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NextGen Healthcare Information Systems, a full subsidiary of Quality Systems (QSII - Analyst Report), recently revealed that it has partnered with Microsoft Corporation (MSFT) to create and commercialize the NextGen MedicineCabinet application. This is the first client-focused portable healthcare IT offering intended for the Windows 8 set up, from Microsoft and NextGen Healthcare partnership. With the NextGen MedicineCabinet application, clients can develop, maintain, monitor and compare their medical records.

The NextGen MedicineCabinet application is free. It may be acquired at the Microsoft app store. Customers can add a drug to their list along with the dosage and then run the application. The customer receives notices for each dose and can indicate his/her response. Medical records aid patients and doctors can thereby avoid accidental irregularities in care.  

Quality Systems runs a pure-play business model in an attractive industry with a large number of catalysts, which provoke frequent speculation about mergers and acquisitions. On the positive side, we observe the high proportion of recurring revenues. Of late, however, growth of its pipeline metric has seen a falling trend along with progressively fewer signed deals on a quarterly basis.

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), Allscripts Healthcare Solutions (MDRX - 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.

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.

We have a long-term Neutral recommendation on the stock which carries a short-term Zacks #3 Rank (Hold).

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