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Executives

Seth Frank - Vice President of Investor Relations

Analysts

Kipp R.F. Davis - Barclays Capital, Research Division

Allscripts-Misys Healthcare Solutions, Inc. (MDRX) Barclays Global Healthcare Conference March 13, 2013 1:00 PM ET

Kipp R.F. Davis - Barclays Capital, Research Division

All right. I think we can get started. Good afternoon, everybody I'm Kipp Davis. I'm on the health care distribution and tech team at Barclays. We're pleased to have Allscripts with us. It's great to see you again Seth. Seth Franks is the VP of Investor Relations for Allscripts. Welcome back to the conference.

Seth Frank

Thanks, Kip. Great to be here.

Question-and-Answer Session

Kipp R.F. Davis - Barclays Capital, Research Division

So obviously, the stock is doing very well today. Thought I might just ask you a little bit about some of the insider buying that, I think, we saw earlier this morning. Do you want to kind of comment on that?

Seth Frank

Yes. There were forms 4s filed today, some open market purchases by the directors, including our CEO, Paul Black, in various amounts. So presumably, the market is absorbing that as a constructive sign. I can assure you it has nothing to do with anything I've said in the meetings today. So but in all seriousness, I think that, obviously, this is the first time certainly in a while that we've had insider buying come across the board.

Kipp R.F. Davis - Barclays Capital, Research Division

Sure. So normally, I ask these kind of questions sort of at the end of the presentation but there's been a lot of change that's gone on in the company in the last year, almost exactly a year since our conference sort of last year. So I guess, I kind of view you as now one of the more tenured people that people have interacted with. I guess my question is, how are you viewing the organization now versus a year ago, and feel free to hit on anything whether it's process, products, people? What would have been some of the biggest opportunities you see them now sitting in your role versus where you in the company were a year ago?

Seth Frank

Yes. I mean, it's been a time of huge change. Just for those of you who don't know or aren't as aware, I mean, our longest tenured board member, Dennis Chookaszian, our Chairman, came on board within, I think, 6 to 8 months after the closure of the Eclipsys merger in September 2010. So you basically have a de novo board. You have Paul Black, who was one of the new board members that came on board just under a year ago, move into the CEO role. Rick Poulton, who I report to directly, our Chief Financial Officer, joined us in October during the time that the company was in a strategic alternatives process. So it starts there and kind of goes all the way through. The leadership structure of the company has changed. The direct reports of sort of the CEO, plus one level, are a mix of new people, as well as tenured, much longer than me, and I'm not technically management, but executives in the company related to our client relationship folks. We've created new positions focused on streamlining our operations, more of an intensive operational focus. Last week at HIMSS conference, the big healthcare IT annual powwow, which was in New Orleans, hopefully, never to go back there again -- I love New Orleans, great town, just not for 35,000 people. We had a town hall with Cliff Meltzer, our EVP of Solutions Development, who is responsible for the over 2,000 people in our global development organization. And he's coming up around 2 years of tenure. So on the one hand, it looks like, perhaps from the outside, there's been all this change and there has been a lot of change, but there's actually a great mix of consistency internally around some of the areas that matter most, operationally: Solutions development, sales and clients, account management have all remained consistent. And it's from that platform of creating stability and doubling our focus on the client that we're hoping to do some things this year to improve our competitive position and set us up for a growth trajectory going forward.

Kipp R.F. Davis - Barclays Capital, Research Division

And I guess as you talk about making sure you're delivering for the clients, I guess, as you see the organization being run now versus under Glenn, who actually saw the company through many different growth periods and a lot of transformation, I guess, what do you see differently from Paul now and, specifically, I know, I think you highlighted this at HIMSS, he's probably been out visiting more than one client per day that he's [ph] been on the job at this point. What -- how was the messaging maybe a little bit different than it was with the company before? What's Paul doing to help reassure the key clients for the company that they're not only, I think, going to deliver on the existing solutions that they add in terms of making sure that they're capturing value for them but also that the company is going to develop with [indiscernible] down the road?

