Edward R. Daihl is CEO of Surgical Information Systems of Alpharetta, GA.
Tell me about yourself and about SIS.
SIS was founded in 1996. We’re exclusively focused on the perioperative marketplace.
I joined the company in 2006 as a CEO, coming from various high-tech areas. My last couple of jobs were in the supply chain industry, CEO of a company called CAPS Logistics where we did everything from telling hotels where to put their new facilities to routing trucks for Walmart.
I’m proud of project we built that tracks wounded soldiers off the battlefield. We built a database that had 100% of all the transportation available to the military for taking patients to the hospitals and had 100% of the available beds and specialties by location and filled out a rule-based system for them. For example, if you had a broken back, you only landed once. We had soldiers that were landing up to three times with broken backs before they actually went into surgery before we built this system. I got a lot of personal reward out of that.
I then had an opportunity to come and work at SIS as CEO and move into a healthcare field full time. I’ve enjoyed every minute of it.
Norwest Equity Partners acquired the company in January. Explain why one private equity firm would sell to another and how that affects the company and its customers.
Private equities usually have a goal of where they want to take the company. When they achieve that objective, they’re looking to move out. We had multiple strategic partners approach us unsolicited and ask to acquire SIS. We decided that we needed to do a formal process rather than just talking to one or two partners.
In that process, NEP decided to bid on the company and was the most aggressive bidder. What they saw was the potential to take us even further than it is today and keep us still laser-focused on the perioperative suite. They fully saw that 60% to 70% of the revenue in the hospital comes from the OR. They’re convinced – and so am I – that there’s a lot more for us to do in this marketplace, both here and internationally.
Looking at it from the outsider’s point of view, what is it that makes the business you’re in attractive and what will it take from your new partner to make it better?
A couple of things are very attractive about SIS. We are growing, and have historically grown, at a little bit over 18% in a marketplace that has a 9% growth. We were growing at twice the rate of the marketplace. We were #1 for 2010 in market share as far as new deals in the marketplace, at 21% market share here in the US. We’ve also developed a whole line of additional products that we’re just starting to field to the marketplace that will also drive up the revenue significantly.
Last but probably most important is our position in anesthesia. We’re one of three companies that have an integrated anesthesia product with their perioperative suite. Epic, Cerner and ourselves are the only three. That leaves us as the only player you can go to if don’t want to implement someone else’s full enterprise-wise solution just to be able to put in the surgery and anesthesia solutions.
The Millennium Report predicts a 27% compound annual growth rate for anesthesia information systems over the next five years. SIS is currently ranked #1 or #2 in KLAS for our anesthesia system, with over 94% of the respondents saying they’d buy SIS again. The combination of our position already established in the anesthesia and the rapid growth projected through the next five years was a significant reason for NEP’s investment in SIS.
What does the investment let you do now that you couldn’t before?
Two things fit the profile of NEP. Their mantra is about improving client satisfaction and significantly growing the company in the marketplace and gaining market share. I am working with them on a three-year strategic plan on how to significantly grow SIS faster than we have already, and we already are at two times the industry rate.
We will look at what can we do, what acquisitions we might want to make, what investments in technology that we want to make as an organization to enable us to grow more rapidly, plus how to improve our client satisfaction as we’re going. I really believe that that’s one of the key benchmarks for your success going forward. We have a 98% retention rate right now of our clients, but we want to improve client satisfaction even more and move forward.
Sometimes people overlook that private equity companies don’t provide just ownership, but also certain expertise and focus. What does NEP bring to the table?
Norwest has a very good research staff. We’re working on a strategic plan about adjacent markets we might want to move into. The data I need to make those decisions is available to me through them. They have a team that will work with me.
NEP will provide an executive member of my board who is an investor with Norwest and has been the CEO and chairman of a software firm that’s at $300-400 million a year in revenue. We have that expertise to bounce ideas off of and to work moving SIS even further.
The book The Ultimate Question talks about good profits and bad profits. Bad profits are ones that cause you to have lower client satisfaction. You need to run your company off of what’s called a Net Promoter Score, which is what percentage of your clients would say that they would recommend you to their best friend. You establish a Net Promoter Score goal of where you are and where you want to get to.
That’s one of the methodologies that NEP has used in several of their companies. We’re in the process of adopting it here. It requires to survey every one of your clients — not just paper surveys, but to physically calling them — and finding out what their satisfaction levels are and what you can do to improve.
