Item 6. Description Of Business 1
History
The founders of MD Technologies began developing software solutions for the
healthcare industry in 1993. Initial development of the Medtopiaapplication
began in early 1995 when the founders of the Company decided that the emerging
growth of the Internet introduced a significant opportunity to create innovative
solutions for the healthcare industry. After several years of modifications and
re-engineering the product, Medtopia went live on the Internet with its first
physician in November of 1998. We believe that, at the time, Medtopia was the
only completely web-based practice management system on the Internet. Our
founders struggled to find customers willing to use the product, as the Internet
was a relatively new and unproven medium for business applications. Likewise,
the idea of businesses storing their data on remote servers and renting, rather
than purchasing, their applications was a relatively foreign concept. However,
as the Internet became more ubiquitous and generally accepted as a business
medium over the following two years, we began to find more and more customers
willing to embrace the technology and the product.
Recognizing the need for assistance to adequately develop our applications and
implement a realistic distribution plan, our founders incorporated MD
Technologies Inc. on February 25, 2000, in the State of Delaware, in order to
raise capital to exploit Medtopia at a time they felt that the industry was more
accepting of Internet based applications. We remained in a strict research and
development mode until January 2001, when we began a formal strategy of
acquiring customers and revenue at a steady, consistent pace with the
implementation of a sales force and marketing strategy.
As more customers began to use the Medtopia applications, we also began offering
accounts receivable management services to complement the sales of the product
and add new revenue to the company. We began offering these services to
customers in 2002 and have grown our customer base and revenue for these
services steadily. Since January of 2002, we have grown our entire customer base
of all products and services from 21 customers to 168 customers as of December
2004.
Public Offering of Shares
On December 17, 2003, we qualified a public offering of 1,675,000 shares of
common stock at a price of $2.40 per share in accordance with Regulation A (the
"Offering"). On December 22, 2003, our registration statement for these shares
on Form 10-SB became effective and the Offering was officially closed on June
30, 2004. We raised a total of $3,035,600 from the selling of shares of common
stock in the Offering.
Company Vision
Since our inception, our management team has followed two underlying principles:
(1) over time, nearly all software business applications will become Internet
hosted and managed; and (2) an unwavering dedication to customer service and
support will drive customers to us and earn their long-term loyalty. These two
principles have guided all our actions since our inception.
Our early lead in the development of Internet-based applications has afforded us
a distinct advantage over many competitors who have yet to embrace or adopt the
Internet as a medium for their applications. Medtopia's products and services
maintain a price and serviceability advantage over such competitors since we
build, host and manage the applications for the customer. For example, the
products can be delivered to the customer instantaneously and upgraded
continuously and imperceptibly. Modifications are applied immediately and
typically with no interruption to the customer. The customer's data is always
backed up and stored off-site, keeping it safe from natural and unnatural
disasters. Back-end processes, such as electronic claims processing and data
backups, are performed in the background by trained Medtopia staff and are
usually unnoticed by the customer. These benefits, and others, create a suite of
products that are less intrusive to the customer, and easier to service and
maintain by us.
1 Please note that the item numbers in the headings in Part I correspond to the
relevant sections of Form 1-A that are prescribed for each section.
-3-
Internet hosted applications also create a price advantage over many of our
competitors. Since our products are delivered and modified quickly and
efficiently via the Internet, they are more cost-effective than many other
companies' products. Customer support is enhanced and made more cost effective
since all customers use the same version of the applications. Our subscription
fees include technical support. Some of our competitors' monthly costs for
technical support alone exceed the total Medtopia subscription fee.
We have a policy of always attempting to answer a service and support call with
a live person before the third ring of the telephone. We strive to set a new
standard by which others will be measured. The Medtopia support staff is
friendly, knowledgeable and dedicated to helping customers with problems and
questions. Our management has great confidence in our support team and continues
to explore ways to improve their effectiveness.
We are also able to provide a greatly enhanced and value-added service to our
accounts receivable management services since we are able to deliver automated
and technological solutions to what is ordinarily a paper-driven, manual labor
process. Through the use of our technology and automated processes, we are able
to deliver a level of service that is faster, more efficient, more affordable,
and all with a higher level of quality control than what can be delivered by
many of our competitors. The value added by our web-based practice management
system combined with our technical expertise in the revenue cycle management of
the billing and collections process for physicians' offices helps us to compete
with other companies in ways that they cannot compete respectively with us.
Finally, we believe that the future of healthcare will be shaped with the
introduction and permeation of new technology, such as with the implementation
of Electronic Medical Records. We have devoted a significant portion of our
research and development into this technology, which we believe will become an
increasingly adopted tool used by healthcare providers to reduce costs and
deliver a higher quality of care to their patients.
These principles and philosophies have molded our history to date, and we
believe that a continued devotion to this vision will ensure our success in the
future.
