Telstra Health’s big MedicalDirector buy
Vague mutterings about the real value of once-dominant general practice management software vendor MedicalDirector have echoed through the years, particularly since it was flogged off to a private equity firm by former owner Primary Health Care (now Healius) in 2016 for what we thought of at the time as the extravagant sum of $155 million.
Five years later and the private equity owners have done their job, stripping the company of staff through multiple rounds of redundancies to cut costs and maximise their sale price. Telstra Health, amongst others, has been sniffing around for a few years, and earlier this week announced it had snapped MD up for the astonishing sum of $350 million. It dwarfs Telstra Health’s earlier acquisition of 18-odd companies for a combined total of $235-240 million, as well as its recent purchase of PowerHealth Solutions for $95m.
We’ve argued before that the price is utterly ridiculous, and we stick to it. Telstra Health itself has only broken even just recently, announcing it was in the black for the first time last financial year. In its annual report released yesterday, the parent company claims Telstra Health is up 6.4 per cent in revenue. That is of course coming off a very small base – Telstra Health is put in with “other and miscellaneous” in Telstra’s financial reports, and we can’t imagine it makes much of a dint in the comparatively minuscule $344 million that category reports in revenue.
Adding to the $235 million in acquisitions spent up to the end of 2016 – which does not include a few of the contract wins, a few gambles that didn’t pay off and a few relationships that broke up – the total cost of the initial investment combined with the MD and PowerHealth acquisitions comes to $680 million.
Is it really worth it, not only to Telstra shareholders but the wider digital health community? Opinions differ and we are not immune at Pulse+IT. While we think $350m is too much to pay, there are questions of strategy. Is buying MedicalDirector in the first place a good idea? Its venture capital owners and current management have done it no favours over the last few years, stripping away talent, outsourcing development to the lowest common denominator, and refusing to substantiate its user numbers.
It has put minimal effort into its core product, MedicalDirector 3, also known as Clinical, and all publicity into Helix, which it has failed to sell. It did have a deal to roll Helix out to the former Healius general practices when both were part of Primary Health Care, but that all fell over when Helix was shown to be not fit for purpose and Healius reverted to MD3.
We are still unconvinced that the problems with Helix have been fixed and we snort with derision at MD’s claims that Helix has a chance in the UK – general practices and their software choices simply do not work that way – but it will be nice if Telstra Health can dig into its deep pockets and return MD to its former glory. It was after all a significant clinical software product for GPs and has been a mainstay of the sector for 30 years.
We asked Telstra Health managing director Mary Foley on Monday if she thought she had paid too much for MD. Not surprisingly, she said no. “Well, no, I don't think we've paid too much,” she told us. “It's certainly … not in our interest to pay too much because we then have to justify the earnings and the performance of the acquisition to have made it all worthwhile.
“We've been very particular about the valuations of course and how it integrates into our business and the potential that it gives us in combination with the other parts of our portfolio ... We feel that's a very, very fair price that we've paid ...
“Medical Director has grown enormously as a business in the last few years and has developed itself as a platform that other users can connect to and access GP desktops through. It has developed data and insights back to its customers, it’s developed its cloud product. So there's a great deal that it has done to grow itself we think with our portfolio, and the sorts of things we can do in combination with other parts of our portfolio that we'll be able to really take MedicalDirector to the next level.”
Good luck to you, Mary. The acquisition of MedicalDirector revives Telstra Health’s relevance in Australian health IT, but it can be argued that the acquisition of PowerHealth Solutions might actually prove to be the biggest asset in the longer term, particularly for Telstra Health’s international expansion plans.
We don’t put much credence on MedicalDirector’s claims to have a “contract” with the NHS in the UK – Helix has been accepted on a panel with 60 other vendors that users can choose from – but PowerHealth already has clients in the Middle East and Canada, in addition to the majority of state health systems in Australia and an agreement with Dedalus to be used wherever it needs to provide a billing solution.
We think it will provide real value in the devilishly complex area of medical billing, and with PowerHealth Solutions founder Patrick Power retained as director of international growth, we can see him getting out there and selling Telstra Health on an international stage, a task for which he is eminently suited.
Back to Australia, and it remains to be seen if by the purchase of MedicalDirector that Telstra Health can finally achieve that “joined-up healthcare system” it was talking about when it was established by Shane Solomon’s team back in 2014. Just owning a substantial player in one sector does not guarantee interoperability – it has a half share in pharmacy leader Fred IT, owns aged care software market leader iCareHealth outright, and has substantial holdings in primary, community, virtual and acute care – but that has not yet led to a joined-up healthcare system.
A joined-up healthcare system is reliant on agreed standards and an open ecosystem, which other vendors are now embracing, but we don’t think Telstra Health’s purchase of MD is some sort of revolutionary game-changer.
That brings us to our poll question for the week:
Is Telstra Health’s acquisition of MedicalDirector a good investment?
Vote and comment here or leave your comments below.
Our poll question from last week asked: Has the Australian government finally got it right using consumer tech for its vaccine passport? Most said yes: 62 per cent were positive, 38 per cent were negative.