At Telstra’s press conference yesterday on the acquisition of Medical Director, one of the journalists on the line awkwardly suggested to Telstra Health’s CEO Mary Foley that she had paid way too much for a company that had lost a lot of its market share and shine over the years.
The price has been reported as $350 million, which would be about 11-15 times profit, and more than double what Affinity private equity paid for the outfit five years ago ($155 million). Its share of the GP market has probably dropped significantly in the past five years, some suggest from a market leading 42% or so, down to as low as 28%.
That journalist wasn’t giving much credit to what would have been a pretty expensive and experienced team doing the due diligence for Telstra. And possiblly hadn’t done much mapping of the possibilities that such an acquisition presented the company.
Yes, it’s a lot. Not out of range in profit multiples for a digital platform group, though, but more importantly, there are plenty of reasons to suggest that if Telstra handles the acquisition in the right way, one day, the price could end up being a bargain price.
There’s a lot to do, of course, but the timing is right, and if Telstra is prepared to invest, which in today’s press conference they confirmed they were specifically in respect to this acquisition, then Medical Director could end up transformative for the business and, in many respects, for large parts of our healthcare system.
Telstra Health has a truly ambitious vision to create a single Australian digital health vendor providing cloud-based interoperability between all points of the system. But whether they succeed or not, the acquisition will have major market repercussions regardless. And most of those repercussions are going to be good for everyone.
In one respect, it’s now Telstra Health vs the rest in Australia from a vendor perspective.
Telstra Health is the only single provider trying to stitch up all the current disparate points of data in the system . They are going to try to do this by overlaying some sort of cloud-based infrastructure over its acquisitions in pharmacy, aged care, hospitals, allied health and now general practice, which will allow far more interoperability across all these sectors. Foley said today that most investment now will be focussed on their assets not more acquisitions, citing that they now had a large position in every major health sector. But that’s not entirely true. They may still find some room to buy a suitable allied health platform provider, such as CoreHealth, or substantively shore themselves up on the patient side by acquiring a HotDoc or HealthEngine. They have the money, and clearly there is a lot of intent.
Now everyone else is in market is going to need to organise to get a position in what is suddenly a vastly changed digital health vendor landscape.
It’s likely we will see a lot of new alliances, and partnerships developed in order to compete with what will be Telstra’s emerging vertically integrated offering.
It isn’t likely we will see anyone able to compete one to one with Telstra’s strategy, because no one locally has this sort of money, and no one globally at this point of time, has even tried it what Telstra is attempting here, and wouldn’t likely start in another country.
If Telstra gets anywhere near succeeding in this vision, the group has a strong footprint in both Canada and the UK, both countries with similar enough healthcare systems to overlay their successes into those countries.
There’s a long way to go, and Telstra as a company doesn’t exactly have a track record of succeeding in internal plays like this, but it’s at once a bold plan that has some common sense to it and it is timed right this time. Timing is often everything in such plays.
Possibly the most important market factor that is contributing to timing here is an imminent move by the federal government to mandate a timeframe in which both health tech vendors and health providers will need to meet certain standards of cloud-based interoperability.
If the government goes by examples in the US and the UK it is going to give vendors and providers only five years to get their act together in respect of certain based standards for interoperability.
If the government does do this, it will be giving Telstra Health a giant leg up as it will be taking the heat for making every provider in the country and tech vendor do the investment required to make themselves far more able to share health data between each other, and, probably more importantly with patients.
It’s almost fait accompli that the government be bad cop here and pull the trigger on this much mooted change.
Yes, it’s going to cause enormous hardship among both tech vendors and some providers, hardly any of whom work on margins that will allow the sort of investment needed to make these changes in just five years.
But if the government doesn’t mandate this change now, Australia will keep move inexorably towards a huge mess of non-interoperable sectors where inhibited data flow retards the whole system. It’s a hard but necessary policy change that will need to be accompanies by targeted and clever support to some vendors and providers.
Telstra buying Medical Director would surely embolden the government in its plans.
Think about general practice, a Telstra owned Medical Director and a plan to make all providers interoperable to a decent standard within five years.
By far the biggest issue for the future of an efficient healthcare system in Australia is how isolated in the system GPs now find themselves on their current desktop patient management systems (PMSs) – mainly Best Practice, Medical Director and Zedmed.
