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Cantech Letter talks to Al Hildebrandt and Jerry Diener of QHR Technologies

QHR Technologies
QHR Technologies
QHR Technologies CEO Al Hildebrandt.

Your doctor walks in to the patient room toting an iPad. He chats for a bit, inspects your latest run in with a kitchen knife, and then pulls up your entire medical history with a couple taps on the screen. He does a check for contraindications with your current medications before prescribing you some painkillers and sending you on your way.

Technology moves quickly, so why does this particular scenario still sound like something out of The Jetsons?

The fact is, a lot of progress has been made of late to digitize medical records and bring the healthcare industry into the future we see all around us.

In Canada, Kelowna-based QHR Technologies has been an aggressive consolidator in the Canadian electronic medical records space. Last summer’s pickup of Vancouver-based Open EC Technologies was the company’s twelfth acquisition in just nine years. QHR’s success mirrors larger trends: a recent report from MarketResearch.com said the U.S. EMR market is expected to grow from $2.17-billion in 2009 to more than $6-billion in 2015; an estimated compound annual growth rate of 18.1%.


QHR Technologies is now looking to make its mark in the U.S. healthcare space. Cantech Letter’s Nick Waddell recently talked to CEO Al Hildebrandt and CFO Jerry Diener about what they have learned from Canada and how they will apply that to the larger, more lucrative American market.

Al, I’d like to start by talking a bit about how QHR Technologies got its start. What was the original idea and where did it come from?

Al: In 1997 I started a company intended to focus on healthcare IT for the healthcare marketplace. I was already dealing with managing people at work in the areas of payroll, HR, and staff scheduling. I knew that this space, focusing on the complex portions of healthcare administration, would be an area of growing importance.

Why this space in particular?

Al: My former IT experience was in staff scheduling, what we today call the “quadrant of applications”. What that means is, when you get hired first by the human resources department, you get told when and where to work, you get paid, and then, at a certain point, that information goes to financial. This was an area that, in the mid-markets, in Canada, there weren’t a whole bunch of new technologies in the late ‘90s geared towards this space. Mid-market players weren’t doing this well, especially in the area of scheduling, and the healthcare IT solutions market was very fragmented. So that’s what I focused in on, that part of the equation that I had expertise in. I felt we could solve that. And to that extent, QHR has been quite successful, because we’re not just payroll, we’re a complete cluster in that particular vertical.

Jerry, you’ve come back to the company recently. Can you describe your history with QHR Technologies?

Jerry: Sure. I first joined QHR back in the 2004-2006 timeframe, and joined at that point in time as the CFO. That was back when QHR was at about $4 or $5 million in sales revenue. The EMS division of the company that Al just described was the mainstay, and we had just made an acquisition of an electronic medical records, a private company that was kind of an upstart. It was struggling a bit financially and with its overall direction, and Al saw the real potential and a future there. So I think he bought that just about a year or so before I joined. We grabbed on to the space, and very quickly realized that this was a great business model. We felt confident we could succeed if we could bring it to fruition, especially in the area of recurring revenue, so that it’s not about the licensing and implementation. The wins in this business are long-term. You get the client and you keep them, and they pay a monthly fee to use the software, and for support. That was kind of the start. Unfortunately, due to personal reasons, I found it necessary to leave QHR and move to Calgary.

What do you do for that period of time?

I took a project in Calgary, a large hedge fund out of New York, had acquired a company called Calpine Power Income Trust there. It was an investment of almost $1-billion. It was the business of power plants, and I was hired to be the general manager, and the whole purpose was to manage and ultimately sell the power plants. I did that for the next five years, and it was a great experience and expanded my business knowledge and abilities, and learned many great things that apply to any company, including QHR. As I was contemplating my next chapter in life, Al called up and said, “What are you doing?” And I said, “Well, not a whole lot right now. Just kind of deciding what the next challenge should be.” So, long story short, I joined, came back June 1st of last year. The company had gone from $4 or $5 million to pushing close to $30 million. Al had undertaken many acquisitions and the model of recurring revenue had proven itself workable and successful, and we’re hoping to be close to having 100% coverage revenue on our basic expenses. And hopefully in the next 12 to 18 months, we will actually achieve that company-wide. So I came back, and I’m really excited about what’s going on.

Al, what did you see happening in the market at the time?

Al: The one thing we saw in this product, and there were hundreds of products out there in the EMR field, is that it was really unique and different for specialists. There are about 30 different specialties out there, and every one of them works very differently. The largest specialty just happens to be General Practitioners, also known as Family Practioners, and I saw a unique product that met the needs of a broader spectrum of the marketplace.

The technical hurdles that have been put in front of all the vendors across the country have just been astronomical

This was the landscape in the early part of the last decade…

Al: Yes, and luckily for us, through many of the bright people that we eventually hired, we got excellent feedback from doctors who helped us do this so other doctors would accept our solution and want to use it. One particular specialist told us that he wanted a system where he could sit in front of a patient, hold the device in his hand, and touch, point at the screen, either by mouse or by touch screen, and find information quickly to show the patient. He wanted to have everything happen within a three-click process, so that he could find the stuff quickly, because doctors don’t like being looked at as typers or stenographers. Doctors wanted a system where they could point at things, be it graphs or whatnot and pull it down from the web, and that’s what we then developed.