Healthcare Industry
Healthcare is a vital part of the United States economy and is critical to every
citizen. However, healthcare has yet to fully benefit from the technology
revolution that is changing other industries. We believe that advanced
information technology will have a fundamental impact on healthcare delivery,
payment and personal health management. This revolution will be significant
because it will help solve key problems facing the industry: improving patient
safety, reducing costs, improving the quality of care, and improving the
efficiency of processes for coordinating and paying for healthcare. The
convergence of the Internet and healthcare management is a new and evolving
paradigm in healthcare management. The market opportunities created by this
convergence are expected to expand rapidly.
Cost of healthcare in the United States has been climbing. In 1960 total
healthcare expenditures were $26 billion, or 5.1 percent of the gross domestic
product ("GDP"). By 2000 total healthcare costs had climbed to $1.3 trillion and
represented 15.9 percent of GDP. See, Health, United States, 2001, with Urban
and Rural Health Chartbook, published by the U.S. Department of Health and Human
Services through the Centers for Disease Control and Prevention. Healthcare
costs continue to escalate. According to the United States Center for Medicare &
Medicaid Services, formerly the Health Care Finance Administration ("HCFA"),
healthcare expenditures in 2006 will exceed $1.6 trillion. Approximately 70
percent of healthcare transactions today are paper-based, resulting in
administrative costs of up to 20 percent of each dollar spent. It was the need
to reduce these costs that, at least in part, led to the Healthcare Insurance
Portability and Accountability Act of 1996 ("HIPAA"). In the United States, the
yearly cost of processing and administering claims is about $90 billion. Some
healthcare industry analysts believe the $90 billion in administrative costs
could be reduced to $5 billion, or less, by moving from a paper-based system to
digital systems. See, Healthcare Without Boundaries: Integration Technology for
the New Healthcare Economy, February, 2003, Microsoft Corporation White Paper.
McKinsey and Company, an international management consulting firm, reports that
"[T]he U.S. health care industry is huge-with annual expenditures of more than a
trillion dollars-but extremely fragmented: more than half of approximately
600,000 physicians engaged directly in patient care work in practices of eight
physicians or fewer."
In the United States there are more than 600,000 physicians, the majority of
whom practice in office base groups or in solo practices. See, American Medical
Association Physician Masterfile, Dec. 2000. MD Technologies specifically
targets these practices and has begun to penetrate this vast market.
-4-
The healthcare industry is clearly a troubled industry and is being choked by
excessive paperwork and inefficiencies, but this has created enormous business
opportunities for those companies who can provide solutions to eliminate these
inefficiencies.
Products and Services
Our products and services are designed to provide advanced technological
solutions to healthcare providers in an attempt to assist them with their
administrative and clinical processes. All products are developed internally
without the assistance of outside programmers or consultants. The Medtopia suite
of products and services consists of Medtopia Manager, Medtopia EMR, Medtopia
DMS, Medtopia Mobile, MyMedtopia, and Medtopia Expert. These products and
services are designed such that they can be packaged and sold independently of
one another. However, they are more specifically designed to complement each
other in functionality. Customers can employ the entire suite of products and
services into a single solution and maximize their efficiency and productivity.
To date, we have generated the majority of our revenues from the delivery of our
first two flagship products and services, Medtopia Manager and Medtopia Expert.
The following table summarizes our revenues by application from inception until
December 31, 2004.
Percent
Current Number of total
Application/Service of customers revenues
Medtopia Manager 135 64 %
MyMedtopia 1 7 %
Medtopia EMR 0 0 %
Medtopia DMS 0 0 %
Medtopia Mobile 0 0 %
Medtopia Expert 33 28 %
Medtopia Manager
Medtopia Manager is an Internet-based practice management application that
enables physicians and other healthcare providers to manage their organizations
online using only a web-browser. It is designed to streamline many of the
day-to-day routines involved in running a medical practice, and thereby help
physicians and their staff members organize their workload and increase
productivity. Physicians and their employees have access to clinical and
financial information from the office, home, hospital, or anywhere that an
Internet connection is available. The application employs 128-bit SSL
encryption, which ensures privacy throughout the entire application and adheres
to HIPAA security guidelines. The application consists of several integrated
features such as: appointment scheduling, patient account management, electronic
claims processing, electronic remittance advice, accounts receivable management,
human resource management, project management, electronic medical records,
prescription writing, inventory management, and more. All of these tools are
designed to work coherently in such a way as to increase productivity throughout
the organization. The application also utilizes various workflow queues to
assist in many of the work processes that take place in the practice. For
example, there is a hospital queue for tracking and managing the admission,
discharge, and billing of patients that are currently hospitalized. Similarly,
there are claim queues, collection queues, appointment queues, etc. Each of the
queues has been designed specifically for helping the office personnel organize
information and make it easier to track and manage for maximum efficiency. Since
the application and its data are hosted and managed in our data center, the
Medtopia staff members can perform all the back-end data operations that would
ordinarily require an employee of the practice to perform. These activities
include sending claims electronically to payers and clearinghouses, posting
electronic remittance advice, performing and monitoring EDI transactions such as
electronic claim status and eligibility verifications, performing month-end
closeouts, daily data backups, hardware and software upgrades, and other system
maintenance. This allows the customers to focus more on their business rather
than on mundane data management chores. Moreover, our trained employees are
better able to monitor the data management and to manage operations in order to
minimize errors. The Medtopia support staff know how to spot potential problems
and take corrective action when they arise.