Cloud based patient management systems have been built over the past few years – MediRecords, Clinic to Cloud and Helix by Medical Director are the main ones – but none have made any meaningful inroads into general practice because the nature of how GPs operate – that they have to talk to so many different parts of the system.
Cloud vendors simply couldn’t afford to build all the legacy integrations needed that GPs have become used to because almost all of those integrations are old technologies based on server bound architectures and the nature of the builds are highly variable because there are so many different types of suppliers at the end of an integration. And each usually sits at a different point of technology development; for example, pathology providers, payment systems, secure messaging providers, booking engines, Medicare, the PBS, drug interaction databases, and so on. It’s a mess. But one that would be cleared up by a federal government mandate on interoperability standards.
Keeping up with these integrations is a nightmare for the existing major GP PMS providers. For cloud vendors, getting anywhere near the functionality of the existing providers, and then keeping up, is sunk cost that none of them could afford or justify to their investors.
In a sense GP land has been stranded on a desert island of severely limited ability to share data by these market forces.
But now two factors are set to break the pattern and the market wide open.
First, if the government brings in its mandate on interoperability for providers (which it must do) then GPs will have to move to cloud-based systems within about five years.
It’s very important that the government is the bad cop here, because GPs don’t like to change, and neither do their PMS vendors. Changing is risky, timely and at some expense.
If the government forces the change, the path will be smooth for Telstra (and others).
The problem is so overt that in Telstra Health’s press conference today, CEO Mary Foley was at pains to say to the GP community that the company would be supporting and investing in the old Medical Director desk top system, as well as its troubled cloud-based Helix system. She said that the company would not be forcing anything on GPs, but would be seeking to work tightly with the GP community in designing systems they wanted and needed. Such positioning has the whiff of some good due diligence on Telstra’s part. They know GPs are reluctant and pushing them might be an early brand killer. They are pitching themselves as the GP friend. Which conveniently leaves the government to make the hard but necessary decision on forcing GPs out into the open standards world of FHIR, open APIs and the web.
As one of our most monolithic corporates, Telstra the Telco, hasn’t got a great name for working closely with its community of users. Telstra Health is obviously aware of the this too and emphasising strongly that it will be seeking to partner with the GP community is the right approach at the start.
Although many might cringe that Telstra is involved, it should be music to GPs ears.
Despite the fact that in global terms the sector has been served well over the years by Medical Director and Best Practice in relative terms to GPs in other markets, GPs in Australia remain very frustrated with what their PMS do for them and how they work. And today, the systems are outdated and are isolating GPs from a lot of market potential in accessing new services around aged care and hospital servicing.
The planets might be aligning here for everyone.
Telstra has bought a huge footprint of GP PMS installations and has immediately offered an olive branch to say “we understand your pain and we are on your side” and the government is taking the fall as “bad cop” and will say to GPs they only have only years to get on board with far more interoperable technology.
Telstra doesn’t have to take any heat for pushing this issue on its new base of customers, and Telstra is one of the only companies that has the money to build out a truly interoperable cloud-based version of Medical Director with all the bell and whistle integrations needed within the period the government will set.
At the same time, all those services which have old technology at the end of the current PMS integrations will have to change their systems as well, which means they can work in concert on the problem with Telstra over the next few years.
This, and Medical Director might have at least the frame of a cloud-based solution already in Helix, which may give it some head start on its major competitor Best Practice (Helix has been plagued with tech issues and ex-employees claim it isn’t a real cloud solution).
Now if you’re a Best Practice customer, especially a recently onboarded one, of which there are apparently many as Medical Director has been bleeding customers a lot in the past couple of years, you might be groaning a bit at these changes.
But you’d have to think that Best Practice isn’t going to sit idly by and let Telstra start eating its hard-earned lunch starting in a couple of years’ time.
Best Practice almost certainly is not going sit on its current brand position of market leader, customer service leader and all-round Australian led bunch of good guys.
For one thing, the group is owned 30% by Sonic, which still owns the largest single GP corporate clinic in the country, IPN, and IPN will need their cloud solution like everyone else will in five years’ time.