I don’t think that anyone would disagree that electronic medical records are a better solution, but I wonder if you could give me an idea of how quickly the transition is happening, either on a worldwide basis. What has been the biggest barrier to my going to the doctor and him popping up my medical history on an iPad? Can you give me a sense of where we are in the transition and how far along you are, and what do you see as the major barriers?

Al: Well, if you look at public information, some European regions, such as Denmark and the U.K., are about 98 or 100% of the primary care market. Remember that the primary care market is only the GP’s. So what they’re really saying is that they have penetrated 98% of 50% of the market. They are very weak on the specialist side. Canada and the United States seem to have lagged behind most of the other developed countries. We’re about the 30-40% range at this point here of all the doctors. Now, provinces will quote different statistics. If you’re here in B.C., they will claim they’ve already 70% of the available doctors. But that’s 70% of the 4,000, not the 8,000 that we know are in the industry. The fact that government’s involved to start funding specialists is actually good. But the fact that government’s involved has also created some of the industry’s biggest problems. Canada, for instance, has its health care administered provincially, and every province has gone through the process of trying to pick the winners. Of course, no government can pick the winners in any space. The marketplace decides the winners. So the technical hurdles that have been put in front of all the vendors across the country have just been astronomical, and in fact, that’s been the demise of most of the companies, is that they couldn’t keep up on the technology side, because they didn’t have the funding. Luckily for us, we’ve been successful at it, far better than others. Government interference is part of the issue here, and government funding is also part of the issue because everybody focuses on that part, instead of, looking at what is the real value to a doctor going forward? The fact that there has been public funding available in the States and in Canada has actually created an artificial marketplace. It’s not natural. In the States, they give a doctor $44,000 each to get on to an EMR system. If they don’t do this they are penalized down the road. We should be focusing on creating tools that make doctors more effective, rather than rewards or penalties.

To that end, you’ve been a major part of removing the fragmentation that existed in the Canadian market maybe a decade ago. And acquisitions have been kind of a big part of your bringing the market together and wading through this regulatory tangle. Let’s talk about your history of acquisitions, and which ones you feel were the most important as far as moving towards being the kind of premier provider of electronic medical records.

Al: We’ve done 13 acquisitions since 2000. That’s an average of almost one a year. Most of them have been on the physician side of the business, either on the billings or EMR side, or hosting side, which is somewhat physician related. And probably the most impactful acquisition was a company in December 2009, Clinicare, which was private. It was the EMR pioneer; they had more clinics and bigger clinics than anyone else. They had been operating since 1984, but ran out of technical and financial steam. Picking up Clinicare added 1,200 doctors as our clients. Then, in October 2011, we acquired HealthScreen, which was public at the time, but in a state of decline from a both a financial and technology perspective. That one was important to us because it brought other 5,000-plus doctors to us, getting us up to 9,000 doctors across the country. Those two acquisitions, I would say, have been the most important ones we did in Canada. More recently we acquired a Canadian company, Open EC, that owned a U.S.-based company with expertise in the billings and clearinghouse business for claims management. We believe strongly that much of our future growth will come from the U.S.

QHR Technologies
Diener: “The U.S. represents less than 1% of our business right now, but we’re looking to move that up to maybe the 10% level over the next year.”

You’re at about 9,000 physicians in six provinces right now. You’re up from, say, $3 or $4 million, up to $30 million. You’re a much larger company than you were, even a few years ago. And it looks like you’ve made some moves to kind of accommodate this and maybe bring in some more talent that can help facilitate this growth. I wonder if, maybe Jerry, you could talk about some of the people that have joined QHR Technologies in the past 12-18 months?

Jerry: About a year ago we added Sandy Auestad as Human Resources Manager and that was a key hire as she brought with her a background and experience from working with much larger companies. I joined in June, as I mentioned. I very much consider myself kind of an operational type CFO. I don’t like sitting in the closet, checking trial balances. I like to be very involved and do a lot of work on variance analysis, projections, and how can we squeeze some more dollars to the bottom line. One of the more recent additions is Jim Wilson, our marketing VP. He joined us last September, after spending a decade with Apple corporate branding in Canada, and thirteen years with Celestica.

You have also made some additions to your board…

Al: Yes. Last September, we were lucky enough to bring on Gordon “Stonie” Glenn as board chairman. Gordon was President and CEO of Catamaran Corporation (formerly SXC Health Solutions) from 1998 to 2006. That company is one of the great tech success stories to come out of Canada in recent times. We also brought on Art Mesher last year. Art is the CEO of Descartes Systems, and an expert at pretty much anything to do with that’s got hosting or networks. We feel his input will be invaluable as well expand into the United States.

In Canada, you’ve got to get yourself approved in every single province, and that’s been a stalemate. We feel our experience in growing in Canada will be very valuable to us as we look to enter the U.S. market.

Going forward, what’s going to be the mix of where your growth’s going to come from? Is it going to be organic, or is it going to continue along the acquisition path?