We were doing our annual surveys with our clients, but we weren’t trying to develop a benchmark that we could say, “I’m improving every year.” I would just have a higher percentage of satisfied clients versus unsatisfied clients. Now we have a benchmark that will measure the whole company in improving client satisfaction.
When you look at your client base, what would you say are their most pressing issues in the OR/perioperative-type areas?
One is an ongoing shortage of staff. As you look at the increased volume that we’re getting in the surgery marketplace, there are fewer surgeons and nurses available to handle that volume.
The other is the reduction in reimbursement and the change in reimbursement rates. They need to be more efficient as an organization. You’ve got volumes going up and reimbursement going down, and then a shortage of labor.
There is a substantial market opportunity in anesthesia documentation, right?
Absolutely. From market reports and our own anesthesia advisory board where we have 11 independent anesthesiologists, we believe there’s only between 13% and 15% market penetration right now in anesthesia information systems.
If you look at the pending Stage 2 of Meaningful Use, I don’t see how you can operate a hospital without having an anesthesia information system in place. You you need to track when you intubated the patient, what drugs you gave, what reactions you had to drugs, and be able to report that back in a digital format. I think that’s going to drive anesthesia adoption tremendously.
Would you say Meaningful Use has affected your business positively?
I’ll tell you truthfully, it’s been neutral in the mid term because everybody’s working on getting CPOE in place. That seems to be the highest priority for hitting Stage 1, which didn’t have a lot of things impacting the OR department.
But if you look at what’s coming in Stage 2, there’s a lot more specific items that will cause the uplift that’s going on in surgery and in anesthesia. The Continuity of Care Document, the CCD, is going to make our job a lot easier to integrate with all the HIS players in the marketplace.
You mentioned your two competitors with a single perioperative and anesthesia database. Both offer an entire hospital information systems, while SIS is a best-of-breed provider. What’s your take on integration and interoperability?
I think it’s extremely important. You can’t survive as a best-of-breed player unless you’re also the best in interoperability. That’s why three years ago we joined IHE at the highest levels. We’ve been demonstrating our ability to do discrete level transfers of data back and forth.
As a matter of fact, this year at the interoperability workshop at HIMSS, you’ll be seeing us pass discrete data back and forth between most of the major players, including Epic. We’ve been pleased to see that they’re having that open of an attitude. Epic wins a lot of deals in being the total solution for everything, but at the same time on the technical end, they’re actively participating in IHE. I think they see that it will not be a world that they’ll own 100% of every hospital they’re in.
You mentioned that you’ll have access to research to look at adjacent markets and other opportunities. Where do you see the future opportunities?
We’re going to stay laser-focused on the perioperative arena, but there are things right next to it. Like should we build out software that will aid cardiologists in particular, or aid organ transplants? I want to be the absolute expert in everything to do with surgery.
We have had people ask us about moving our work flow product. KLAS tracks us in three areas; in our surgery product, in our anesthesia product, and in our work flow product, SIS Com. They’re all on the same database and all developed by us, but the SIS Com product can plug on top of anyone’s perioperative solution.
We’ve had people ask us about putting that on other vendor’s platforms and also taking that to other departments of the hospital. We’re looking at taking our product that’s based in the hospital, in the OR, and taking it more broadly across the hospital.
And then of course the whole anesthesia product line — moving into pain clinics, moving into mobile devices so that we can provide local anesthesia in what are not traditional locations.
Any final thoughts?
SIS is focused on the hospital OR. Quoting the CFO of one of my good clients, “The OR is the nuclear power plant of the hospital. If it’s going well, it provides all the electricity you need to make everything run smoothly throughout the rest of the hospital. But, if it blows up, you can’t run your hospital.”
We view the OR as the engine of the hospital. It’s also the area where you have the highest safety hazards. We look at improving the safety and improving the efficiency, and thus the profitability of our hospitals.
It’s been real interesting. In the last four years, we’ve added 53 new hospitals here in the United States. The #1 area we’ve grown in is an existing SIS hospital acquiring another hospital and putting SIS into that hospital. I really think that we impact the financial and performance and the quality of care delivered in a manner that’s helping our SIS-based hospitals grow in the marketplace, and us growing with them.