Quality Systems, Inc. Business Information, Profile, and History

Company Perspectives

The Company is committed to providing the highest levels of customer service and attaining equally high marks for client satisfaction and retention. QSI aspires to maintain a stimulating and challenging work environment for our associates and conducts its business affairs according to the very highest levels of business ethics.

History of Quality Systems, Inc.

Quality Systems, Inc. and its wholly owned subsidiary, NextGen Healthcare Information Systems, Inc., develop and market healthcare information systems that automate aspects of medical and dental practices, networks of practices, ambulatory care centers, community health centers, and medical and dental schools. NextGen focuses on medical practices, marketing electronic medical records and practice management systems for managing patient information, appointments, billing, referral, and insurance claims. The company's QSI division offers practice management software for dental and niche medical practices. Each division operates as a stand-alone company. Quality Systems, Inc. has corporate headquarters in Irvine, California, and other major facilities in Horsham, Pennsylvania, and Atlanta, Georgia.

1974-1994: Pioneering the Electronic Medical Records Field

In 1974, Sheldon Razin founded Quality Systems, Inc. (QSI), placing himself and his company at the forefront of the developing market for electronic medical records. Razin, a graduate of Massachusetts Institute of Technology, had held various technical and managerial positions with Rockwell International prior to founding QSI. As president and board chair of the new company, Razin oversaw the installation of QSI's first system in 1976. In 1979, QSI implemented managed-care features into its systems, anticipating the mainstream introduction of capitalized health plans.

The company tended toward growth, but with some ups and downs. After it went public in 1982, it reached revenues of $11.5 million the following year. In 1987, however, revenues were back down to $9.6 million. They fell further in 1989 to $8.8 million before heading up again, to $9.6 million in 1990 and $13.1 million in 1991. By 1995, the company had more than 450 clients in 45 states as well as in Canada and Saudi Arabia.

1995-1998: Branching Out into Dental and Medical Practice Management Software

Also in 1995, QSI partnered with Clinitec International, Inc. of Horsham, Pennsylvania, a company that had been developing and marketing electronic medical records software, or practice management systems, since 1979. The following year, QSI purchased the remainder of Clinitec's shares and absorbed the company into itself as a wholly owned subsidiary.

Clinitec's product, NextGen, permitted scanning, annotation, retrieval, and analysis of medical records in all formats, whether documents, photographs, or x-rays. NextGen's Patient Records System, an electronic medical records system, integrated completely with QSI's Practice Management System. It captured clinical data in custom-built templates that could be accessed through PC workstations or handheld wireless tablets.

By the end of 1996, 5,000 dentists in large group practices were using QSI's office-based practice management systems, whose software applications allowed for patient registration, online appointment scheduling, patient billing, electronic insurance claims processing, managed care, referral tracking, management reporting, and word processing.

At the same time, new competitors were making significant inroads into the electronic practice management market, and demand for QSI's products was weakening. To increase its market share, QSI rolled out QSINET to reach the 80,000 small dental practices in the United States, few of which could afford the thousands of dollars it cost to install a dental management system. QSINET allowed solo dentists to access a practice management system via the Internet. It offered up-to-date information on insurance eligibility and benefits as one of its main advantages.

The following year, 1997, QSI also acquired MicroMed HealthCare Systems Inc. of Atlanta, Georgia, which became its second wholly owned subsidiary. MicroMed provided physician practice management systems via a master patient index and enterprise-wide scheduling. In 1999, QSI combined its subsidiaries into its QSI division.

Both the QSI and NextGen divisions each operated as a stand-alone company. QSI offered practice management software for dental and niche medical practices, while NextGen focused on medical practices, marketing electronic medical records and practice management systems for managing patient information, appointments, billing, referral, and insurance claims. The system itself generated chart notes, produced necessary forms, checked for drug interactions, faxed prescriptions, printed patient education materials, and sent an electronic charge record to billing.

Both NextGen and QSI distinguished themselves in the field of electronic management systems by their products' flexibility. "Our customers have complete control over screen design, logic flow, and all output," explained Patrick Cline, founder and head of Clinitec in a 1998 Directory of Medical Computer Systems article. "The user interface seems so simple because it's what the provider's accustomed to using."

1999-2006: Steady Growth in the Face of Governance Conflict

The year 1999 was a profitable one for QSI with revenues of $34 million and earnings of close to $600,000, compared to $4.6 million in losses the year before. However, overshadowing the good news was a conflict that erupted between Razin and a group of QSI's investors, led by Ahmed Hussein and Andrew Shapiro, who sought to change control of QSI's board of directors.

