Both major health booking engines are likely fast approaching points of significant technology and market disruption which could either make them or break them.
One of the country’s two major health booking engines, HotDoc, is examining a full sale as a part of a strategic review which would value the company at around $200 million, according to a recent report in the Australian Financial Review (AFR).
Prospective buyers told the AFR that the group had annual revenues of about $30 million with an EBITDA of 25%, which at a $200 million valuation would be a profit multiple of nearly 27 times and a revenue multiple of nearly seven times.
That’s at the high end of typical sales multiples for platform SaaS businesses, which depending on growth, profitability, market share and technology trends, will typically range from three to 10 times.
The most recent doctor software platform sale to go by says they could potentially achieve the number: MedicalDirector sold to Telstra Health in 2021 for $350 million which was around a seven times revenue multiple.
But that sale also is now a tale of caution for what can happen to platform software businesses in the local medical sector.
At the time of sale MedicalDirector had roughly 45% share of the GP market but today has something like 20-25%, which likely makes it a lot less valuable in relative terms today than it was in 2021.
If the figures reported in the AFR are correct, HotDoc generates a robust profit and it likely does command more share of the doctor sector than its immediate competitor Healthengine, both for GPs and specialists – tick.
But the major question for any potential buyer is where will growth come from given the current trajectory of other key software platforms these companies rely on in the sector, and what trends in technology in the sector should a buyer be thinking about in the context of an acquisition, especially the government’s drive to move all software vendors to the cloud and AI.
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Over the years both major booking engines have always maintained a fundamental flaw in their business models: they both rely significantly on “reselling” their bookings into the major doctor PMS systems, Best Practice and MedicalDirector for GPs, and Genie for specialists. For this the PMS vendors have taken a cut and been happy to let the booking engines look after the detail of bookings.
But in the end these PMS vendors are the gatekeepers of all GP transactions as they are the day-to-day workflow tool for GPs and specialists. Doctors don’t like to go outside their core workflow tool to do other things, and they shouldn’t have to.
The booking engines brought value to this ecosystem by competing on the open web to corral patients, organise them well with a decent booking experience, and bring them into the closed gardens of the doctor PMSs.
But the distribution power to patients ultimately was always in the hands of the PMS vendors and for a long time there has been tension beneath the waterline as to whether the PMS platforms might at some point choose to disintermediate the booking engines with their own patient apps, which include bookings and some of the other patient data and transaction functions the booking engines perform.
On the surface the PMS vendors and the booking engines have maintained an air of continuing collaboration and calm, with the line that the booking engines have very specific focus on the patient journey functionality into and out of a doctor’s surgery, which the PMS vendors can never achieve. And that the PMS vendors can’t corral patients that aren’t existing customers out in the ether of search on the internet.
But the booking engines know this isn’t true, because already some of the key PMS vendors have developed quite sophisticated direct booking functionality which they can offer to their practices if those practices see an advantage in engaging more intimately and directly with their patients.
Into this already tense dynamic add the drive by the federal government to push meaningful data sharing between providers and patients on to the cloud in the near term – that’s the program the government refers to as “sharing by default”.
Currently most of the booking traffic being sent into the major PMS systems by the booking engines is sent into older on-premise and server-bound instances of the PMS systems via complex integrations.
As each PMS vendor evolves their cloud offerings enough however, this dynamic will change radically for the booking engines because at some point it’s almost inevitable that the PMS vendors will be either directly providing a lot more meaningful data engagement with their patients with things like patient summaries, current active scripts, e-scripts, pathology and imaging reports, repeat scripts, and direct links to specialists for booking co-ordination and e-referrals – to name a few – or providing that data to the best third-party patient app on the market that patients end up using.
If a patient ends up with an app providing all of this key data for them, why would you bother having bookings as a separate outside function?
Such a patient app might even be run by Medicare and Services Australia, given all the added value that the government could provide including co-ordination of Medicare payments, identification and making MyMedicare much more attractive and effective for patients.
In this scenario, adding bookings to the list of functionality in the app would be a very obvious thing to do and that might be very bad for the booking engines, depending on how they can position themselves in this fast-changing ecosystem.
