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Tuesday, Mar 19, 2024
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Quality Finally Feels Effects of Stimulus Spending

Irvine-based healthcare software maker Quality Systems Inc. is beginning to see a jump from long-expected federal stimulus spending, its chief executive said.

Quality Systems was “positively impacted by the onset of the stimulus plan” in the three months ended in March, Steven Plochocki said on the company’s recent earnings call.

Some customers were stepping up after they received stimulus checks under the federal government’s plan to encourage an industry shift to electronic record keeping, Plochocki said.

Quality’s software creates electronic health records for doctors, dentists and hospitals. It also helps healthcare providers with billing, appointments, referrals and insurance claims.

Quality’s revenue rose 24% from a year earlier to $97.1 million in the March quarter, beating analysts’ expectation of $95.7 million.

Profits rose 42% from a year earlier to $18.6 million, beating Wall Street’s estimate of $17.8 million.

“Overall, we view the quarter as a solid finish to the fiscal year,” said David Larsen and Chris Abbott, analysts with Boston investment bank Leerink Swann LLC, in a report.

• Headquarters: Irvine

• Founded: 1974

• Business: software for electronic health records

• Yearly revenue: $353.4 million

• Notable: Federal stimulus and healthcare reform began to stir market in March quarter, helping lift sales by 24% and profits by 42%

Federal Spending Boost

Quality’s been betting on federal spending to help boost its sales for some time.

Funding for electronic medical records was included in the 2009 stimulus package and the 2010 healthcare reform bill.

Quality’s Chairman and founder Sheldon Razin has described the federal spending, which provides more than $20 billion in incentives to help providers go electronic, as “pouring gasoline on the fire” of the company’s sales potential.

Regulators took their time issuing rules and certifications for electronic medical records software, finally wrapping things up late last year.

“We have spent much time preparing all facets of our organization for this important point in time,” Plochocki said. “The rubber is hitting the road as it relates to benefiting from this stimulus period. It’s been a long time in coming.”

An analyst on the recent earnings call inquired about sales of Quality’s electronic medical record software to doctors.

Quality is “seeing pretty good activity across the board” when it comes to the size of medical practices buying software, said Scott Decker, president of the company’s dominant NextGen Healthcare unit.

Expansion

The call also touched on Quality’s expansion beyond its doctor and dentist base.

Quality began that effort two years ago with its buy of Texas’ Opus Healthcare Solutions Inc., a maker of electronic medical records used in smaller hospitals. Opus gave Quality entry into hospitals with 100 or fewer beds.

“We continue to target the small hospital market,” said Pat Cline, Quality’s president. “At some point in the future, we’ll likely move upmarket, but right now the small market has many more targets.”

The company plans to continue its relationship with Siemens AG’s Medical Solutions unit, Cline said. Siemens Medical Solutions sells NextGen to its customers.

In April, Quality bought another hospital software company, IntraNexus in Virginia.

Quality acknowledged that it would have been tough to get its software into hospitals with 150 to 300 beds, something that IntraNexus should help it overcome.

The company also is looking to sell software in the accountable care organization market, Decker said. Accountable care organizations, a feature of federal healthcare reform, are designed to provide financial incentives for doctors, hospitals and insurers to work together to cut healthcare costs.

Fluctuating Stock

Quality has been one of the hotter stocks among Orange County’s publicly traded companies for some time but shares cooled off last year as investors awaited the arrival of federal spending.

So far this year, Quality’s shares are up 22% with a recent market value of $2.5 billion.

Shares dropped slightly on recent results, a turn that might have been driven by short sellers looking to change their positions.

Quality didn’t provide any specific financial guidance in its release or earnings call, as is its custom.

Analysts expect profits of $17.8 million in the current quarter. Revenue is seen coming in at $98.5 million.

Quality’s rivals include Cerner Corp. of North Kansas City, Mo., Epic Software Corp., a privately held company from Milwaukee, Athenahealth Inc. of Watertown, Mass., and San Francisco’s McKesson Corp., a diversified healthcare company that offers electronic medical records.

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