HEALTHCARE AT HOME:
THE  ROWAN TECHNOLOGY REPORT

Serving the home health, home care and hospice industry since 1999.

Health Systems Solutions provides a variety of software products and services for Medicare and private duty home care providers. The Tampa-based software technology company has found itself in the news recently, not only in its home town dailies and business journals but also in Birmingham, Alabama and Houston, Texas papers, through no fault of its own.

Houston's Stanford Financial Group, recently making national headlines nearly as shocking as the Madoff scandal, is Health Systems Solutions' major investor.

On February 17, reports revealed that the SEC had filed a complaint in Dallas federal court accusing Stanford's founder and owner of "massive ongoing fraud," alleging that he and his companies orchestrated a scheme in which they sold $8 billion in so-called "certificates of deposit" to investors.

The civil complaint said Stanford was promising "improbable and unsubstantiated high interest rates" more than two percentage points higher than the U.S. average of 3.2 percent and misrepresenting the CDs as "as safe as FDIC insured CDs." Federal agents raided Stanford's Houston office that same day and the courts froze all his accounts.

HSS relies on one of those accounts. The company's 3rd quarter 2008 financial report stated that Stanford International Bank had provided it with another $5 million in equity and $85 million in convertible securities "for acquisitions and working capital."

Who is Stanford and how did he fall?
Fifth generation Texan Allen Stanford -- known as Sir Robert Allen Stanford in Antigua, where he and his Stanford International Bank have their addresses -- founded the empire and was the primary target of the federal investigation. When he attempted to return to his island home, a charter jet company rejected his credit card and the dominos began to fall. He was eventually located hiding at a girlfriend's home in Virginia, where he was served with a civil complaint by the SEC but not arrested.

One of those dominos fell at HSS's Tampa door. Unable to access expected Stanford funds to complete a planned acquisition of Birmingham-based Emageon by a February 11 deadline, a deal in the works since at least October, 2008, HSS canceled the deal. That cost HSS $9 million, a pre-arranged cancellation penalty.

The Birmingham imaging, cardiology and storage services software company was further from HSS core business than previous acquisitions. Using Stanford's off-shore bank, HSS had already absorbed other software companies but always stayed closer to home care. The first, dating from April, 2006, was home care benchmark software vendor Healthcare Quality Solutions, Inc. That company remained in Tampa and continued its traditional operations under new, New York city-based owners.

Before the ink was dry on that reorganization, which was primarily a name change, HSS purchased and took over support of a thriving product, The Analyzer, from VantaHealth Technologies. The very next month, it scooped up a failing Atlanta private duty software company, CareKeeper Software, LLC. About a year later, the executives that arrived at HSS with CareKeeper were released but, to the surprise of many industry watchers, so was longtime HQS CEO Michael Milvain.

Home care industry veterans with current or former ties to HSS, who spoke on condition of anonymity, explained that the CareKeeper home care product, VividNet, turned out not to have been as close to being ready for general release as was thought when HSS acquired the company. Completing development work necessary to bring the product to the point where it can be sold to and used by home care provider companies will require substantial additional investment.

HSS had been counting on Stanford to finance that development. With Stanford accounts frozen and its CEO and other top executives facing imminent criminal indictments on top of the already-filed civil charges, VividNet and other planned product releases are in danger of lengthy suspension or worse. (For more, see HCAR's 11/19/08 report on HSS and video interview with CEO Stan Vashovsky.)

Postscript: The Emageon acquisition would have been HSS's first venture into hospital software and services. In a late development, Emageon announced Monday it had accepted much lower purchase price from a different suitor. Amicas, Inc. [AMCS.O], a provider of similar IT services, offered Emageon $1.82 per share, or about $39 million, in cash. HSS was ready to pay $62 million before Stanford's funds were frozen. Even the lower amount is 143% of Emageon's current stock price.