The recurring revenue stream from the subscriptions of Medtopia Manager
increases as each new customer is added to the system. While we receive up-front
income from the setup and installation of a new customer, it is the recurring
revenue that we count on to bolster the company's growth.
-5-
However, expenses associated with this revenue growth do not increase
proportionally. Once a new customer is brought online, the maintenance of the
physician's clinic is related primarily to customer support. New customer
support personnel are added as necessary to provide an adequate ratio of support
personnel to customers to ensure that all support issues can be handled
expeditiously. Our current ratio is approximately one support person per 25
customers. This ratio will be adjusted as needed and may vary depending upon
many factors such as the size of the customers added to the system and the
geographic location of new customers in relation to our support staff.
Medtopia Manager Pricing
Medtopia Manager is offered to customers as a monthly subscription of $350/month
per physician (or provider). Additionally, there is a one-time setup cost of
$500 per provider and a $1,200 training fee per site. The Company also offers
data conversions for customers with prices ranging between $1,500 to $8,000,
depending on the data format, volume of data, and type of conversion (i.e.
patient demographic, open-item, or full-detail.) The data-conversion fee is
typically negotiated with the customer at the time of the sale and varies on the
circumstances. The setup, training, and subscription fees can vary depending
upon the number of physicians in the group, the number of physical sites, and
the number of users.
Medtopia Mobile
Medtopia Mobile is a handheld application running on Microsoft Pocket PC's and
Microsoft Tablet PC's that allows the physician to perform various functions
while in the exam room with the patient, or while away from the office, such as
when making hospital rounds. The application synchronizes with the Medtopia
Manager practice management application over the Internet and gives the
physician access to medical information on his patients, such as procedure and
diagnosis history, drug allergies, medications, insurance information, and
medical alerts. The physician also has the ability to document a new encounter
with the patient and capture all the necessary billing information to
synchronize directly into the practice management application. Additionally, the
application allows the physician to capture handwritten and audio notes and
store them as part of the patient's permanent medical record. All information
captured by the physician on the device can be synchronized immediately, or in a
batch, to the Medtopia servers via the Internet.
The list of features available with Medtopia Mobile includes: (i) an appointment
calendar for managing office appointments, hospital rounds, surgeries, and
meetings; (ii) super-bills and charge-capture; (iii) prescription writing; (iv)
patient medical history; (v) encounter documentation; (vi) referral management;
(vii) secured intranet messaging; and (viii) contact management.
Some customers may wish to deploy Medtopia Mobile throughout their enterprise,
but may not want to use Medtopia Manager as their practice management system.
For these customers, we provide a limited version of Medtopia Manager, which
allows them to track and manage the information via a web interface and also
export Medtopia Mobile data to their own system.
Medtopia Mobile Pricing
Medtopia Mobile is provided to physicians for a monthly subscription fee of
$150. There is a single one-time licensing fee of $1,500. This fee includes the
Medtopia Mobile software and the creation of the online Medtopia account if the
customer does not already have one.
MyMedtopia
MyMedtopia is a web-based application designed for patients to allow them to
track and manage their healthcare information online. Patients can sign up to
use MyMedtopia on their own, or their physician can issue an account for them.
The application benefits both physicians and their patients by allowing them to
share vital healthcare information while encouraging the patient to take a more
proactive role in his or her own healthcare. The application enables patients to
track information such as family histories, medical conditions, prescriptions
and medications, emergency medical information, medical expenses, diet and
nutrition, exercise and fitness, and upcoming appointments.
When deployed by a physician to his patients, MyMedtopia can prove to be an
invaluable tool for enabling secured and direct communication with the patient.
Similarly, the application becomes a tool for utilization by the office staff
for coordinating with patients for appointments, prescription requests, and
statement questions. If given access by their
-6-
physician, a patient can look up their statement online and see what charges
have been paid by the insurance carrier and what their responsibility is. This
type of functionality can reduce the number of phone calls into the physician's
practice and thereby help make the overall operation of the practice more
efficient.
MyMedtopia Pricing
There is no set pricing for MyMedtopia at this time. We are exploring how best
to utilize the functionality of this product in such a way as to eventually
create a recurring revenue stream for us. The MyMedtopia application is
currently being used by Emory Healthcare as part of the benefits offered to its
patients and users of its online healthcare services.