Seth Frank

Yes. I mean, the challenge with the client base isn't one of and hasn't been one of strategy and it has not been one of are trying to do the right things? But I think our CEO and others have said and I've said that execution has been a challenge. And so I think Paul, given his background and tenure, particularly in the IDN and hospital arena, whereas Allscripts was clearly borne out of the ambulatory market, is trying to bring some of that to bear as the provider environment changes. You've got consolidation, folks who're looking forward to coordinated care and potentially going at risk from reimbursement standpoint. So I think Paul is out there along with some of these other executives that people know, listening very carefully to what's working and what's not working and giving some pretty strong reassurances that, we mean what we say and we're going to say what we're going to do. And so that level of accountability, of commitment are areas that Paul is just focused on. So it's not a wholesale change in strategy, I think, that would be one of the worst things we can do. In fact, and maybe I'll touch on this, but we did 2 technology acquisitions last week, perhaps something that most people actually didn't seem surprised by, which is good, that we're very much consistent with what our strategy has been today, to be the open platform and ecosystem in healthcare IT.

Kipp R.F. Davis - Barclays Capital, Research Division

And I guess, maybe let's touch on one of the acquisitions in particular, I guess, dbMotion has obviously been, I think, the company has had an investment in dbMotion for a little while before pursuing the full acquisition of the company. What do you think that brings to the table for Allscripts in terms of -- from a differentiation standpoint? I know at HIMSS this year there was a lot of talk of interoperability and being able to transfer data between disparate systems. Can, I guess, you talk a little bit about why you decided to buy all dbMotion, sort of the strategic value that it represents for you guys.

Seth Frank

So dbMotion was a privately held Israeli domiciled company that we had about 4.8% equity interest in, as you point out. We, to date, where the largest reseller of their technology and it was the core -- and is the core of the Allscripts community record or architecture, and what that means is we go into a hospital or health system that wants to begin to create connectivity with non-employed providers, affiliated docs and other providers, that refer into the system. Now how do you do that? How you do that if people are using different systems? And dbMotion platform is a type of health information exchange that creates a singular patient record that you can look at across multiple systems with the ability to push and pull data. So if you're going to be open as a core strategy, and it is our core strategy, you need an open layer of technology. dbMotion is absolutely strategic for us, not as much to just continue to sell it as a health information exchange product, but it's actually a technology layer that we will use for interoperability and connectivity between our different products. And then most importantly, it'll serve as the electronic gateway for the Allscripts solutions to other providers. So it's a vendor-agnostic technology layer that allows the sharing of information. Because regardless of perception or what some in the industry may or may not say, it's an interoperable world. It's a multi-vendor world and no one player will dominate. And so, Cliff really articulated this brilliantly last week at our investor town hall. Open always wins. There's always one in other verticals, and we don't think healthcare is going to be any different. So that's why this is strategic and critical for us. We will have, of course, the financial benefit of owning that technology. And as we sell it and distribute that, accruing a higher marginal, higher gross margin, meaningfully higher than we have historically, because we’re not paying third party software costs.

Kipp R.F. Davis - Barclays Capital, Research Division

Right. And I guess as you think about it as a technology layer for your interoperability, there's also a lot of discussion about if you're interfacing or connecting to a lot of different systems, how do you use that data from a data analytic standpoint? Population health standpoint? I know we've discussed how Humedica, in which Allscripts have had an investment, was actually bought by United Health, I'm kind of curious how does that -- does dbMotion sort of connect to what your new strategy is going to look like from a population health management perspective, since I know you guys -- you haven't committed to anything but you're evaluating how you might be selling Humedica down the road given that it's now owned sort of by a competitor?

Seth Frank

Well, yes. I mean, at Humedica, there's no change. For what it's worth, Humedica, it's a great product. We sell it and we'll continue to sell it as long as clients want to buy it. Clients will evaluate the extent to which -- providers will evaluate the extent to which they want that solution or not, but it's an outstanding analytic solution. With regard to dbMotion, it is absolutely a prerequisite, if you will, for a population health management or I think maybe less in vogue terms with community health model, where basically providers are going at risk. They can't control where people go necessarily all the time and in and out of their system, and so how do you coordinate that care? How do you, when you're dealing with fixed payment, proactively manage that, manage outcomes and optimize? And so that's the world, I think, we're all headed toward. I think, those of us who have been around this industry for a long time and, Lord knows I've been around it for a long time, 20 years. Seen it come and seen it go. It doesn't ever happen quick but it certainly feels very real this time. There's so many different government-based projects going on that are value based in terms of reimbursement. And so again, having an interoperable system is the only way to get you there if all you can do is manage decision support and care delivery at the point of care within your system and even measure the population only within your system, that's just going to be probably a level of statistical relevance. It's not adequate in the world. So how do you sort of capture that? And building this sort of infrastructure, which is what it is, an IT infrastructure. It's no different than going into an ATM and pulling out money from a bank you've never walked in to before and having it debit directly to your account. It's a simple version of the same thing here.

