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NextGen Healthcare Information Systems, a full subsidiary of health care IT vendor Quality Systems Inc. (QSII - Analyst Report), recently revealed that T-System, Inc. will utilize NextGen Practice Management in order to improve billing in revenue cycle management for its customers. As per the agreement, NextGen RCM Services will deploy the NextGen Practice Management offering for T-System.

T-System facilitates better emergency care with offerings that address operational, fiscal, clinical and regulatory concerns of emergency facilities and hospitals. Roughly 40% of emergency departments in the country utilize offerings from T-System.

In 2012, T-System unveiled its latest revenue cycle outsourcing offering via the RevCycle+ product for inpatient and emergency room customers. T-System will standardize its offerings by utilizing NextGen Practice Management at different sites. In particular, NextGen Practice Management will render collections, billing and other functions more manageable besides automating the billing function. 

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, the condition of the pipeline metric has 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), 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. 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 #4 (Sell).

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