Medtopia Expert
In 2002, we began providing our Medtopia Expert billing and accounts receivable
management services to a limited number of customers. As of December 31, 2004,
we provided these services to 33 customers. These services typically include the
review and data-entry of our customers' patient encounter information into
Medtopia Manager. The accuracy of the billing information is verified using
features built into Medtopia that have been especially designed for this
purpose. This information is used to process claims with various insurance
carriers by sending it electronically through Medtopia and third party
clearinghouses. Once entered into Medtopia, our customers can track and review
their accounts receivables online as well as run real-time reports and perform
their own analysis of the data using only a web-browser. We manage our
customers' receivables all the way through the adjudication process until
payment. Upon receiving payment confirmation, denial, or request for additional
information, we post the payment to the system, provide any additional
information requested, and make any adjustments if necessary. The fact that we
host the customers' information and that they are intimately familiar with our
application allows us to provide a higher level of service and achieve economies
of scale not available to competing billing companies. This gives us an
advantage over competitors who do not possess the technology to deliver this
level of service.
Medtopia Expert Pricing
Our Medtopia Expert billing and accounts receivable management services are
invoiced to customers as a percentage of actual collections. Our fees are
negotiated with each of our customers depending on the level of activity
expected and volume and amount of charges. Some customers prefer that our staff
perform all data input functions and they provide us with hard copies of their
patient encounter information. Others perform the data input themselves. Our
fees range on average from 3% to 6% of collections. In most cases we can
demonstrate that our fees are less than what our customers would pay for
employees to perform similar services in-house. We view this component of our
business model as a major growth opportunity for the Company.
Medtopia DMS
The Medtopia DMS application is a new product developed in 2004 and is currently
in beta testing. It is a document management system that allows healthcare
providers to image, index, archive, search, and retrieve electronic documents
throughout their enterprise. The application was designed to work completely
over the Internet so that users can have access to their electronic documents
from any location at any time wherever Internet access is available. The
application was also designed to integrate completely with the entire Medtopia
suite of products and services so that potential customers can receive a
completely integrated and comprehensive solution for their administrative and
clinical needs. The Medtopia DMS was developed to work as a hosted solution for
customers who do not wish to purchase or maintain their own server equipment,
however the product can also be sold as a standalone system for larger customers
who prefer to store their data on their own premises. The application is
flexible and can accommodate nearly any kind of electronic document, such as
images, word processing documents, and audio files.
Medtopia DMS Pricing
Official pricing has not yet been established, however the product will be sold
in two varieties. The first is as a full-service, hosted solution whereby
customers are invoiced monthly for a subscription that includes all software,
future updates, and service. In the hosted solution, all data is stored on our
servers in our data center where it is maintained and backed up routinely.
Additionally, the product can be sold as a standalone system where customers can
purchase the
-7-
system once and simply pay a monthly fee for service and support. In this
configuration, the software runs completely on the customers' servers on their
own premises.
Medtopia EMR
The Medtopia EMR application is a new product developed in 2004 and is currently
in beta testing. Medtopia EMR is our electronic medical records application that
is designed to interface directly to all of our other products and provide
clinical assistance to physicians and their staff. With Medtopia EMR, healthcare
providers have the opportunity to reduce their dependence on hardcopy paper
records, improve operational efficiencies, and reduce costs all at the same
time. The application interfaces directly with the Medtopia Manager practice
management application over the Internet and gives the physician access to
clinical medical information on his or her patients, such as procedure and
diagnosis history, drug allergies, medications, insurance information, past
medical history, lab results, x-rays, and medical alerts. The physician also has
the ability to document a new encounter with the patient and capture all the
necessary billing information to synchronize directly into the practice
management application. Additionally, the application allows the physician to
capture handwritten and audio notes and store them as part of the patient's
permanent medical record. The application is an enhanced version of the Medtopia
Mobile application and allows for additional functionality not found in Medtopia
Mobile, such as detailed encounter documentation, evaluation and management
coding tools, and advanced prescription writing tools.
The list of features available with Medtopia EMR includes: (i) an appointment
calendar for managing office appointments, hospital rounds, surgeries, and
meetings; (ii) super-bills and charge-capture; (iii) prescription writing; (iv)
patient medical history; (v) encounter documentation; (vi) evaluation and
management coding tools; (vii) advanced drug lookup database and utilities;
(viii) document imaging and paper chart management; (ix) remote access via
Internet and web-browser; (x) SOAP Notes; (xi) referral management tools; (xii)
secured intranet messaging; and (xiii) contact management.
Medtopia EMR Pricing
Medtopia EMR is currently in beta testing and formal pricing of the product has
not been established yet. Once in production, the product will be sold as both a
hosted solution and standalone solution to healthcare providers. When purchased
as a hosted solution, customers will receive all the software, upgrades, and
service as part of their monthly subscription to the product. As a standalone
solution, customers will have the opportunity to purchase the application
upfront and pay a lower monthly fee for service and support.
