CERN Cerner Corporation

NextGen Healthcare Information Systems, a fully owned subsidiary of Quality Systems (QSII) and a leading provider of Electronic Health Record (“EHR”) and healthcare IT offerings, recently disclosed that it has inked a deal with IASIS Healthcare LLC for the installation of NextGen Practice Management and its revenue cycle management product, NextGen Practice Solutions. Under the terms of the deal, IASIS will utilize services provided by NextGen at its 19 hospitals located in 7 states.  

IASIS, based in Franklin, Tennessee, owns and operates medium-sized acute care facilities in suburban and urban areas. It leases or owns 1 behavioral health hospital and 18 acute care hospitals with about 4,365 licensed beds. IASIS also owns and runs a Medicare and Medicaid managed health plan in Phoenix, which caters to over 195,000 members.   

NextGen Healthcare was chosen by IASIS as it desired a fresh practice management product to improve operational and financial workflows. Furthermore, IASIS sought proper fitment with the NextGen Ambulatory EHR as it is presently implementing this know-how for its associate physicians.  

IASIS added that it has chosen NextGen Practice Management on account of its data base capability. The know-how also grants better functionality in such areas as aging management, denial management and tracking of work flow. The organization intends to improve its cash collections with better accounts receivables management. In addition, NextGen Healthcare solutions provide solid support and the company’s products are well integrated and periodically updated.    

Quality Systems runs a pure-play business model in an attractive industry, with a large number of catalysts, which provoke frequent speculation about mergers and acquisition. In recent times, the company has not only well managed its ambulatory clinical deals but, in addition, has nicely executed several enterprise contracts. Also, on the positive side, we derive comfort from the high proportion of recurring revenues and steady growth in its NextGen pipeline.

However, competition is intense from well regarded players such as Athenahealth (ATHN), Allscripts Healthcare Solutions (MDRX), Cerner Corporation (CERN) and others. Price discounting is frequent, particularly on the lower end, and Software as a Service (SaaS) based model appears to have exacerbated pricing pressure.

Quality Systems has traditionally focused on providing solutions for physician practices. However, core ambulatory EHR providers, such as Quality Systems, will see opportunities shrinking for selling their products as physician groups are increasingly getting absorbed into hospitals.

In the end, we believe that Quality Systems provides only a moderate upside to investor expectations. The company’s performance does not sustain its valuation momentum at present, which has boosted its earnings multiple. We believe that Quality Systems is one of the more expensive names in the healthcare IT universe. We currently have an Outperform rating on Quality Systems.

 
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