In a concerted effort to tap the potential in the electronic
health record ("EHR") market, imaging and interoperability
) recently struck a deal with SimonMed Imaging, the nation's
largest specialized outpatient physician imaging practice.
As per the deal, SimonMed will deploy Merge's entire suite of
cloud-hosted radiology solutions along with iConnect Access and
SimonMed, whose majority is owned by Dignity Health (formerly
Catholic Healthcare West), currently has over 50 imaging centers
employing 80 physicians.
Apart from Merge's iConnect Access (a zero-download DICOM image
and XDS viewer) and iConnect VNA (a vendor neutral archive to
create an enterprise imaging strategy backbone), the radiology
solutions that SimonMed will be using includes Merge RIS, which is
a web-based radiology information system for streamlining of
workflow and meeting the Meaningful Use criteria.
The other "meaningful use" solutions from Merge are Merge PACS
(a real-time picture archiving communication system), Merge
Documents (a paperless office solution), Merge Referral Portal and
Notably, "Meaningful Use" is part of EHR incentive program,
which is designed to stimulate the use of technology in healthcare.
Funded by the HITECH Act, the program enables providers to adopt
EHR and meet Meaningful Use needs in order to earn reimbursements
and avoid Medicare penalties.
We are encouraged with this newly formed alliance between Merge
and SimonMed since it adds to the number of healthcare
establishments currently served by Merge.
The company has seen other successes in recent times. In June
2012, the Community Health Network selected iConnect VNA and
iConnect Access to provide real-time access to images and
information among its network of providers and referring
Earlier in May, Merge entered into another radiology contract
with Lakeland Healthcare, a national radiology group. During the
second quarter of fiscal 2012, Merge Meaningful Use solutions were
deployed by 12 new clients, representing more than 125 physicians.
The company expects accelerated adoption in the second half of
Currently, imaging in laboratories accounts for over 90% of data
storage in healthcare. Merge noted that the Centers for Medicare
& Medicaid Services ("CMS") proposed a second set (Stage 2) of
the Medicare/Medicaid Meaningful Use EHR program (released in March
2012) that included specialties like orthopedics and radiology in
The company remains optimistic that with this Stage 2
requirement, specialty physicians will be able to meet the
Meaningful Use criteria, thereby driving the demand for its
According to Frost and Sullivan and Merge research reports in
2012, the global market for imaging software and services,
healthcare IT interoperability solutions and EHR solutions for
orthopedics, radiology, cardiology and ophthalmology is currently
worth $7.5 billion a year. With greater adoption of EHRs in
doctor's offices, hospitals and imaging centers, there is a
corresponding increase in the need for data exchange.
In December last year, CMS declared that more than 175,000
professionals and hospitals had registered for the meaningful use
incentive programs. A total amount of $2.5 billion was paid out in
2011 to eligible hospitals and professionals. The incentives will
be offered for a period of 4-5 years, after which physicians will
be penalized for not adopting proper measures.
Thus, favorable demographic trends, reinforced by a supportive
regulatory environment, are expected to sustain the strong growth
in demand for EHR-related software in the foreseeable future. We
believe that Merge is well placed to gain a meaningful share of the
multi-billion dollar American Recovery and Reinvestment Act
(ARRA)-related healthcare information technology investment
However, we remain concerned about the declining Medicare
reimbursement for advanced medical imaging that could negatively
affect hospital and imaging clinic revenues, thereby reducing the
demand for imaging-related software and services offered by Merge.
Furthermore, the presence of many big players like
) has made the healthcare solutions and services market highly
Currently, Merge retains a short-term Zacks #3 Rank (Hold). Over
the long term, we have a Neutral recommendation on the stock.
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