Marketing
The Medtopia products and services are marketed to potential customers through
multiple strategies, including telemarketing, direct mail campaigns,
door-to-door canvassing, and industry trade shows. Through these and other
methods, we focus on establishing the Medtopia brand name and continually strive
to place ourselves in front of potential customers as often as possible. Not all
potential customers are looking for our products or services at the time we
reach them, but we hope to establish the brand name so that we are first in
their mind when they begin to look for products and services similar to ours.
We currently focus our marketing efforts on reaching the smaller physicians
practices where we feel that our products compete most aggressively against many
of our competitors. We utilize our marketing efforts to reach out and identify
potential customers and, once identified as a potential candidate with interest
in our products, we turn them over to the sales department where a detailed and
comprehensive discussion of features and price can be discussed.
We also rely heavily upon potential leads from existing customer referrals,
which is a significant source of new sales for our products and services. We
have demonstrated that our continued success in maintaining a satisfied customer
base is one of the best sources of new leads and sales for the Company.
Additionally, we receive leads from our Internet presence which drives potential
customers to our website where they can request more information or a
demonstration of our products.
-8-
Initial Target Market
Our company's distribution strategy is to initially expand into large
metropolitan areas with numerous physicians where the market research indicates
a high potential for adoption of the Medtopia products.
To date, we have targeted our marketing efforts at physicians practicing in
metropolitan areas in the states of Louisiana, Florida, Georgia, Mississippi,
and Texas. Thereafter, we anticipate penetrating other states and regions where
we feel that our products and services will have the best chances of
establishing sales and market share. We will continue to identify other markets
that present a good opportunity for our products, and we will compete
aggressively in those markets as they are identified.
Our core market nationally consists of the 300,000+ physicians who practice
alone or in groups of eight or less. The following methods are employed to
enlist new customers:
(i) We market directly to individual physicians through the efforts of our
inside and outside sales force. We utilize telemarketing and direct mail
campaigns for generating new sales leads, which are then solicited by
direct-sales representatives. This process usually involves multiple onsite
presentations and culminates in a proposal to the customer.
(ii) We brand our products and establish name recognition by participating in
trade shows, events and conferences that have the potential to generate interest
in us on a local, regional, and national stage.
(iii) We attempt to solicit relationships with large institutional healthcare
entities such as hospital companies, physician groups and academic institutions.
Well-established relationships at this level can potentially lead to significant
sales of our products and services.
(iv) We actively pursue strategic relationships with potential distributors and
attempt to establish a national distribution network where our products can be
sold as part of a value-added reseller program.
(v) We use a public relations firm to help generate positive news stories and
public attention about the company where possible. This helps create public
awareness of our company and products and helps generate sales in many cases.
Pricing/Level of Service
Medtopia Manager's pricing is determined by the management's analysis of the
competition and the targeted customer's willingness to pay, consistent with a
fair profit to us. Specific fees were discussed in preceding sections and will
not be repeated here. Varying discounts are offered to volume providers and
potential customers depending on many factors.
The pricing of the Medtopia Manager application has remained consistent since
2002. Medtopia Manager costs less than many of its current competitors and is
far less expensive than many of the competing high-end practice management
applications. We also feel that Medtopia Expert pricing is competitive at its
current price, however, we recognize that future pricing of that service may be
potentially affected by other factors dictated by the market conditions at that
time.
Advertising and Promotion
The overall advertising and promotional objectives are to: (i) position MD
Technologies as the leader in the healthcare markets in which we compete; (ii)
increase Company awareness and brand name recognition among physicians and their
office managers; (iii) generate qualified sales leads and potential new
distributors for field sales organizations; (iv) create product advertising
programs supporting our marketing position; and (v) coordinate sales literature,
demonstration materials, telemarketing programs and direct-response promotions
in order to maximize exposure and success.
-9-
Insurance
We have secured Errors and Omissions, D&O, and Comprehensive General Liability
insurance and will continue such coverage if available at a reasonable cost.
Data Security
Our data is secured and backed up multiple times daily. Our main office is
located in the same building with the technical offices of a telecommunications
company that provides us with our primary link to the Internet. We believe this
close proximity minimizes the potential for disruption between the
telecommunication provider and the Medtopia servers. We also have an ancillary
power source to eliminate the risk of power outages. Additionally, we maintain
redundant Internet access through two different providers to ensure reliability
of our connection to customers.
We have incorporated a security management system to protect patient and
physician data, using a combination of security methodologies to provide
multiple lines of defense. These include:
128-bit SSL encryption of all application data over the Internet
Role-based access using ID and passwords
Firewalls and controlled port access through all routers
Logging, monitoring, and audit trails
Physical security in a tightly-controlled environment, with physical
isolation of systems and hardware
Security policies including the establishment of a Chief Privacy Officer
and Assistant Privacy Officer
Routine security audits of all Company policies and personnel.
