Last week, NextGen’s parent company, QSI, acquired open-source tools vendor Mirth for $59M. While a relatively small acquisition, it nonetheless will have an impact on the broader HIE market. Mirth’s toolset has an array of HIE components, notably its well-regarded Mirth Connect integration engine, the cornerstone of its commercial and open-source success to date.
The acquisition confirmed two critical points we made in our 2013 HIE Market Trends Report:
1) EHR vendors need new and better ways to support clinical interoperability in an increasingly heterogeneous EHR world and
2) that consolidation in the HIE market will continue unabated.
Mirth, was never a full-bodied HIE vendor, but has been a steady presence in the market as a component supplier to HIEs and HIE vendors, notably Harris and Covisint among others. Its open-source tools get potential customers in the door who can then convert to a commercial license. In a call with Mirth executives, post acquisition, they stated that today, there are nearly 650 commercial licensees of Mirth Connect – for clinical interoperability projects.
Mirth’s integration engine, Mirth Connect, is not as widely deployed in production environments as most of its competitors (i.e., Orion Health, Corepoint, InterSystems or Infor). However,, Mirth Connect has found its way into a variety of prototyping and testing environments for HL7 messaging and EHR integrations. For many developers and healthcare systems, its no-cost, initial cost has been irresistible to desperate HL7 developers around the industry with Mirth claiming some 25,000 active open source licenses out of the 100,000 plus downloads of Mirth Connect.
While Mirth Connect is the cornerstone of Mirth’s product suite, the company does offer other tools that are commonly found in HIE deployments including a data warehouse and master patient index (MPI).
Like other open source vendors, Mirth has grown by selling wrap-around services to healthcare organizations (HCOs) that use its solutions for more extensive and complex deployments. Accordingly, Mirth pops up on our radar screen in discussions with public and enterprise HIEs. Mirth has also been very active in the efforts of the EHR Vendor Affinity Group for the Beacon Community, convened by ONC. But despite its well-received tools and commitment to better clinical interoperability, Mirth has always been somewhat hamstrung by its organizational reach, resources and delivery capabilities.
With this acquisition, NextGen will now use Mirth products for the 90,000 physician users of its community EHR offerings. In speaking with a senior executive at NextGen, she informed us that NextGen plans to preserve Mirth’s independence, retaining the Mirth brand, staff, offices and existing partner relationships and software licensing terms.
We see this acquisition of Mirth as a relatively low cost way for NextGen to accomplish two goals:
1) Do what it could not accomplish internally; develop a cross-enterprise interoperability platform for its current and future customers.
2) Reinvigorate the company and its market luster.
Main Street Realities and Wall Street Expectations
Quality Systems is under pressure to change for two sets of reasons: the dynamics of the community EHR market and the requirements of Wall Street.
These are unsettled times in the community EHR market as physicians gain more day-to-day experience with EHRs, leading inexorably to heightened expectations for EHRs. While the giants of the community EHR market boast like Roman emperors about their offerings, single-digit market shares and rumors of mass EHR replacements have vendors looking over their shoulders. NextGen, like all community EHR vendors, has customer retention concerns and must take product actions so its customers can participate in new models of care at both the patient and population level.
The acquisition of Mirth is also a tacit admission that NextGen’s EHR Connect has not been entirely equal to the complex task of providing cross-enterprise EHR interoperability for its customers. NextGen EHR Connect, like similar offerings from most EHR vendors, does not readily support interoperability in a heterogeneous EHR environment.
While the company is making all the right noises about how Mirth can help provide more interoperable data to support new payment models and population health management, it is unclear why NextGen took this specific product action: buying – rather than partnering with – a company to achieve this goal. After all, plenty of HIE vendors, EHR vendors and HIT integrators thrive using partnerships to get any or all of the tools that Mirth sells.
The explanation probably lies in Quality Systems, Inc.’s (QSI) relationship to Wall Street. The company is now “dead money” in Wall Street lingo. It certainly has fared less well than some its competitors (see chart for an unflattering 1-year comparison with Cerner, athenahealth and even down on its luck Allscripts). A hedge fund owner forced QSI to take on three new board members this summer and reevaluate the company’s “strategy”.
This acquisition could be more related to how the company is perceived by Wall Street than Main Street HIT customers and partners. Buying Mirth was relatively cheap – $59 million reportedly – and, in the Wall Street worldview, a way to burnish NextGen, with its roster of captive physician customers, thereby making it a more attractive target to the usual roster of larger, acquisitive HIT and private equity companies.
Licensing Caution for Mirth Customers and Partners
For existing Mirth customers, product licensing could become problematic over the long term. While NextGen is committed to preserving Mirth’s existing open-source and commercial licenses, the pressure to deliver better revenue results is on at NextGen and the company will eventually turn its attention to increasing the revenue yield of solutions built with Mirth tools that are now spread across many HCOs.
For Mirth’s open-source customers, the transition to some kind of NextGen master license from Mirth’s Mozilla-derived license could introduce unwelcome changes in the form of decreased deployment flexibility or increased direct or indirect costs. These customers could experience higher than expected costs and contractual complexity as they expand their deployments to support new needs or more users. All Mirth customers risk being stranded on existing software as NextGen evolves the software and licensing terms of future versions of Mirth tools to suit its needs. NextGen’s commitment to or interest in preserving the licensing rights or upward compatibility of existing customers is a question mark over the long term. If QSI itself is acquired, that uncertainty multiplies.
For Mirth partners, the foregoing concerns could be more significant. We know that HIE vendors Harris and Covisint have relationships with Mirth under which they use a variety of Mirth tools. We can only hope that these and other partners contemplated that Mirth could be acquired – and its new parent could in turn be acquired – when negotiating the terms of their partnership agreements and licenses. If not, they and their HCO customers could be surprised as Mirth’s licensing terms change to meet the business needs of its new owners.
Granted, all Mirth customers have the current source code should NextGen indeed change terms and conditions in unacceptable ways, this may put some of these companies in the position of directly supporting the code base going forward.
Consolidation Continues and EHR Vendors Interoperate
The bottom line is that this acquisition is more evidence of consolidation in the market for clinical interoperability and for the technology stack found within HIE solutions suites. NextGen is not the only EHR company to acquire HIE technology with Allscripts having acquired dbMotion earlier this year and Siemens acquired MobileMD nearly two years ago. It is also evidence of EHR vendors’ need for better interoperability technology and the inadequacy of existing EHR vendor solutions for connecting care communities in the new world of payment reform.
If history is any guide though, HIE-related acquisitions by EHR vendors do not bode well for this acquisition of Mirth. Over the last several years several HIE vendors have been acquired by EHR vendors. In all cases, these acquisitions have led to the former independent HIE vendor to be but a shadow of its former self.