Al: If we look at the real revenues that are coming out of our current books that have been initiated based on our acquisitions, especially those from 2009 onward, roughly one-third of our overall corporate revenue is coming from acquisition-related activities. On the EMR side, we try to make an acquisition to replace the product offering and eliminate the duplicate development of the older system when we move it onto our system. Most other vendors do acquisitions and then try to keep that product line going, but we’re trying to eliminate the duplicate development. So about two-thirds of our growth is organic, going in the marketplace and selling additional products and services to clients, many of whom we have acquired.

Jerry: As we look at our backlog, it’s probably, on the EMR side, about 50% organic and 40% taking clients away from other software companies, and then 10% doctors who never had the EMR software, so it’s a really good mix. It’s not heavily weighted one way or the other.

Do you feel that you are good at integrating your acquisitions and deriving the best value from them?

Al: Are we as good as we’d like to be? No. But we’ve learned from each one. There’s a certain tempo to it. The majority of acquisitions happen because there’s a technology failure. Others happen because there’s a financial failure. Still others come to us because they got beat up on the competitive side. A fourth reason would be that the owner’s interests have waned, or their board or their investors have lost interest in that area. So one of those four things has to take place. The majority of our acquisitions have been #1 and #2 combined. So they’ve had a technology/end of life failure and a financial disaster. The first thing we’ve got to do is stabilize the client, like a doctor would stabilize the patient, make sure he’s breathing, and continue to support that client on to the current systems, and then offer them a three-to-five-year time period, which we can transition over. Some will do it faster, some will do it slower. But the first thing we’ve got to do is make the client not be a flight risk. And once they realize that we hire the people from the organization that are left, once we support it at a better level than they’ve ever been able to get before, they stick with us. And that buys us the time to transition them when they’re ready, instead of force feeding them on to a new system. So that’s been our strategy on the EMR side. Nobody likes to be told they have to switch, but you give them enough carrots and they go for it.

I want to touch on what Telus is doing in the space. They recently claimed to be the largest provider of medical records in Canada now. What can you say about that?

Al: I believe that we’ve got roughly the same amount of doctors as they do across the country. Why did they get into it? Well, obviously, you’ve got to go back a few years, when Telus made a decision to start promoting the personal health record, it’s a personal mission of their CEO, and getting everybody personally connected with their health record was the way that they were going down the path, and they’ve got to get data from the doctors’ offices to their personal health record. Their public information is they’ve acquired a national exclusive from Microsoft with a product called HealthVault, and they’ve been trying to get that going across the country. And to that extent, in 2007-2011 time period, they signed partnership agreements with a variety of companies, including us, to get the data done. And so far, that hasn’t been working anywhere. So the only way that they felt they could actually make it happen, we believe, is that they needed to start acquiring vendors so they could force the vendors to get the data to their central repository. My personal belief is that they’re not buying an EMR vendor to get into the EMR business. They’re buying up EMR vendors so they can possibly get at the data that exists in those patient files to augment other stuff that they’re doing.

What kind of other stuff?

Al: Well, other stuff would be what they’re doing, say they make money on data going across the lines, they make money on transferring data back and forth. They’ve currently bought three different vendors with three totally different platforms. In our case, we had a leading edge, flagship product called Accuro EMR that every one of our acquisitions, the customer has agreed that’s a better product. So we’ve got a flagship product that over time we can move people toward, in every single case. And at this point, they have three separate products in three different provinces, and they’ve got to maintain all three of them. Not a single one of them can replace the other one.

Jerry, can you talk a bit about your efforts to expand in the United States?

Jerry: The U.S. represents less than 1% of our business right now, but we’re looking to move that up to maybe the 10% level over the next year. And when it comes to expanding into the US, we’ve said right up front we want to go carefully. The US is littered with Canadian companies that have tried and failed. So we’re going to go carefully. The good news is that there are a lot of markets that have potential down there, very niche markets. We want to be careful, and you pick and choose what we go after.

Al: The US spends two to three times per capita on healthcare cost, and there’s a tremendous amount of waste in the US on that part of it. But that’s the system down there. And they bill for everything. And if a tiny crumb of that $4 trillion, that they’re spending on health care falls on our plate, then we’ll do very well. Also, the average number of doctors in the States is not just 10 times because of the population, it’s about 12 to 13 times more doctors. The average doctor in the US makes about double what any Canadian doctor does. So there’s a huge amount of extra revenue down there. And they also make healthcare decisions, they make business decisions down there, versus political, bureaucratic decisions, so we believe we have a greater opportunity in the US to compete nationally than we do here in Canada. In Canada, you’ve got to get yourself approved in every single province, and that’s been a stalemate. We feel our experience in growing in Canada will be very valuable to us as we look to enter the U.S. market.

Disclaimer: QHR Technologies is an annual sponsor of Cantech Letter.

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About The Author /

Cantech Letter founder and editor Nick Waddell has lived in five Canadian provinces and is proud of his country's often overlooked contributions to the world of science and technology. Waddell takes a regular shift on the Canadian media circuit, making appearances on CTV, CBC and BNN, and contributing to publications such as Canadian Business and Business Insider.
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