DELL Dell Inc. (MM)

NextGen Healthcare Information Systems, a fully owned subsidiary of Electronic Health Record (“EHR”) service provider Quality Systems Inc. (QSII), recently revealed that it has inked an agreement with Dell (DELL) to sell sophisticated technology solutions for medical practices of different sizes, physician networks as well as community and rural inpatient settings.  

Dell is a cutting-edge provider of information technology know-how to the healthcare industry providing payers, providers and pharma companies with integrated solutions that extend from the point of care to the data center. The company’s composite business process and technical solutions enable hospitals maximize efficiency, reimbursement and clinical excellence.

As per the terms of the deal, Dell will sell, market and support NextGen Practice Management, NextGen Ambulatory EHR and other NextGen programs as elements of Dell’s Electronic Medical Records (“EMR”) solutions for physicians and hospitals.  

By utilizing current cloud technology platform, Dell will house NextGen applications to simplify data management and access issues for NextGen and Dell customers. Dell will also turn out to be the hardware platform selected for all NextGen solutions.

Quality Systems reported robust results for the first quarter fiscal 2012 (ended June 30), which may be attributed to the federal stimulus that has provided a boost to the industry in general. 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 runs a pure-play business model, in an attractive industry, with a large number of catalysts, which provoke frequent speculation about mergers and acquisition. The company continues to grow recurring revenues. In recent times, Quality Systems has not only well managed its ambulatory clinical deals but, in addition, has nicely executed several enterprise contracts.

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.

On the positive side, we derive comfort from the high proportion of recurring revenues and steady growth in NextGen pipeline. We currently have a long-term Neutral rating on the stock. 

 
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