A couple of factors could add to the problems the booking engines face, AI being a major one. But the other is that both specialists and GPs are now being served by near-monopoly PMS providers. Best Practice, which dominates GPs, and Genie, which dominates specialists, both have market shares of up to and over 70% of each of their markets.
Most GP practices around the country operate with over 80% of their patients as regulars. In this case, why not offer this 80% much better engagement with their practice directly with their own app, which includes most or all of what the booking engines currently do?
That would leave the booking engines servicing mainly the market for itinerant patients captured by their consumer-facing web directory offering to bring practices new clients, after which a practice might capture them for the longer term with its far more engaging and multifunctional healthcare app.
All of the above is on the table now for any HotDoc buyers to check via due diligence. There’s definitely significant potential risk in there for any future buyer of Hotdoc, or Healthengine if that comes up for sale.
So why the high-end valuation?
All the risk factors for the booking engines, while in play, also offer massive potential opportunity for a business like HotDoc, if they have the capital and risk appetite to try to take the ground of the cloud-enabled patient app that can do all those things listed above that the PMS vendors will be able to offer their patients directly via the data out of their systems.
When HotDoc first announced its integration deal with Genie back in 2021, its founder and major shareholder Ben Hurst described a vision for the group that might still be achievable with the right amount of money and marketing and it would be transformative if the group could do it.
“I see a world where a patient doesn’t just see their preferred GP on the home screen of the HotDoc app but their whole treating team. A world where managing a chronic disease becomes that much easier,” he said at the time.
With the cloud coming to the doctor PMS ecosystem sooner rather than later, and likely swathes of allied health and aged care as well, the idea that a patient can wander from provider to provider, and suck in their own curated and useful data onto their own app on their smartphone as they move between providers shouldn’t be that far away. It exists in parts of the US and throughout countries in Scandinavia a lot.
Could HotDoc move fast enough to insert themselves into this dynamic?
Its advantage is that it is PMS-neutral, so with the right cloud integrations between all the providers, including providers like pathology labs, it might be easier for it to do deals and collate all the providers a patient might need.
The problem for HotDoc is that as all providers, including pathology and imaging labs, are forced to the cloud by the government’s sharing by default agenda, data flow will become much more seamless for everyone – including the dominant PMS vendors in specialists and GPs.
If Best Practice currently has 70% of the GP market, how does it grow?
Best Practice had reported revenues of only about $34 million a few years ago – it is probably growing fast beyond that now. But given the opportunity cloud connectivity is likely to offer them in terms of more meaningful direct patient engagement, would they be eyeing off some that HotDoc $30 million now as a part of their growth plans?
The other thing we know is that the major PMS vendors don’t want clever AI companies starting to engage the patient too much before and after a doctor visit either.
They know that they currently own the best patient data and when the cloud is here there will need to be continuity in the use of that data before and after a doctor visit. So, they are engaging with AI for all the unique stuff they can bring both to their doctors and those doctors’ patients as a result.
Given GPs are supposed to be the hub in the hub-and-spoke model of better connected chronic care management nationally, it would seem natural for groups like Best Practice and Medical Director to grow outwards to provide their key client base, GPs, with this extended connected functionality for both their patients and their doctors.
HotDoc is very probably at the biggest make-or-break point in its history.
If it could manage the transformation to Hurst’s vision of an app where every provider treating a patient is all in an organised line on their app – maybe even including hospital in- and outpatient functionality – then the group might be able to flip the script on the currently dominant market position of the PMS vendors, which own access to the doctors.
If HotDoc could do this they would own patients like no one has ever before, even the PMS vendors through their hold on doctor access, and that just might flip the balance of distribution power between the booking engines and the PMS vendors.
It’s a very big and bold thing to try and it would likely require a lot more capital injection to achieve given the amount of power the PMSs will be able to unleash in terms of the data they will be able to use to engage with their patients directly once they get going properly on cloud data sharing.
Which may or may not explain why HotDoc is thinking about selling at this point of time.