Kipp R.F. Davis - Barclays Capital, Research Division

I guess thinking about that, there was an announcement between, I'm not going to get them all right off the top of my head, You, Cerner, McKesson, athenahealth and Greenway talking about CommonWell, which is sort of an alliance to focus on interoperability among systems. Does your role in that, if you've got dbMotion, does that make you more of a relevant player in this space or is the alliance something where it just makes it a lot easier for you to leverage whatever a CommonWell really becomes, whatever that initiative really becomes down the road?

Seth Frank

I think it just reflects a real commitment on our part to the message of what CommonWell is, which to create interoperability amongst different vendors and sharing of data in a way that's understandable across these different systems. So it reinforces our commitment.

Kipp R.F. Davis - Barclays Capital, Research Division

Does it feel like you to you guys -- I feel like you've always been very focused on that, and maybe other companies, this might mean even more for them than it means to you since I feel like you've already shown your commitment to being in the game of being open.

Seth Frank

Yes, I mean, we've been talking about it for a while. It's not necessarily something that investors have focused on that much because -- and it's still an open question, how do you ultimately monetize that? And we understand that. But in terms of the real world and where these providers are going. You do your diligence and talk to folks. Everyone's focused on this model. So that's where we have to be focused in order for things to play out well and for us to be properly positioned.

Kipp R.F. Davis - Barclays Capital, Research Division

I guess that's kind of a good segue into thinking about -- and some of the new product segments, Sunrise Financial Manager is a good example of one, where it integrates with your clinical system but it also manages new reimbursement methodologies as well, that takes the clinical and financial data and allow folks to look at those sort of side-by-side. How do you feel -- do you think it's becoming a lot easier to penetrate the patient accounting and RCM segment now given that -- forget about even ICD-10, I mean, just talking about the potential for bundled payments, capitation, et cetera, which I think in many ways is more relevant to that. What are you seeing -- are customers more willing to make that change from some of the much older financial systems that have been in place?

Seth Frank

Yes. I mean, historically, if you look at the Sunrise installed client base and you look at the legacy of Eclipsys as a company, it's a clinical system. It was CPOE. It was ahead of its time in the old days, but the emphasis was less so on patient accounting, admission, transfer, discharge and sort of core HIS [ph] .

Kipp R.F. Davis - Barclays Capital, Research Division

;

And you had a product in patient accounting before there was...

Seth Frank

Yes. There is, at Sunrise, patient manager, I believe, is the right name. I may have butchered that, but I think I'm pretty close. It is not -- it's a fine product and it's installed -- a solution that's installed in a bunch of hospitals. However, it is not on the same technology stack. It's not written in the same code and it's not integrated with Sunrise Clinical Manager. So the key thing with Sunrise Financial Manager is it is fully integrated and actually dependent. It's actually, in some ways, unusual and that it is not designed to be a stand-alone RCM solution. So the one thing you wouldn't see would be someone buy Sunrise Financial Manager from us who is running Millennium or is running Sorian from Siemens or what have you. Sunrise Financial Manager is meant to give us a complete revenue cycle and it's not just inpatient, by the way, it is ambulatory, also it's enterprise-wide. And so -- as you saw during, I think, the demo, there's -- it's multi-episodic in terms of how you manage the episodes of care. So it's not just focused on what -- okay, what do we do with this visit or this procedure. It's longitudinal across and it's fully and completely integrated with Sunrise 6.0. So that's a big competitive advantage for us, I think, for new footprints, because we haven't offered that in the past, as well, I think, it's a replacement opportunity within our base because we haven't given a specific figure, but I'd say it's a minority of our installed base that has our revenue cycle -- legacy revenue cycle product. So for those that are looking for an integrated solution, an ICD-10 certainly seems like a reasonable time, one might want to do that, we've got that offering ready to go here.

