Spheris Auction Shakes Up Medical Transcription Industry

From: Healthcare Finance News

Three healthcare IT companies submitted bids at the April 13 auction for the assets of the nation’s second largest medical transcription provider, which filed for Chapter 11 bankruptcy protection on Feb. 3 2010.

Atlanta-based Transcend Services, Inc. has joined Nuance Communications, headquartered in Burlington, Mass., in filing bids by the April 8 deadline. They will go up against MedQuist, Inc., based in Mount Laurel, N.J., which has a deal in place to acquire Franklin, Tenn.-based Spheris’ U.S. and Canadian operations for roughly $75.3 million in cash.

According to documents filed in Wilmington, Del., in February under Section 363 of the United States Bankruptcy Code, Spheris plans to sell its American and Canadian assets to MedQuist – making MedQuist the nation’s largest medical transcription provider. As part of the deal, Spheris would sell its non-bankrupt India business, Spheris India Private Ltd., to CBay, Inc. MedQuist and CBay are portfolio companies of CBay Systems Holdings, Inc.

That deal can’t be completed, however, until a bankruptcy judge holds an auction of Spheris’ assets. MedQuist will enter the auction as a “stalking horse” bidder. The judge is scheduled to receive the bids on April 13, then hold a sale hearing on April 15.

Once considered a rising star in the healthcare document management field with a considerable presence at the Health Information and Management Systems Society’s annual conference and exhibition, Spheris fell on hard times. Net revenue for the company had reached as high as $52.3 million in early 2007 before falling to $40 million last year, shortly before the company voluntarily removed its registration with the U.S. Securities and Exchange Commission. CEO Dan Kohl then resigned after only 13 months on the job, and the company announced plans for a debt restructuring.

The Spheris deal with MedQuist has drawn several complaints. Nuance, one of the bigger players in the industry and a client of Spheris, had objected to the deal, saying it gives MedQuist an unfair advantage over other potential bidders.

Pennsylvania-based MultiModal Technologies, Inc., which provides speech recognition technology to Spheris, also filed a complaint, saying it puts the company’s intellectual property at risk because MedQuist is a competitor. Also objecting to the deal is Oracle. Company CEO Larry Ellison said the sale would allow the “unauthorized” transfer of Oracle’s software, which is used in Spheris’ applications.

Transcend, listed as the nation’s third largest provider of medical transcription services, has announced that it has submitted a $78.25 million bid for Spheris, and has borrowed $65 million to fund the deal. The terms of Nuance’s bid are not known.

MedQuist officials say their deal, if completed, would provide Spheris’ customers with access to an industry-leading technology platform. It would also place MedQuist at the forefront of a $12 billion to $15 billion industry that’s poised to grow as the nation’s aging population drives demand for healthcare services.

“MedQuist is a natural partner for Spheris,” said Peter Masanotti, MedQuist’s CEO, in a press release. “We share a common belief that superior quality in clinical documentation is an essential component of efficient healthcare operations and quality medical outcomes. Spheris’ customers can look forward to capitalizing on MedQuist’s extensive suite of services and technologies along with the strength of our combined experience, knowledge and culture of best-in-class service.”