Having held Pro Medicus (ASX: PME) shares since 2014, I have become used to the company winning new contracts. Today, the company added to its tally with an 8 Year contract with Inova Health, worth $32 million. This is only the second time we’ve seen an 8 year deal signed.
Today’s article isn’t so much about the Pro Medicus investment case, but merely seeks to explain why the Pro Medicus customer list is so impressive. This can help explain why the stock trades at such a premium to relatively weak quasi competitors such as Mach7 (ASX: M7T) and Imexhs (ASX: IME).
Who Are Pro Medicus’ Customers?
Below you can see a list of large Pro Medicus customers, alongside the length of the initial contract. Importantly, each of these Pro Medicus customers pay based on their usage of the PME software or archive.
| Selected Large Pro Medicus Contracts (including renewals) | Contract Length Number of Years |
| vRad | 5 |
| VISN23 | 5 |
| Sutter Health | 6 |
| Wellspan Health | 7 |
| Zwanger-Pesiri | 5 |
| University of Florida Health | 7 |
| Allegheny Health Network | 6 |
| Mercy Health Network | 7 |
| Franciscan Missionaries of Our Lady Health System | 7 |
| Mayo Clinic | 6 |
| Primary Healthcare | 5 |
| Yale New Haven Health | 7 |
| I-Med | 5 |
| Mercy Health Network | 7 |
| Partners Healthcare | 7 |
| Carle Foundation | 7 |
| VISN23 | 5 |
| Duke | 7 |
| Ohio University Wexler | 5 |
| Nines / Sirona | 5 |
| Northwestern Memorial HealthCare | 5 |
| NYU Langone Health | 7 |
| LMU Klinikum | 7 |
| Zwanger-Pesiri | 5 |
| Medstar Health | 5 |
| Intermountain | 7 |
| UCSF, UCLA, UCSD, UC Davis and UC Irvine | 7 |
| University of Vermont | 8 |
| Novant Health | 7 |
| Inova Health | 8 |
Why Are Pro Medicus Customers So Impressive?
In order to understand why Pro Medicus’ customer list is so impressive, I thought I’d zoom in on the two main categories of customer; academic hospitals and integrated delivery networks.
Yale New Haven Health is Connecticut’s leading healthcare system and is affiliated with the prestigious Yale University and its highly-ranked Yale School of Medicine. Meanwhile, Mayo Clinic, which is ranked by some as the best hospital in the world, is also the teaching hospital for the Mayo Clinic School of Health Sciences. NYU Langone Health is affiliated with New York University. On top of that, Pro Medicus serves the healthcare networks affiliated with the university of Vermont, Florida University, and Unversity of California, among others.
This is important for two reasons. First of all, when major teaching hospitals are using Visage, Pro Medicus has the honour of having the next generation of radiologists train on their platform. That’s massive. Secondly, it paves the way for research collaborations.
For example, Pro Medicus has a research collaboration with Mayo clinic “to facilitate development and commercialisation in the field of AI leveraging the Visage AI Accelerator platform.” It also has an agreement with NYU Langone “to design and develop next-generation products for enterprise imaging in areas such as workflow optimization, integration with multi-vendor reporting platforms, as well as integration of artificial intelligence (AI) technology.”
The other major group of customers are the integrated delivery networks. Pro Medicus has taken a bit longer to start winning these contracts, but kicked off a good run at the end of 2020, by winning Medstar Health, an integrated delivery network for Maryland, DC, and Virginia.
However, the big win in this segment was Intermountain Healthcare, a Utah-based, not-for-profit system of over 30 hospitals, more than 3,000 clinicians, and more than 300 clinics. This was followed by a win with Novant health, which services the Carolinas.
Today’s announcement of North Virginia IDN, Inova Health, marks the fourth IDN win in about 18 months, causing CEO Sam Hupert to remark that it “further underpins the strong momentum we continue to build not only in this segment of market but also the North American market as a whole.”
These integrated networks are an important part of the puzzle for one main reason; consolidation.
Over time, radiology practices are consolidating into larger and larger groups, by acquisition or merger. While there is organic growth in the radiology industry (and perhaps all the more so with the damage covid does to organs), it is important for Pro Medicus to serve the biggest customers.
Because these contracts are based on usage, Pro Medicus wins automatically when its clients grow. So if Intermountain Healthcare takes over more locations, and does more scans as a result, then Pro Medicus will benefit. On the other hand, when Intermountain Healthcare merges another network which doesn’t use Pro Medicus, then there is a risk the new owner would move it away from Pro Medicus products.
This is far from hypothetical. Just this month Intermountain Healthcare announced a merger with SCL health, as you can see in the promotional video below:
Today, Intermountain Healthcare and SCL Health are merging into one healthcare system to better serve caregivers, patients, members, and communities across Utah, Idaho, Nevada, Colorado, Montana and Kansas. pic.twitter.com/URRisxR3AW
— Intermountain (@Intermountain) April 5, 2022
Now, Intermountain only signed up with Pro Medicus in January 2021, and the company says that the implementation was a resounding success. Meanwhile, the smaller SCL Health now includes on its logo “SCL Health, now Intermountain Healthcare”.
My guess is that ultimately, there is much more likelihood that SCL would move on to Pro Medicus systems than for Intermountain to move off it, but I guess we’ll find out. One thing I’d like to ask the CEO in due course is if SCL has migrated on to Pro Medicus systems. Overall, though, I suspect this kind of growth by Intermountain is a good thing for PME share holders.
For a more detailed look at Pro Medicus check out my analysis of the Pro Medicus H1 FY 2022 results or see our past coverage of Pro Medicus here.
The author owns shares in Pro Medicus and will not sell for at least 2 days after publication of this article. This article should not form the basis of an investment decision. It is an investment diary valuable only for the cognitive process it demonstrates. We do not provide financial advice, and any commentary is general in nature. Please read our disclaimer.
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