Research and Development
Our products are all continually modified and improved in order to remain
current and up to date with the latest technology. Since our business model is
largely based upon subscription revenue rather than revenue from the sales of
version upgrades, our products are constantly updated with new features and
improvements on a daily basis. There was a significant increase in research and
software development expenses in 2004 compared to the previous two years as we
instituted a major focus of new product development on our Medtopia Mobile, DMS,
and EMR applications. The total amount capitalized as research and software
development costs for 2004 was $190,209, as compared to research and software
development costs of $47,198, $51,219, and $170,909 for years 2003, 2002, and
2001 respectively. The majority of initial development for these new products
was performed in 2004 and these products, having been determined to be
technically feasible, are now in beta testing where current development consists
of modification to existing functionality and new feature development to those
products for the next version release.
Medtopia Mobile, DMS, and EMR
Research and Software Development Costs
2001 $ 170,909
2002 $ 51,219
2003 $ 47,198
2004 $ 190,209
In 2004, we also began the development of a new product enhancement that we
labeled Medtopia AI, which is based upon the implementation of artificial
intelligence rules-engines into our products. Metopia AI is not a separate
product, but rather an underlying technology that we have begun to build into
all of our products in order to enhance the performance and to differentiate us
from our competitors. We believe that this technology, while in a nascent phase
of
-10-
development, will evolve to become the core of our products and will help us
maintain a technological edge over our competitors.
Product Strategy
Product Life Cycles
The life cycle for Medtopia Manager, Mobile, DMS, and EMR is potentially
unlimited, as it provides the administrative and clinical tools that will always
be needed in a physician's practice. The products are always kept current as
upgrades are provided weekly and delivered to customers seamlessly via the
Internet. This delivery allows the product to evolve to the continuing needs of
the customer. The responsiveness of the Medtopia product development team helps
to ensure that the customer's needs are continually satisfied, thereby helping
us retain our customer base for the long-term.
Intellectual Property
We protect our products under available federal trademark and copyright
protections as well as through confidentiality agreements with vendors and
employees. In particular, the name Medtopia is a registered trademark of the
Company. The software that forms the core of Medtopia is copyrighted in the
Company's name. Moreover, total development of the product has been performed
exclusively by our employees; no outside contractors have been used.
Government Regulations
We have obtained all required federal and state permits and licenses to operate
our business. We adhere to compliance standards of the Healthcare Insurance
Portability and Accountability Act of 1996 ("HIPAA"). Our industry is heavily
government regulated. Our government regulatory risks run the gamut from
regulation affecting our listing as a publicly traded entity to regulations
affecting the healthcare industry in general and physician practice management
in particular.
Laws and regulations may be adopted with respect to the Internet or other online
services covering user privacy, patient confidentiality and other issues,
including: pricing, content, copyrights and patents, distribution,
characteristics, and quality of products and services. We cannot predict whether
these laws will be adopted or how they will affect our business. Any legislation
or regulations of this nature could affect the way we conduct our business,
particularly in our collection or use of personal information, and could harm
our business. Further, activities on or using the Internet have come under
increased scrutiny, including increased investigation in the healthcare arena by
the Federal Trade Commission and heightened media attention. A number of
proposals have been made at the federal, state and local levels that would
impose additional taxes on the sale of goods and services through the Internet.
Such proposals, if adopted, could impair the growth of electronic commerce, and
adversely affect our business.
We may host any of a wide variety of services that enable individuals and
companies to exchange information, conduct business and engage in various online
activities. The laws relating to the liability of providers of these online
services for activities of their users is currently unsettled. These types of
claims have been brought, and sometimes successfully pressed, against online
service providers in the past.
We could be adversely affected by healthcare regulation. The healthcare industry
is highly regulated and is subject to political and regulatory changes. These
factors affect the purchasing practices and operation of healthcare
organizations. Federal and state legislatures have periodically considered
programs to reform or amend the U.S. healthcare system at both the federal and
state level. These programs may contain proposals to increase governmental
involvement in healthcare, lower reimbursement rates or otherwise change the
environment in which healthcare industry participants operate. Healthcare
industry participants may respond by reducing their investments or postponing
investment decisions, including investments in our applications and services.
Thus, we do not know what effect any proposals would have on our business.
Numerous state and federal laws govern the collection, dissemination, use,
access to and confidentiality of patient health information. Many states have
laws and regulations that protect the confidentiality of medical records or
medical information. In addition, the federal Department of Health and Human
Services has proposed regulations implementing the Health Insurance Portability
and Accountability Act of 1996, or HIPAA, concerning standards for electronic
transactions, security and electronic signatures and privacy of individually
identifiable health information. These regulations, among other things, require
companies to develop security standards for all health information that is used
electronically. The
-11-
proposed regulations impose significant obligations on companies that send or
receive electronic health information. The application of these laws to the
personal information Medtopia collects could create potential liability under
these laws. We have designed our services to comply with these regulations, but
cannot predict modifications to these regulations. Any changes could cause us to
use additional resources to revise our platform and services. Additional
legislation governing the distribution of medical records exists and has been
proposed at both the state and federal levels. We will be subject to extensive
regulation relating to the confidentiality and release of patient records, and
it may be expensive to implement security or other measures to comply with new
legislation and final regulations. We may also be restricted or prevented from
maintaining or delivering patient records electronically, which would have an
adverse effect on our business.
