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QSII Inks Deal with Chinese Hospital

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Recently, NextGen Healthcare Information Systems, a fully owned subsidiary of Quality Systems Inc. (QSII) and a player in the health care information technology market, revealed that it has signed an agreement with Chinese Hospital of San Francisco to install NextGen Inpatient Clinicals. The hospital will utilize this platform to enhance efficiency, automate systems and improve quality of care.  

Chinese Hospital is an acute care, not for profit hospital providing a notable range of services, under surgical, specialty and medical categories. By using the services of Quality Systems’ NextGen, the hospital intends to develop a single and shared patient record for both its ambulatory and inpatient settings. 

QSII’s NextGen Inpatient Clinicals is a mobile-friendly and scalable software set up. By implementing this platform, Chinese Hospital will develop the ability to meet the meaningful use requirements.   

Quality Systems runs a pure-play business model in an industry with a number of catalysts, which provoke frequent speculation about mergers and acquisitions. Of late, the condition of its pipeline metric has mostly not been encouraging.

The company has made multiple acquisitions to bolster organic growth. Its acquisitions are expected to facilitate its entry in the small hospital segment. We are concerned about the execution risk emanating from Quality Systems’ entry into the rural inpatient market.

Moreover, competition is intense from well regarded players such as Athenahealth (ATHN), Cerner Corporation (CERN) and others. Price discounting is frequent, particularly at the lower end, and Software as a Service (SaaS) based model appears to have exacerbated pricing pressure. While fresh projects have shrunk in number, the replacement market is growing.

Quality Systems has traditionally focused on providing solutions for physician practices. However, core ambulatory EHR providers such as Quality Systems will see opportunities for product sales shrink, as physician groups are increasingly absorbed into hospitals.

Currently, the stock retains a Zacks Rank #5 (Strong Sell). We expect other stocks in the industry, such as Omnicell Inc. (OMCL), which carries a Zacks Rank #2 (Buy), to do well.

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