also reported a partnership agreement with Marshall Medical Centers to provide home health services in Guntersville, Alabama, and the surrounding areas. Marshall Medical consists of two hospitals: Marshall Medical Center North (Guntersville, Alabama), and Marshall Medical Center South (Boaz, Alabama).

• Amedisys (Baton Rouge, Louisiana) a home health nursing company, Reported acquiring a home health agency in Carolina, Puerto Rico.

The acquisition is not expected to add materially to Amedisys’ earnings in 2008. Financial terms were not disclosed.