When the federal government puts its five-year interoperability standards policy in place the gun goes off for everyone, not just Telstra
Frank and Lorraine Pyefinch and Sonic won’t be twiddling their thumbs and thinking about what to do. They’ve already been thinking about it for a couple of years. They will likely be ready.
Best Practice has been developing and investing in a cloud version to some degree over the past few years, and now we should expect some serious escalation in intent, and investment. Without question, Best Practice will be ready with its cloud offering and depending on the condition of Helix, maybe even be ready before Telstra is ready. It’s surprised the market like this before.
The race is on.
It’s going to be intense, and you would not want to be a local software vendor who has to keep up with the capital Telstra and Sonic can put behind such a race. But the outcome can only be good for general practice, because in the not-too-distant future you will have Telstra asking you what you want, presumably Best Practice doing a bit of asking the same thing in response to that, and eventually, you should have a patient management system that is:
- Mobile where ever there is internet
- Operates on any system, including your phone and tablet
- Shares data and clinical notes seamlessly among all the doctors in your practice and all the doctors across all the practices in your group (with appropriate privacy restrictions)
- Talks fare more meaningfully to your patients, which should help with retention and upselling of services
- Interacts seamlessly with important new client bases, most importantly in the near term, your local aged care facilities, and then your local hospital for more aligned post-operative in the home virtual care
- Allows your practice to expand into other virtual services via telehealth
- Starts talking to important allied health providers, probably mental health providers in the first instance
- Talks live to your patients so they have not only their own personalised electronic health record tied to your servicing, but also a whole lot of other related services that will come from your being able to link directly with your patient’s mobile on a daily engagement basis
- An ability to connect quickly too and talk seamlessly to a myriad of emerging patient sides apps which until now have had limited connectivity to GPs because of the older technology
- And so on…
This race is the most important one ever in the history Australian healthcare technology because it’s going to make general practice interoperable and, in a future where aged and chronic care are the centre of everything, so must GPs be.
It affects every far-reaching aspect of the system, most importantly the interaction between general practice and hospitals, and aged care. Developed correctly, these systems will mean GPs can be the genuine hub for effective chronic care management between these other important sectors.
And within the GP sector such agility and flexibility in being able to share data with the rest of the system will surely start some interesting dynamics between corporates and entrepreneurial doctors who have a feel for their patient communities and how they want to be serviced into the future.
At present there is much talk that technology is favouring size and as such corporates or versions of corporates will start growing at speed. That amalgamation will become the norm and many GPs will need to accept working in a corporate environment.
But universal availability of technology like this may act to even the playing field rather than concentrate it. Groups of likeminded and entrepreneurial GPs may be able to get together to be able to compete in some way with the corporates via forming alliances or co-ops. Or small groups will be able to offer servicing that matches that of a slower moving corporate.
All in all, it’s hard to see these changes as bad for the GP sector, especially given that if you’re a Medical Director user you have a new owner who wholly recognises they’ve bought a company with a pricing, servicing and imaging problem, and initially at least, are all ears.
All that is needed for this picture to be possible is the federal government to step up with its starting gun and put in place its mandate on interoperability and standards.
That’s not an easy thing for any government group to do. But it’s the only thing they can do under the circumstances. Anything less will doom us to slipping and sliding around for the next five years around cloud and interoperability like we have for the past five years.
It’s not like the vendor market has any political clout, and it should be all upside for doctors, so although it’s going to be unpopular with providers and vendors to start, we all know it’s for the greater good.
Last word, surely this makes Telstra Health our first digital health unicorn in Australia (valuation of $1 billion or more).
Add PowerHealth’s $120 million to Medical Director’s $350 million and you’re halfway there. Now, add a decent amount extra for synergy implied in this acquisition for all the other Telstra assets, and the $120 million or so that all the other assets generate.
I think they’re there … today at least. If they are able to execute even a half of their bold vision here, all of which still has a high degree of difficulty, they are going to easily double that in a few years’ time.
In the meantime, the sale must have automatically revalued a lot of other interesting properties in the digital health market.
Some to keep an eye on include Best Practice, Gentu, Alcidion, CareMonitor, coreplus, HotDoc, HealthEngine, Clinic to Cloud, MedAdvisor and MediRecords, to name a few.
Declaration of Interest: The author is a non-executive director of the cloud patient management system MediRecords.