The Food and Drug Administration ("FDA") has jurisdiction under the 1976 Medical
Device Amendments to the Federal Food, Drug and Cosmetic Act, which is referred
to here as the "FDA Act", and may seek to regulate computer products and
software as medical devices if they are intended for use in the diagnosis, cure,
mitigation, treatment or prevention of disease in humans. The FDA has issued a
final rule under which manufacturers of medical image storage devices and
related software are required to submit to the FDA pre-market notification
applications, which are each referred to in this document as a 510(k)
Application, and otherwise comply with the requirements of the FDA Act
applicable to medical devices. We have attempted to design our services so that
our computer applications and software are not considered to be medical devices.
Because we believe our services are not subject to FDA regulation, we have not
filed a 510(k) Application with the FDA for our products. However, the FDA may
take the position that our services are subject to FDA regulation. In addition,
we may expand our services in the future to areas that subject them to FDA
regulation. The FDA is currently reviewing its policy for the regulation of
computer software, and there is a risk that our software could in the future
become subject to some or all of the above requirements. If the FDA takes the
position that any of our services or software are subject to FDA regulation, we
may be required to file a 510(k) Application, which would be subject to FDA
review and approval and which may be a time-consuming process. We have no
experience in complying with FDA regulations and believe that complying with FDA
regulations may be time-consuming, burdensome and expensive and could delay our
introduction of new applications or services.
State and federal statutes and regulations governing transmission of claims may
affect our operations. For example, Medicaid rules require certain processing
services and eligibility verification to be maintained as separate and distinct
operations. We believe that our practices are in compliance with applicable
state and federal laws. These laws, though, are complex and changing, and the
government may take positions that are inconsistent with our practices.
The practice of most healthcare professions requires licensing under applicable
state law. In addition, the laws in some states prohibit business entities from
practicing medicine. We have attempted to structure our web site, strategic
relationships and other operations to avoid violating these state licensing and
professional practice laws. A state may, however, determine that some portion of
our business violates these laws and may seek to discontinue them or subject us
to penalties or licensure requirements. We employ and contract with others who
provide only medical information to consumers and have no intent to provide
medical care or advice. We do not maintain professional liability insurance
because we believe we are not a healthcare provider and any determination that
we are a healthcare provider and acted improperly as a healthcare provider may
result in liability for which we are not insured.
Customer Terms
Our relationships with our customers are regulated by subscription contracts
that we execute with each customer. These contracts contain our standard terms
and conditions, the most important of which relate to the price charged for our
services/products. Our primary source of revenue is derived from subscription
fees paid by our customers on a monthly basis. Our contracts generally have a
one (1) year term and renew on a month-to-month basis after the first year. We
have the right to change the price for our services/products on the year
anniversary of our contract. Should a customer terminate our relationship, we
are obligated to provide them with the information we host for them in a format
that allows them to migrate to another vendor. For the years ended December 31,
2004 and 2003, one customer accounted for a total of approximately 16% and 15%
of total revenues, respectively and another customer accounted for a total of
approximately 10% and 6%, respectively.
There are two types of vendors important to our business. (1) Internet service
providers who provide us with our connections to the Internet. We currently use
three separate vendors in order to reduce our dependency upon any single vendor
for service. If we were to lose one or more of these relationships, we feel that
there are several other alternate providers that could provide our Internet
connectivity with little or no adverse effect to our business. (2) We rely upon
the
-12-
medical billing clearinghouse through which our customers bill insurance claims
to third party payers. We currently use Envoy, which is owned by one of our
competitors, WebMD. The WebMD Envoy agreement, dated February 17, 2004, entitled
"WebMD ENVOY Agreement for Vendors," allows us to utilize the clearinghouse
services, including medical batch transaction services and related software and
hardware, of WebMD ENVOY to submit our customers' claims for services to various
payors for those services, primarily private insurance companies. This agreement
has a primary term of one (1) year and automatically renews for additional
one-year terms unless terminated by either party 60 days prior to the expiration
of the then current term. Pursuant to the agreement, we paid WebMD Envoy a
service fee of $3,599.00 covering the first year period (2004). All similar
service fees for subsequent years are waived in the agreement. Pursuant to the
agreement, we pay no fees or charges for submitting claims on behalf of our
customers through the WebMD ENVOY clearinghouse to "Participating Payers", who
comprise the large majority of our transactions. Pursuant to the agreement,
there is a fee ranging from $0.10 to $0.15 per claim submitted to
"Non-Participating Payers." Although there are other clearinghouses providing
similar services, a disruption of our relationship with WebMD ENVOY could
temporarily significantly adversely affect our ability to deliver our services.
