HIStalk Interviews Jeff Surges, CEO, Merge Healthcare

Jeff Surges is CEO of Merge Healthcare of Chicago, IL.

Tell me about yourself and about Merge Healthcare.

Merge Healthcare is a leading provider of imaging information systems. Over time, it has consolidated a number of acquisitions in the imaging space, neutral archives, PACS, and branched that out to any provider looking for solutions that an image would follow in the –ology or –ography space. Publicly traded on the NASDAQ, 730 employees, and aspiring for the future of interoperability and connecting to electronic health records.

I’ve been in healthcare IT on the vendor/provider side since 1995. I’ve been with a number of companies on the management team. Built, taken public, sold to HBOC back in the day, funded my own company called ECIN, which was a start-up that helped case management and discharge planning, ultimately sold that business to Allscripts in 2007, was on the senior leadership team for Allscripts during their acquisitions of Misys and most recently Eclipsys. I joined the board of directors of Merge back in June of 2010 and joined the company as chief executive officer on November 9, 2010.

You ran sales at Allscripts and Michael Ferro said you were chosen for the Merge CEO job with one of your responsibilities being to build a similar sales organization. What’s involved with that and what’s the desired result?

I think that what we find similar in my past and the opportunity here at Merge is solution selling, consultative selling, and relationship-building. Those are the three primary objectives if you want to gain the trust of CIOs, COOs, CEOs, and CFOs. Having experience in this business is important.

A key ingredient in both my Allscripts days and here at Merge is successful products, successful teams, and building great relationships with clients and partners and your employees so that the word trust is what ultimately binds everybody together.

Merge’s portfolio creates that opportunity on the back side. Bringing in and complementing the existing team with industry people throughout that have similar qualities that we look for will help Merge with that message as we educate people about the new Merge in the coming years.

You mentioned in the recent earnings conference call that Merge is a well-kept secret, but a lot of the news about it has involved fluctuating share price, executive turnover, and boardroom drama. As you’re trying to get the word to the two publics that you sell to — the IT departments and the radiology decision-makers — what message do you take to them?

I think what has always worked for me in the past and the companies that I’ve worked with is to prioritize your clients as the top of the food chain and talk about your value proposition — the problems you solve, the return on investment you create, how your systems compliment their existing strategies as they lay out five-year plans and strategies for their own businesses. We have to position ourselves to help them be successful, because inherently their success becomes the company’s success.

A lot of the historical perspective on Merge is good reading for the weekend, but it doesn’t solve client problems and it doesn’t return value to the customer who bought the application. I think if we follow suit, which I’ve been able to do in the past, the DNA of the company is really client-driven on solutions.

One urgency is that PACS has become a price-sensitive market, almost a commodity, and big companies that sell other products can lowball their PACS price and make it up someplace else. Is that part of what needs to change about the business, or do you have a different strategy to compete in that environment?

Merge looks at the opportunity two-fold. One is to re-establish the value of the existing PACS system. Rip and replace sounds exciting, but is heavy lifting and requires a lot of money when dollars are tight.

The second piece then is to show how that investment can be re-traded to other value propositions and interoperability. Moving images across the continuum of care to vendor-neutral archives and moving that image to the electronic health record becomes a great complement with not a lot of investment. We can capitalize on what’s already a sunk cost and show value that way.

Imaging is on the upswing again, with people talking about sharing images beyond just looking at them for diagnosis. Do you see a fundamental change that’s a second wave of digital images?

I think the affect of ARRA and this Meaningful Use driver has asked people to not only implement electronic health records — and those winners are going to be decided in time — but then find the credible assets to add to the electronic health record. While interfacing flat-file data is going to be important to round out the view, nothing is going to be more important than the image. It’s one of the first things everybody asks to see. It’s one of the first things people want to get their hands on.

Yet inherently, prior to PACS, neutral archiving, and images being in an interoperable state, it was heavy lifting. You needed big pipes to move the data. I think what we’re seeing with cloud computing, hosted PACS, as well as Web access, you’ll see that images can move real time to accommodate the schedules of physicians every day.

I was interested that the company has said that more than 90% of the data that providers generate is in the form of images, which really makes them a key component of electronic health records. Do you think that Meaningful Use emphasizes images enough, or do you think that providers already know that and it doesn’t further emphasis?

I think Meaningful Use has provided radiologists and the whole industry with two opportunities. One is they can qualify for Meaningful Use on their own by getting to a certified EHR that has and meets the criteria. 30,000 radiologists in the country have a $44,000 opportunity each, which creates over a billion dollars of market opportunity to qualify.

Secondarily — and maybe more important to community healthcare, to accountable care, and this bundled payment story — is the interoperability of the image. For Stage 2 and Stage 3 funding, we are seeing the importance of the image being attached to that record. Whether it’s from the American College of Radiology, whether it’s from RSNA, or the eCoalition of imaging, we’re finding third-party constituents really rising up right now and talking about not only Meaningful Use for the radiologist’s practice, but for the image being a critical part of Stage 2 and Stage 3.

