Most Interesting Vendor: Merge Healthcare: Imaging Informatics at a Crossroads

Sept. 22, 2014
After a period of impressive growth and expansion in imaging informatics, in which PACS and RIS technologies became universalized and in which concepts such as the VNA and image management became widespread, the imaging informatics sector has been buffeted by a series of developments in the policy world that have made continued expansion a riskier bet.

Hedging bets in healthcare IT has always been a tricky thing, and never more so than these days, in the area of imaging informatics. After a period of impressive growth and expansion, in which PACS (picture archiving and communications systems) and RIS (radiology information systems) technologies became universalized across U.S. healthcare and became progressively more integrated with one another, and in which concepts such as the vendor-neutral archive (VNA) and enterprise-wide image repositories and image management became widespread, the imaging informatics sector has been buffeted by a series of developments in the policy world that have made it more difficult to bank on the idea of continuous expansion in imaging informatics investment.

It’s a bracing time in the industry for vendors operating in imaging informatics—even the particularly smart vendors. And among the vendors with intelligent strategies, strong, well-respected solutions, and a bright future overall, Merge Healthcare stands out as illustrating how an imaging informatics vendor can have all those elements in place and yet still be struggling somewhat in the face of recent policy- and legislative-driven developments, most particularly the recent legislatively created delay for the mandatory transition to the ICD-10 coding system until at least October 1, 2015, and ongoing developments in the meaningful use program under the HITECH (Health Information Technology for Economic and Clinical Health) Act, as well as certain aspects of the Affordable Care Act (ACA), and changes to Medicare reimbursement, that are driving hospital and medical group consolidation.

At the Chicago-based Merge’s headquarters, all these policy-driven and policy-related waves have buffeted what had been a period of solid growth; with sales sliding in 2013, CEO Jeff Surges stepped down in mid-2013, and the company’s board installed Justin Dearborn, considered to be a protégé of board chairman Michael W. Ferro, Jr., who stepped down from the board last year. Dearborn is overseeing a period of retrenchment and cost-cutting, as the company moves to cut its debt level, while working to solidify its customer base and continue to expand its offerings to the market.

Justin Dearborn

Dearborn sees a few key factors guiding the conservative approach he’s taking with the company in the next couple of years. First, he says, the delay of the ICD-10 transition to at least Oct. 1, 2015 that came about because of Congress’s passage in late March of a bill to avert Medicare physician payment cuts, caused many leaders of patient care organizations to hesitate on moving forward with imaging informatics, now that they had an extra year to prepare for ICD-10. Second, he says, the investments being compelled by the meaningful use process have somewhat put imaging informatics in the shade. “As people look at the PACS replacement market, I think one of the key factors at play is what we’ve referred to multiple times as the ‘decomposition of PACS,’” Dearborn says. “Instead of replacing a PACS, they’re saying, maybe I can enhance what I currently have, without necessarily throwing it all away.”

As a result, the folks at Merge are recognizing that some of the solutions they offer are going to be purchased apart from complete PACS replacement. And that’s OK with Dearborn. “Last year,” he says, “we won 515 contracts over $25,000—and on the ambulatory side, anything above that is competitive. We won those deals based on product and people, not our balance sheet, so if we can get past the financial questions, we’ll be OK,” he added.

Part of the company’s future success may ride on the success of the iConnect suite of solutions, including the iConnect Network. As Merge’s website explains it, “iConnect Network allows hospitals, providers and imaging centers to exchange imaging information electronically with community physicians that are connected to health information exchanges (HIEs) or electronic health record (EHR) networks such as the Surescripts Clinical network Services (CNS).” The umbrella of solutions that includes the iConnect Network, as well as iConnect Access, the iConnect Enterprise Archive, and the iConnect Cloud Archive, could potentially give Merge a new lease on the market.

Joe Marion, principal in the Waukesha, Wis.-based consulting firm Healthcare Integration Strategies, says,  “I’m mildly optimistic about their trajectory going forward, if they stay focused. They did acquire some small concerns in the areas of orthopedics and ophthalmology. And if one were to look and say who has the breadth of imaging informatics compared to others, they have some advantage against an Agfa or a GE; against a TeraMedica or an Accuo, that’s sort of a non-factor, so they have to compete on both ends.” But, he says, there may be real advantage in terms of advanced visualization and additional feature/function capabilities via iConnect and its related capabilities. “If you move the long-term archive into iConnect, now you have a scaled platform that provides the universal viewing capability they have. They’ve got some pretty good pieces and some good installed base to build off. And the other thing, they leverage off Epic and Cerner.”

Scott Grier, an independent consultant based in Sarasota, Fla., who has been involved in the imaging and imaging informatics industry for decades, says, “I think they need something strong and new” at Merge. “I think they need to look into their basket of solutions, and they became so big so fast. Sometimes people need to retrench. And maybe taking a look at the bell curve, and carving stuff off to the left and to the right, and concentrate on some of the big core things that they believe they’re good at,” might be their best bet, he added.

Back at Merge itself, Steve Tolle, the company’s chief strategy officer, says that “Our strategy is to prepare our clients to be the narrow networks for imaging. Employers, if they’re not self-insured, will probably put their employees into some kind of exchange run by health plans; and hospitals will start take on the role of payer for their employees.”

Steve Tolle

In the end, CEO Dearborn says, “Obviously, imaging informatics is all we do, so we have to be ahead of the trends; so we have to be a good partner with our customers, and need to be,” going forward. “I think we’ve been a good partner, and will continue to be. So we’ll continue to be focused on that imaging side, and everything around that ecosystem that we can bring to the table.”

No one can say for certain what will happen in the imaging informatics sector in the next few years, but with solid strategies and hopefully a dash of luck, Merge Healthcare should continue to move forward steadily into the near term future in that sector on as solid a footing as any vendor in that area. Certainly, it’s a sector worth keeping an eye on going forward these days.

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