Trouble had already begun brewing for the company in the spring of 1997. After QSI's stock price dropped more than 80 percent during the second half of 1996, a group of shareholders filed a class-action lawsuit against QSI for misleading stockholders. In March 1999, a second shareholder lawsuit alleged poor corporate governance. Hussein, an Egyptian investor, who owned 18.5 percent of the company, and Shapiro, president of San Francisco-based Lawndale Capital Management, which controlled 10 percent, accused Razin, who himself owned 25 percent, of deals with large investors to retain control of the board. They pointed to poor growth as a sign of poor management. QSI's single-digit and low double-digit growth was "nothing to brag about," according to Shapiro in a 1999 Orange County Register article, when "industry peers [were] chewing up ... market share with 25 percent growth."

Hussein and Shapiro put forth a proposal for consideration by QSI's shareholders during its annual meeting in September 1999. This proposal set guidelines for an independent board of directors and excluded Razin from being board chair. In August 1999, Razin instituted virtually all of the corporate governance measures Hussein and Shapiro proposed; he backed down as chief executive officer of the company in April 2000. Patrick Cline of Clinitec, meanwhile, became interim chief executive officer, replaced in 2000 by Louis E. Silverman, who became both president and chief executive officer. Silverman, who held a master of business administration from Harvard Graduate School of Business Administration, came from CorVel, where his leadership strategies had resulted in record revenues.

By 2002, QSI had a client base of about 10,000 physicians, which represented about 6 percent of the market for practices with 50 or more doctors and 3 percent of the market for practices with ten to 49 doctors. However, practice management had become much more competitive, and, as a result, QSI pushed to get as many systems in place as quickly as possible. "The horse race is an adequate characterization," according to Silverman in a 2002 Investor's Business Daily article. Although revenues had grown to $44 million in 2001, with fewer than 10 percent of U.S. medical practices utilizing adequate information technology systems, "[a] lot of our task is to get the word out, let doctors know it exists. Adoption of these systems has been a stumbling block because physicians are resistant to change."

To increase revenues, the company embarked on a three-pronged approach to expansion. Beginning in 2001, it launched an advertising campaign targeting IT-related medical journals. It expanded its sales force by about 30 percent a year. The company also began to collect client testimonials on the benefits of its products. The passage of the Health Insurance Portability and Accountability Act, HIPPA, in 1996 had also proved a welcome boon to QSI in its expansion efforts. While designed to simplify transactions and protect patients' privacy and the security of information, HIPPA became a burden to medical practices because it dealt with the exchange of clinical and administrative information; it was difficult for doctors to comply with HIPPA without an electronic system.

By 2003, in part thanks to HIPPA and in part because, as Silverman observed in a 2003 Investor's Business Daily article, "[t]he practice management market, or the billing and scheduling software market, [was] a far more established market that [was] nearly fully penetrated," QSI chose to focus on electronic records management as its area of growth.

NextGen had become QSI's main growth driver. In 2002, it introduced NextGen PDA, which let doctors gain access to a patient's medical records, enter lab orders, get results, and write prescriptions via a handheld personal digital assistant (PDA). In 2003, NextGen's sales increased about 21 percent per quarter. With only about 5 to 20 percent of practices having made the switch to electronic records, there was plenty of room for continued growth.

In 2004 QSI made Forbes magazine's list of the 200 best small companies at number 32. The following year, it moved up to occupy 11th place. QSI also ranked among the hottest growth companies on BusinessWeek's 2004 list. Although Ahmed Hussein again publicly questioned the independence of the QSI board in 2004, calling the compensation packages that members voted for themselves and company executives detrimental to shareholders' interests, company revenues continued to grow, reaching $89 million in 2005 and $119 million in 2006. In fact, the firm had grown in sales and profit every year since 1999, doubling in income between 2004 and 2006.

Principal Subsidiaries

NextGen Healthcare Information Systems, Inc.

Principal Competitors

AMICAS, Inc.; Cerner Corporation; IDX Systems Corporation; CareCentric; CPSI; Eclipsys; Emdeon; Epic Healthcare; Global Med; MEDITECH; Misys Healthcare; QuadraMed; QCSI; VantageMed.

Chronology

• Key Dates
• 1974 Sheldon Razin founds and incorporates QSI.
• 1982 QSI holds its initial public offering.
• 1996 The company purchases Clinitec International.
• 1997 QSI acquires MicroMed HealthCare Systems Inc.
• 1999 QSI merges MicroMed and Clinitec into a single company.
• 2000 Razin resigns as head of the company; Patrick Cline becomes interim chief executive officer, replaced by Louis E. Silverman.