INDUSTRY-EXCLUSIVE: Steven Tolle on Merge Healthcare’s Current and Future Prospects

Correct. We put that in place as of August 9. And so we still have 65 quota-carrying salespeople in the field, but they’re in much more tightly integrated teams. For example, we have a vendor-neutral archive team, with a sales lead, an architect, a pre-sales consultant helping us design a solution, and a networking and hardware expert. So I can send a “SWAT team” into a deal, and they can get that done. So they look and act like a small company. I’ve got a similar strategy for orthopedics, for ophthalmology, and radiology/PACS [picture archiving and communications systems]. And then the cardiology business is of course completely focused on cardiology. So by creating this level of focus, it allows experts from our company to go toe to toe with experts from other companies.

The reality is that this is a full-replacement market [for PACS systems]. And a full-replacement strategy is always difficult to execute. So having teams of experts in place will be of benefit to the company. And because we know that the interoperability market is opening for imaging, we’re also launching a new product at the end of the year, the iConnect Network, which will reach 300,000 physicians.

How does Honeycomb [Merge’s imaging connectivity solution] fit into this?

Honeycomb is our cloud-based archive for our customers to use if they don’t want to create their own archive, while iConnect is the customer-on-premise version of the archive. Which choice customer organizations make just depends on whether they want to create storage themselves, or pay for storage on a per-study basis in the cloud.

And so we’re launching this business for the radiology market first before the end of the year, because of their radiology-based interoperability needs. So we’re still here.

Were the executive departures a signal that the vendor market is becoming more unstable now?

Well, Michael’s decision was unrelated to anything else. He’s the majority shareholder in the company. He’s a private-equity guy. And I think he’s looking at opportunities. So Michael’s departure from the chairmanship and the board just signals that he wants to look at other private-equity opportunities.

Merge is often compared to Allscripts, Athena, Cerner, and NextGen [based in Chicago, Watertown, Mass., Kansas City, and Horsham, Pa.], since they’re all public companies. The thing is that Allscripts, Athena, Cerner, and NextGen are buoyed by the artificial rollout of EMR upgrades every cycle. In our case, we’re talking about good old-fashioned selling: I’m going to save you hard dollars on storage costs, on having to build fewer interfaces to the EMRs. We do have a billing system we sell, but our core systems are PACS and VNA, and those are unaffected by ICD-10. So our sales activity is challenging, because we have to prove value in order for anyone to spend money with us right now.

Is it your sense that hospital and health system CIOs and CFOs are saying they’ll only spend on things that will bring them meaningful use dollars, right now?

In a hospital setting, yes. Now, I am opening their eyes a bit when I talk about referral leakage. The average referring physician is worth $1.5 million to the hospital, and their imaging market is a very competitive market. In the case of imaging, hospitals are in competition with other imaging providers in the market to get doctors to refer to them. So when we sell things to them like our iConnect access, and soon, our iConnect Network, I can talk with them about referring physician loyalty more than just about imaging, though it’s about that, too.

Now, in the hospital market, we’re not selling a lot of PACS, though I believe that market will open up after the MU process. We are making some inroads though, on interoperability. Top of the list for them is ICD-10. But we do have some ability to open some eyes on interoperability. On the ambulatory side or cardiology, we have fewer challenges. But hospitals and radiology aren’t spending money unless they have to. So we’re having to convince them that they’re going to get some return for investment. And Agfa and GE and McKesson don’t have to report their data they we do, because they’re not publicly traded as an imaging company; they’re part of a larger company in that regard, and they’ve probably seen some slowdowns, too.

What will happen in the next year for Merge?

The way I see it happening is that as hospitals get further into their ICD-10 and meaningful use preparations and talk with their vendors, they’ll quickly realize there’s a capacity problem. So it comes down to, meaningful use has two mentions of imaging: CPOE [computerized physician order entry], and a menu option. CPOE is core, so anyone going for meaningful use has to do order entry on 30 percent or more of their orders, including imaging. And doctors expect something in return for participating in CPOE. So the demand by doctors will intensify. They’ll demand that if they’re doing something in the EMR, why aren’t they getting something back in the EMR, rather than a fax. And for meaningful use, it’s all or nothing for the doctor; there’s no partial credit. So if they’re going for meaningful use and their imaging provider doesn’t help them, they’ll go elsewhere.