Avaya Solidifies Hold on Healthcare Systems With Nortel Acquisition

by: Patient Capital
Avaya recently acquired Nortel’s (OTC:NRTLQ) Enterprise Division through a bankruptcy process, and in the process, has uncovered tremendous opportunities in the healthcare sector.
Sanjeev Gupta, who is the General Manager of Healthcare Solutions at Avaya has explained exactly what is occurring and what Avaya is doing to help solve major problems.
Presently, there are over 5000 healthcare providers, and they all face a common set of issues. The trend in decreasing operating margins are a huge issue, payments for services are decreasing, the number of patients is increasing, and costs are going up, so they have to increase revenue with the same amount of assets. There is a shortage of employees as well, specifically nurses, and so one solution is to make employees more productive.
Studies show that nurses spend 1/3rd of their time on caring for patients while the other 2/3rd’s is for administrative work. Administrative work is a clear example of manual processes that can be expedited with automation.
Sanjeev gave me a very specific problem – long wait times in emergency facilities at an oncology facility with over 700 beds. Even with an EMR (Electronic Medical Record) System and a bed management system, a lot of the care in this oncology facility still required the coordination of discharge to be handled by nurses.
The actual discharge process can’t begin without approval from a primary care physician, after which the nurse could talk to the specialist to make sure they were okay with the discharge. After receiving that approval, they have to talk to the pharmacy, the outpatient pharmacy, nutrition and dietetics, call maintenance to wheel the patient out, and finally inform the patient’s family of the time they will be discharged. The average discharge time was around 6PM in the day.
Avaya has found that the process can be changed so that nurses go into a standard system, and an application handles the administrative processes for them. That’s all they have to do – initiate the process.
In the background, the software makes numerous phone calls, and the nurse can continue working.
The result? 4 hours was shaved off of the discharge process, and every 1-hour equates to about a $1M net benefit, or $4M saved in this specific application. You’ve also let the nurses focus on their work and not the administrative processes that support it.
Digging a little deeper into discharge processes, we learned about another situation where EMR systems are enabling lots of new technologies. Discharge is not always to the patient’s home as our example above illustrated. Another option is that the patient needs care at another place, and the hospital isn’t the best place to do it because of the significant costs involved.
This means that the patient might be moving to a medium/short term care facility, in the local area. Authentidate ((NASDAQ:ADAT)) offers patient placement services for Avaya’s Discharge customers where they have a database of local providers, linked into the hospital discharge system, and can coordinate all the manual work and send patients to the right facility. Both systems work in coordination here, because the discharge process is the same, however what changes is that Authentidate can point them to the next place the patient needs to go.
What else is Avaya working on? You’ve learned about patient discharge, but they are also working on patient admition processes, patient contact processes, follow-up processes, patient flow processes, and other solutions around mobility so that nurses can have all their information wherever they are.
Looking at the macro-economic environment, there has been a lot of talk about healthcare from the government. In the stimulus package, $19 billion was allocated for electronic medical record adoption. The bill targets “meaningful use” areas, specifically, quality of care for patients. However readmissions are a critical part of this – the more readmissions you have, the lower the reimbursement amount, thus care facilities want people to be healthy when they leave the hospital. Hospitals are now adopting EMR systems, but finding that there is still a lot of care coordination that is done by the nurses. Avaya is able to interface into those EMR systems and Sanjeev is finding that as the EMR adoption rate is increasing, so is the willingness of hospitals to adopt technologies to improve processes like patient discharge.
Virtually every large hospital (200+ beds) can use patient discharge, while patient placement depends on the certain departments that utilize these functions.
With a clear understanding of their offering and the macroeconomic environment, let’s take a look at the market potential here.
There are approximately 2,000 hospitals with 200+ beds in the US, and you can double that for the global market. If the average selling price of a discharge process is $200,000, which is a low number, you have a ½ billion dollar opportunity on your hands, or a solid billion globally. Combined with their other services, it’s easily a $2-3 billion opportunity.
Avaya is currently implementing the technologies in a hospital in Orlando. Sanjeev says that these are intense and involved processes, which they are perfecting in Orlando. They’re finding that this requires a change of culture, however they will be moving from incubation to scale mode with a large pipeline. As they make progress on these fronts, Avaya will be issuing press releases and we can expect that they will ramp up their customer base as quickly as they can, and already have clients in the pipeline.
Competitors? Avaya’s competitors include the traditional call server market for voice applications. This means that Cisco (NASDAQ:CSCO) and Siemens’ Enterprise Network (SI) are both competing, however they offer horizontal solutions marketed into healthcare, and neither really has a solution for these specific problems. They have aspirations to be in healthcare, however haven’t yet made the leaps necessary to take advantage of these coming changes. The advantage that Avaya offers is that they bring a whole suite of solutions together, and not just the voice application to handle phone calls.
Partners – Avaya does not compete with EMR providers, but rather works with them to have their applications link together. These EMR providers might include McKesson (NYSE:MCK), Cerner (NASDAQ:CERN), Allscripts (NASDAQ:MDRX), AthenaHealth (NASDAQ:ATHN), Authentidate (ADAT), etc.
Avaya and Nortel’s healthcare division, combined, are able to expand the customer base and further their reach. The acquisition means that their customer base almost doubled in North America because of their top 500 companies, there was less than a 10% overlap in identical customers. Some hospitals, like Johns Hopkins, were using 2/3rd’s Nortel’s solutions and 1/3 Avaya’s solutions, however they now have a complete presence in hospitals like this. Sanjeev ended our discussion by saying, “We are very excited with the coming together of the companies, and we have many more opportunities thanks to this.”
Disclosure: At the time of this publication, Gupta did not have a position in any of the companies mentioned.