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.

Comments  

-1 # Simon James 2021-08-15 09:16
In the day following this editorial Pulse+IT received dozens of comments via the poll (https://forms.gle/1GeGnkUtNXrcPLVPA) in an optional comments section. Respondents were asked to elaborate on what they thought about Telstra Health’s acquisition of MedicalDirector . These comments are included (unedited) below:

- Too little, too late

- It’s market share is shrinking

- It’s a terrible product

- Mature technology system with little growth upside

- Whilst individual doctors are responsible for the privacy of patients, cloud based storage of patient data will always be problematic. Being a Medical Practitioner carries risk. Any smart business person will look to mitigate risk. Medical Director's future does not look good.

- Paid too much for it

- Best Practice is dominating, Argus is declining, Healthlink taking over, and featureless Helix wont compete with BP Titanium & Gentu.

- Great strategic move

- Investment in the product

- Declining market share… will need to work hard to enhance client base to justify cost outlay.

- Financial

- Data integration possibilities

- Doctors don’t like it

- Lack of focus of TH and no understanding of primary care

- It will be increasingly important

- Helix is an awful product

- Medical Director has low uptake, a lot of competitors and a lot of flaws in their system that need fixing.

- High cost for a product that needs a lot of work to compete.

- Patient health care is always a day and night requirement

- Medical Director is and has been in a death spiral for 10+ years with a constant and continuing loss of clients in the general practice space. For example, I personally have been involved with dozens of GP clinics that have moved from MD to Best Practice in my local area. I have NEVER seen or heard of any clinic attempting the move from BP back to MD. With regard to Helix, it is offered at a compelling price point. However, local experience with GPs clinics investigating Helix as their line of business application have reported that it is unfit for purpose for one reason or another. The coyness of the previous owners on the market share question tends to conform my 'death spiral' assessment. Further, reducing expenses is fine but this does not equate to 'growing the business'. Perhaps Telstra Health should have put more effort into their due diligence. Unless they can find some way of reversing the constant loss of market share they have purchased a very expensive pup.

- Old technology, diminishing market share,

- They’ll just ruin it like every other asset they’ve bought

- Crap antiquated product. Not even the maternity record has changed in 40 years and they had NFI as to what were current RANZCOG guidelines. Junk.

- Interoperabilit y across continuum of care and second largest GP user base

- Potential

- Old product with poor support and agility

- End to end Connected Health ecosystem

- MD's history, adaptability and questions as to its suitability to actually improve care delivery.

- It's not MD3 they want, it's the installed base that can absorb newly interoperable products down the track.

- Interop platform

- CRAZY purchase price!!!

- It's not good for MD users, Telstra will destroy this product by cutting costs to recoup the price they've overpaid. Already planning conversions to BP, the lessor evil.

- Overpaid by Telstra

- Good for interoperabilit y. Overpriced

- Inferior product, interoperabilit y poor

- Cannot see a positive Return on Investment on $350 Million.

- paid far too much

- Price should have been lower, MD's products need significant investment.

- As said, loss of talent, underinvestment into product, horrible management

- It will need to reinvest to reach capabilities of the pre private equity buy out.
0 # Simon James 2021-08-18 15:37
- Telstra doesn't understand the data or the business processes/model s in healthcare. It will take more than technology to make a difference to health care providers. Telstra has never succeeded in selling value added services on top of its primary domain - communications technology. There's no evidence it will with healthcare.

- Poor ROI

- Interoperabilit y

- On PREM legacy solution. Should have acquired Clinic To Cloud for 1/3 and invested 100m into accelerating the dev…it would achieve all of the interoperabilit y needed in today’s world.

- Telstra Health paid too much

- MD stopped developing MD3 to focus on Helix which had major stability issues on Azure. Now both platforms are in limbo, one is stuck in the past the other isn't stable enough and lacks features.

- Target sector is large, Familiarity among GP's extremely High, and with their increased focus on updating and developing it, this gives them a major inroads into the Private Practice userbase.

- Best Practice is hot garbage and you totally biased BP cultists are all delusional if you think it's actually good. [anonymous comment edited for legal reasons]

- I chose the No radio button because I figured nobody from Pulse+BP, oops, I mean Pulse+IT would read and publish anything from someone who realises this is a good investment. By your own admission, MD was a bad buy for ~150M, and now it's supposedly a bay buy at ~350M - does that mean that Affinity *didn't* overpay? If it sold for 1 billion dollars in 5 years time, will 350M still be too much?

- too expensive for old technology

- brings increased health sector data to their main business. Gives them entry to GP sector for other comms products and cross selling, service packaging.

- Great opportunity. Strategic investment. Keeps the product in Australia.

- GPS are leaving MD to install BP! Helix was a disaster.

- Impementing mergers& acquisitions has to be strategic and also operationally viable: given the M$350 buy-out the financial ROI, failure of interoperabilit y between sub-company products in Telstra suite and now the prospect of having to convince the major private sector end-users in healthcare that Telstra Health can deliver operational perfomance to customers is not adding up to a win in Australia...the international market the only way forward post-MD purchase I think.

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