The early challenge was capturing and storing images, but now it seems it has advanced to the point that metadata is being used in different ways, where the image is more than a picture that you just go look at by clicking a link in the EMR. Where do you see the use of images in the EHR going?

We really have seen two focuses there. One is the general availability, which I would call, “How do I get access to the image?” Second, which is really the more important question, is, “What’s the quality of the view of that image — is it 3-D, is it a zero-client view, can I move it from a mobility or a cloud standpoint so that it’s a value-add to the decision that either a radiologist has to make on that study or that the physician has to make when making a care plan decision?” 

Early on, people want to review the investment on the PACS, but there wasn’t a quick way to do that. Starting to see the cloud, starting to see an iConnect share model allows you to move studies within your continuum of care and within your community. Whether that be called interoperability or intraoperability, you’re starting to see that. That will ultimately reduce exams, duplicative exams are what a lot of our clients call convenience exams — that is, “I don’t have my X-ray with me.” “Oh, that’s OK, let’s take another one.”

We want to help the efficiency model by moving that through the connection, as well as starting to track radiation dosage. If every time it was convenient just to go in for one more scan, you’re actually putting more radiation in somebody. California back in November made a law on tracking radiation dosage, we start to think about that for overall consumerism and patient health.

I wanted to ask you about interoperability and connectivity because I know it’s been prominently mentioned lately, especially with the iConnect suite that was pieced together from some of the acquisitions. How does connectivity fit in with where you want to take the company?

I think the ability to move the image and the ability to share the image — not only within a health system that wants to be efficient for their own owned entities, but then as you collaborate your care model in a community where you’re working with affiliate organizations — you have to be able to show up with a model that says, “Not only can I move the records, but I can also move the image.”

iConnect in the value proposition suggests that you can move it from within the system and outside of the system by connecting it to the interoperability standards, connecting it to our third-party partners, and connecting it to government or federal-type opportunities where for Medicare and Medicaid, the uninsured scans are some of the most expensive ones out there today. It’s an efficiency play, and it’s the ability to really complete the record for 70 to 80% of those records that require the image to be present.

If you look at your competition, what advantages does iConnect give you?

Most importantly is that it’s available today. We have customers that are using it. We’re moving images electronically in the operable state. 

What we continue to see is people wanting to know what it’s going to be like and what they’re planning to build. We have existing customers – 1,500 hospitals, 6,000 imaging centers — that today say, “I need to move those images now. How do I get started with my connectivity story?” We can actually start implementing that.

There are existing community models out there, whether it’s with our partners on the electronic health record side or new name partners that want to collaborate to move the image. You have to be able to show up under this time-sensitive trail of Meaningful Use and say you have it, you have it available, and you can meet the project plan. 

Years ago, without a Meaningful Use carrot and stick, you had a lot of people saying, “Well, we’ll delay. We’ll go live next year. We’ll go live next year.” I think the sense of urgency to capture the reimbursement is really the call to action to get people excited, but I think the end-state of a complete record has the radiology industry excited and the overall connectivity play.

The sense of urgency must include HITECH and the potential for Accountable Care Organizations, where images may need to be shared with folks who haven’t been shared in real time before. Is that what your customers are telling you is most important to them right now?

Yes. Back in November at the RSNA show here in Chicago, one of the recurring themes we heard loud and clear from not only OEM partners, customers, and prospects was that this time is now. We have to move now, because of the sensitivity of not only meeting the standards, but the timeline. The larger hospitals and health systems have longer plans, but they have to start now.

Some of the other radiology centers are just learning about this, so there’s almost a catch-up mentality going on in this industry that wasn’t present in my last industries where Meaningful Use and EHR was front and center. This one here is catching up. I think Merge has an opportunity, as does the whole industry, to quickly educate and facilitate this transition.

How have mobile devices impacted your business and the industry in general?

We continue to think of mobile devices and mobile computing as an ongoing opportunity. I think Merge, like everybody, saw the iPad and the iPhone and the Droid as something that they quickly had to showcase, but then practically had to figure out what the longevity, what the real value was.

On the imaging front, you have to be able to have a quality image that somebody can read real time to make an informed decision. So not only is the end-state of the device important, but the quality of that image, the way to move that image, and to do in seconds and not minutes becomes the priority. Having the end-state solved looks good. It is all the work that the client expects to be able to move that image quickly when time is of the essence, so, we see a lot of focus on the speed and the cloud, more so than the device right now. That seems to be solved.

It appears that Merge has multiple PACS and archiving products that overlap. Are there plans to change the product line?

Most of our focus in on, not only the current client and the retention on their investment, but really focused on the next generation. That kaleidoscope, so to speak, allows us to take existing functionality from only a couple of systems and bring it forward, partner with our advisory groups and our clients, and build a next generation of PACS or next generation of neutral archive. 

iConnect is already bringing that to bear. We’re showing those results. We’ll continue to capitalize on the iConnect investment that sits on top of, in many cases, the current customer’s opportunity, and then can also show an upgrade methodology for some of the systems that are maybe longer in the tooth that need reinvestment because the customer strategy has changed.

