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NextGen Healthcare Information Systems, a full subsidiary of Quality Systems Inc. (QSII - Analyst Report) and a player in the health care information technology market, recently revealed its intention to accept the Electronic Health Record (EHR) Association’s EHR Developer Code of Conduct to enhance medical safety, care, outcomes and efficiency. NextGen Healthcare will concentrate its efforts on protocols such as safety of the patient, privacy and clinical documentation.

The EHR Association, which created the code in conjunction with different stakeholders, will check and alter the code as and when necessary. It welcomes that all EHR players, irrespective of membership, should accept the code. The Association provides a road map for EHR developers regarding how to implement the code. 

The Electronic Health Record (EHR) Association is a collaborative trade association of over 40 vendors which provide a large proportion of EHR to inpatient and outpatient settings in the U.S. The Association upholds that an early acceptance of EHR by providers will be in the interest of all concerned parties, including patients and providers. The EHR Association partners with the Health Information Systems Management Society (HIMSS).    

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 execution risk emanating from Quality Systems’ entry into the rural inpatient market.

Moreover, competition is intense from well regarded players such as Athenahealth (ATHN - Analyst Report), Cerner Corporation (CERN - Analyst Report) 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 are more positive about other stocks such as Merge Healthcare Incorporated (MRGE - Analyst Report) which carries a Zacks Rank #2 (Buy) and is expected to do well.

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