We are currently exploring the possibility of having redundant clearinghouse
strategic relationships to mitigate this risk.
Competition
Our competitive position in the healthcare industry can best be described as
occupying a niche as the low cost provider given the delivery mechanism (the
Internet) and the level of personal and customized service offered. We are
trying to serve small to mid-size physician offices with services and
applications usually available only to larger practices, but not generally
affordable by the smaller practices. The use of the Internet as our delivery and
customer service mechanism allows us to provide our services and products very
cost effectively.
Medtopia Manager enables its customers to enjoy the benefits of a fully featured
practice management system even though the product competes at the same price
level as MediSoft. Additionally, since Medtopia is deployed over the Internet
and hosted and managed by our expert staff, we are able to create a more
intimate relationship with our customers that better ensures product
satisfaction and long-term loyalty.
The healthcare information technology market is served by various software
companies that distribute and manage clinical and business-related information.
The market for these companies' applications is divided into general
user/customer categories, as follows:
1. Hospitals
2. Physicians
3. Insurance/Managed care companies
4. Ancillary services (i.e., pharmacies, imaging companies, laboratories, etc.)
5. Dental
6. Specialty Medical Services
Most software vendors provide only a portion of the software needs of a client.
For example, one company may provide billing software while another may provide
medical record software. Therefore, it is common for physicians to use multiple
software applications concurrently.
While the Medtopia suite of product features enables the products to compete in
some form in all six areas of the healthcare industry, the products are
currently focused primarily on the physician market. In this segment of the
market, there are three distinct categories of customers, namely:
1. Physician practices with less than eight physicians (more than half of all
physicians - over 300,000).
Physicians in this category are the Company's primary target customers. Many of
these practices have PC-based legacy systems that are old or inexpensive (under
$5K.) The systems of these practices typically run on a local area network and
are primarily limited to billing and collections or limited EMR functionality.
2. Physician practices with between eight and twenty physicians.
-13-
Group practices of this size tend to run systems that are capable of running on
a wide area network, have robust utilities, flexible reporting, and multiple
modules of functionality to choose from. The costs of these systems can range
between $30K to $60K for the initial purchase, and $3K to $8K per physician for
installation. Updates to these applications and yearly maintenance agreements
can exceed $10K. A few vendors in this category are companies like Medical
Manager, MiSys, and GE Healthcare. The Medtopia products currently compete with
these customers at the lower end of the market.
3. Physician practices with more than twenty physicians.
Group practices of this size usually run complex interconnected modules and
systems that provide enterprise-wide solutions. These applications are typically
deployed on large computers like RISC 6000's and operate on expensive and
dedicated database servers. Organizations deploying these applications can spend
hundreds of thousands of dollars or millions for these systems and may require a
dedicated IT staff to maintain the hardware, applications, and their interfaces.
A few companies in this category include IDX, GE Healthcare, McKesson, and
Cerner.
The following is a list of software companies that occupy at least part of the
market space in which Medtopiacompetes:
Cerner Phillips Medical Systems
GE Healthcare Allscripts
Siemens QuadraMed
IDX Meditech
NextGen Well Logic
McKesson WebMD
Epic Athena Health
Misys Medisoft
Of the many healthcare technology software companies in the industry, no single
company dominates the market. However, the two companies with whom we compete
most strongly in our markets should be recognized.
Medical Manager/WebMD
Started in 1982 as a practice management software product for chiropractors, the
Medical Manager product has evolved into one of the more fully featured products
on the market today. Most of the Medical Manager installations are using a
legacy, text based version of its product running on a Unix file server and
serves the medium-to-large medical practice market. Because of its sheer size,
product features and reputation, Medical Manager continues to present itself as
a formidable competitor.
Medtopia Manager offers the benefits of having as many features as Medical
Manager at a much lower price and with better serviceability. Medtopia Manager
can also be deployed more easily since it doesn't require a dedicated server,
especially in multi-site environments where office personnel need instantaneous
access to information from anywhere.
Medisoft
As a division of NDC, a medical services company that functions as a claims
processing company, the MediSoft practice management system provides NDC with a
ready source of medical insurance claims to be cleared and transmitted to
insurance payers. The MediSoft product, although not as robust or fully featured
as most of its competitors, offers a basic system at a low introductory price
for the small physician practice. Because of its low price, the company has been
very successful in creating a large base of installations.
Employees
As of December 31, 2004, we employed 35 full time paid employees, consisting of
nine in administration, eight in research and development, nine in sales and
marketing, and nine in operations. Our relationship with our current
-14-
employees fosters high productivity and commitment. None of our employees are
covered by a collective bargaining agreement. From time to time, we utilize the
services of independent contractors to perform various other services.
|