But you have no immediate plans to retire or sunset any products?

Most of our announcements that we’ve made around products were made at each of those acquisitions to those clients. We have not come out recently our plan to announce any big sunsets. We have a user group for over 600 client attendees coming in the late spring-early summer and our teams will be hard at work, working with clients on showing them how to upgrade, how to move for Meaningful Use to qualify, and how to get ready for interoperability and iConnect.

It’s been almost a year since the AMICAS acquisition. How would you say that’s gone?

If I were to qualify and judge that by the client attrition, I would say it’s an A-plus. The client base within AMICAS has been impressive in terms of their utilization and impressive in terms of how they extract value from that investment.

I think the uncertainty around “who’s on first, what’s on second, I don’t know’s on third” has presented Merge with a great branding opportunity to showcase where we are today, where we we’re going, and why that client base is so important to Merge, and again, focusing on the client. The back half of FY10 and all of FY11 will be really focused on our customer base, which is large and growing and valuable to the company.

In that regard, are you generally happy with the KLAS ratings and the trend within those for your product line?

Again, I want to reiterate that so much of our acquisition strategy over the last 24 months — it started with the end in mind, which is as we saw interoperability and we saw Meaningful Use coming, we had this asset called the image. Strategically, each one of our acquisitions that we’ve made all have a similar theme. They’re complementary to the overall image and its importance to the record, and it stayed in the interoperable world. I just wanted to make sure that that was clarified. That’s an important base.

Yes, I actually am very pleased with not only many of our KLAS ratings, but the amount of people that are filling out the surveys. Because what you ultimately want is feedback to improve. As I deep-dive into the KLAS surveys, as long as we’re getting feedback, we’re getting told where we’re strong and where we can improve and again, having some history with KLAS in my past, I’m pleased with where we start from here. 

In the state of an acquisition, it’s always an anxiety state for clients, but to be in some of those ratings, I feel that’s a place that we can improve on and it’s a goal. It’s the feedback loop that KLAS actually gets for you that you have to have as a trusted resource. That’s one of the ways I view it.

The company has, seemingly to me, pretty quietly moved into software clinical trials, laboratory information system, and anesthesia via acquisition. What was the attractiveness of those markets and how do those products fit in?

Each of them has a unique component to the story. The acquisition of the AIMS Anesthesia System starts to bring us into a perioperative state, starts to lean into the view of surgery and where there’s images. That documentation and that certification is an important asset to have. It also gets us connections to devices, which in many cases as you know, to complete a record, you have to have device connectivity.

On the clinical trials front, we have long seen a growing interest in imaging. As our portfolio stack has the image as its interoperable value point, the portal to clinical trials allows all radiologists that are looking at studies from around the word to view into clinical trials and to take full advantage of any trial opportunity that can lead to an opportunity for enhanced care. The etrials acquisition years ago was a thought-provoking one that recently has started to grow in our own portfolio. The interest level for radiologists to view and search for clinical trials within the portal gives us a great opportunity.

The last you asked about, lab, was really an opportunity for us to get data in a quantitative state so that we could link it to images, pull it through the devices, and start to really connect lab and lab information to the image. We think that’s important. We also looked out a little bit and see the digital pathology, digital oncology, and if you take the blood tests alone which are all on film and convert that to digital, you can quickly see the size and the capture rate of what would need to change in those business models. The laboratory information system is a way for us to walk into that industry, learn about the industry, and pull the image into that model.

If you look down the road three to five years, what, where do you hope the company goes or what changes would you like to have made by that time?

I said on the first day I started that I thought Merge had a head start over all of its competitors in the imaging space because of the acquisition and the strategic acquisitions it took on. I think there’s a billion-dollar opportunity here.

I’ve been part of two different companies as a part of a key leadership team to grow businesses. I think Merge has the culture, the portfolio, and with the stimulus reimbursement, interoperability, and connectivity, I think a marketplace has been created. Typically you can plan for two of those, but you need a third market to suggest that itself is available. That’s what I think we found in the connectivity play and the interoperable space. 

I continue to not only see Merge leading on the radiology and information technology side, but I also think you’re going to see much more consumer advocacy around health records, wanting their image locally or resident to their personal record. I think this radiation dosage is going to be a call to action on consumer activism. I think Merge is going to look at over millions of images being scanned and taking place a day as an opportunity to participate in a leading capacity in this industry.

Any final thoughts?

We continue to look at the current landscape in healthcare, healthcare IT, and look forward to not only this coming HIMSS, but also the next pronouncements on Meaningful Use Stage 2, Stage 3, the importance of the image. As we’re seeing not only on behalf of our clients, but on behalf of the marketplace, people are starting to realize that the most important piece of a record is the image. It’s the picture, it’s the view, and it tells a lot of the story that’s important to have if you’re going to set up a care plan or a treatment plan.