Kipp R.F. Davis - Barclays Capital, Research Division

Right. And in many ways I kind of feel like the fact that it's dependent upon Sunrise Clinical Manager isn't really an issue in this day and age, where people would sort of prefer to be buying those 2 on an integrated basis between that, a single vendor...

Seth Frank

Yes. I mean, I think best-of-breed. I mean people -- it's hard to say, but best-of-breed, historically, could be anything. I think, to the extent it goes forward -- it will -- it tends to be more departmental or ancillaries, whereas having revenue cycle and core clinicals integrated together is pretty important.

Kipp R.F. Davis - Barclays Capital, Research Division

Switching gears a little bit, I know Paul had mentioned that you're beginning to develop a relationship with KLAS, which for those of you who do or don't know, it's an industry organization that comparatively benchmarks the various EMR providers and providers of other healthcare IT product. If I remember it correctly, I think for a while, you decided not to have that relationship with KLAS anymore from the last couple of years and now you're sort of reintroducing it. I'm just curious about what's kind of changed on the views of being subject to some of that comparative benchmarking? Or was this a separate that thing you've engaged KLAS on? Or I guess what's the relationship there? And what's the genesis about with Paul at the helm [ph] ?

Seth Frank

I think that's CEO privilege, right. So new CEO comes on board. Former CEO has a view. New CEO comes on board, assesses the situation. And in the case of KLAS, which is sort of the J.D. Power of sorts of healthcare IT, the view is that this isn't a nice to have, it's a must-have. And it starts there. And he certainly knows them as an industry veteran and has worked with them. And the reality is as good as our data might be in terms of the survey work we do on individual implementations or follow-ups to tickets on the health help desk, as well as Net Promoter Score work that we do, which measures have referenceable a client is, none of that benchmarks us. And so there's a value proposition that KLAS offers, that's part of being in this industry, I think, Paul felt obviously strongly that we should be part of that and the fact that our scores have been hurtful, in many cases, to us, isn't helpful. And so by collecting data and engaging with them, it's not about changing KLAS scores, it's about making our clients happier, right? Everything else follows from that. And when you have the right data, some of which we will get from them, we think we will get better strategic understanding and that's just simply a change of new executives.

Kipp R.F. Davis - Barclays Capital, Research Division

We'll wrap up in a minute or so here.

Seth Frank

Why so fast?

Kipp R.F. Davis - Barclays Capital, Research Division

I know right. Well, we'll -- and by the way, for everybody, we'll have the breakout, I believe, in Point Sienna 2 after this. One thing that Paul had said at HIMSS and I think he'd said it also in the most recent [indiscernible] call is, remote hosting seems like it's a pretty big deal for the company now, and I want to say, you said on the call that the penetration with something like 5%. I guess, how do you guys think about the ability to ramp up remote hosting over time? So why did it become such a big deal? I mean, I think I know why it's a big deal, but maybe it'll help, let's kind of discuss for the other folks what you see the value as in having more clients on remote hosting, both maybe from a margin perspective and also from a quality perspective?

Seth Frank

I think the view is for those clients who want an off-premise solution who don't want the personnel and the hardware on-site as a core of that hosting solution. And certainly one of our biggest competitors has proved how important in core that is, and had done a phenomenal job. They've had it and that hasn't gone unnoticed by us or the alumnus of that company. So the reality is we're going to sell what clients want and move away from fixed assets on premise is huge. We believe that, over time, we'll be able to offer a superior client experience with remote hosting, again, for those who want it. And so it is a focus of this management team. And there's not more meat I can put on the bone, specifically, about what we're going to do there, but it is an area that would consist of longer-term service-based contracts that add a lot of value for our clients and are additive to us from a growth and profitability standpoint.

Kipp R.F. Davis - Barclays Capital, Research Division

Great. I think we're out of time for now. But as I said before, we will have a breakout session, let me just check to be sure, yes, in Point Sienna 2. Thanks very much.

Seth Frank

Thanks Kipp. Thanks for coming out.

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