Thinking Software For Life ANNUAL REPORT 2015 - Orion

Orion Health26 . 05 . 2015Section 032015 Annual ReportLetter from the Chairmanand CEO010SECTION3: Letter from theChairman and CEODear ShareholderOrion Health and the global healthcare IT industry are undergoingfundamental change, resulting in both huge opportunity anduncertainty. FY2015 has been a challenging one for Orion Health inmany respects, but also one where several strategic milestones havebeen achieved.During the year we successfully completed a 125m Initial PublicOffering (IPO) of Orion Health shares and commenced trading on theNew Zealand Stock Exchange and the Australian Stock Exchange. Withthis significant milestone behind us and with the additional funding, theBoard is focused on supporting the executive leadership team to deliverOrion Health’s growth strategy.We have continued to evolve the structure of our business to supportthe shift to a subscription revenue model with a global delivery platform,and this is starting to reap benefits. We have grown our AnnualisedRecurring Revenue base significantly, from 44m at 31 March 2014to 63m at 31 March 2015, an increase of 42%. An importantcontributor to this growth was the successful implementation of OrionHealth Open Platform for our first large strategic Health Insurance(Payer) customer in the United States, Cal INDEX.Total FY2015 Operating Revenue was 164m, up 7% from 153min FY2014, and driven by our United Kingdom and New Zealandbusinesses. Both of these regions were standout performers, delivering60% and 23% revenue growth in FY2015 respectively.All other regions experienced growth in FY2015 except for NorthAmerica, where revenue growth was impacted by two factors;Firstly, the US market is in transition to Population Health Management(PHM), under the evolving Obamacare regulatory framework whichis driving the market from a fee for service model to value basedoutcomes. We have witnessed the recent tapering-off of somegovernment incentive programmes and the introduction of others. Wealso identified the early ascendancy of the Health Insurers, or Payers,as a key target market for Orion Health and we have been successfulsecuring contracts with 3 market-leading organisations. This rapidlychanging US environment, did cause some slowing in contractingactivity in the latter part of the financial year although recent activityis encouraging. Continued volatility in closing contracts is expectedto remain for some time as the market continues to transition to PHMsolutions. Market transitions driven by new regulatory change aregenerally uncertain in timing but will create significant opportunities forOrion Health, as our solutions are well suited to evolving requirements.Secondly, our business model is in transition from perpetual licencesto subscription revenue. These factors contributed in our U.S.Healthier Populations group, to an 81% drop in revenue derived fromperpetual licences for the year, only partially offset by a 35% rise inmanaged services revenue as newly acquired customers completedimplementations and moved to a live production state. The transition tosubscription revenue in our US PHM business is now largely completeand we look forward to building on our recurring revenue base with newcontracting success.Total FY2015 Loss before Income Tax was 51m, a direct result fromour increased investment in new product development as well asbuilding our service delivery capacity. The Loss after Tax for the yearwas 61m and reflects the removal of 7m of deferred tax assets fromour Balance Sheet.During FY2015 we grew our R&D group from 363 people to 461people, bringing our total R&D spend to 49m for the year. Thisprovided us with the impetus to increase our development effortsacross all of our solution groups. In particular we delivered newgeneration solutions in our Healthier Populations group in order to meetthe expectations of our customers and progress our vision for PHM.The health information technology market is estimated to be worthUS 57 billion by 2017. Globally we are seeing a move towards PHMsolutions and we believe Orion Health is the only vendor taking ascalable, whole of platform approach to market. We are very excitedabout the significant and wide ranging opportunities that are emergingin this space.Building on our momentum and taking advantage of the opportunityahead of us requires strong focus and leadership. Orion Health hasgrown from a company of fewer than 450 people to one of 1,226 injust over four years. With such fast growth comes a need to continuallydevelop leadership at all levels in the business. The Board was delightedto welcome leadership expert Dr. Lester Levy as a Director in August2014. The Board was also very pleased with the appointments ofGraeme Wilson as Chief Operating Officer and Gary White as GlobalServices Leader during 2014.Graeme’s appointment has allowed our Chief Executive Officer,Ian McCrae, to increase his focus on product leadership andinnovation, whilst Gary’s appointment furthers our ongoing focusto improve our Implementation Services and Managed Servicesexecution capability. Both of these areas are strategic priorities forour business as they directly influence product quality, customersatisfaction and financial performance.Orion Health remains on a journey. The company is a recognisedleader in its field with over 23 years experience across many differenthealth markets. We are well positioned to capitalise on the evolvinglandscape in Health IT and we are committed to delivering on thispromise of growth. On behalf of the Board and management team,we want to assure our shareholders that we have the right people inplace and the necessary resources to execute our strategy and delivershareholder value.Thank you for your support and we look forward to continuing on theOrion Health journey with our shareholders.Yours sincerelyAndrew FerrierChairmanIan McCraeChief Executive Officer

Orion Health2015 Annual ReportSection 03Letter from the Chairmanand CEO011ANDREW FERRIERCHAIRMANIAN MCCRAEFOUNDER AND CHIEFEXECUTIVE OFFICER

Orion Health26 . 05 . 2015CAL Index2015 Annual Report012Cal INDEX Switches onNext Generation HealthierPopulations SolutionThe California Integrated Data Exchange (Cal INDEX) representsone of the largest scale health information exchanges of its kindand one of the first to combine clinical data with health insuranceclaims data. It represents collaboration between two majorpayer organisations – Blue Shield of California and Anthem BlueCross – with a stated aim, to improve efficiency and reduce thecost of healthcare across the state of California, beginning withapproximately 9 million members.In order to achieve this, Cal INDEX required a new generationpopulation health management solution, built on the latesttechnology and with the functionality to rapidly process hugevolumes of data in a linearly scalable way. The solution that wasup and running in December 2014 was the Orion Health OpenPlatform, following two years of in-depth collaboration with thecustomer as well as involvement from over 100 internal resources.Orion Health Open Platform is the core underlying technology thatwill integrate, combine and structure all the health informationavailable (including insurance claims data) for the initial 9 millionmembers. The system was launched with three years of existingclaims data for all members of Blue Shield California, with thehistorical Anthem Blue Cross data to follow. This information hasbeen made available to physicians, nurses and hospitals acrossthe state in order for them to give patients the safest and highestquality care possible.This implementation confirms Orion Health as one of the leadingpopulation health management vendors in the world.Orion Health will now continue to work closely with Cal INDEXto extend the solution through delivering in-depth and tailoredanalytics, improved care coordination tools and patient engagementapplications. Orion Health will also support Cal INDEX in its effortsto bring additional insurance company and healthcare providerparticipants onto the system.While this is a major project for Orion Health and a significantmilestone, it should be noted that this solution is being delivered asa software-as-a service (SaaS) model, with the majority of revenuesreceived in FY2016 and beyond.“Given the quality of the clients we were working with and the sheer complexityof the project itself, I am delighted with what we have delivered. We are awarethat many other payers are closely watching Cal INDEX as an example for theirown population health requirements in the future, so this project has huge strategicvalue for us as a company.”Ian McCrae, CEO, Orion HealthHEALTHIER POPULATIONSThe solutions in this group are utilised by Funders and Providers toconnect, consolidate and structure healthcare information from multiplesources, making it available across a geographical region and enablingcare coordination, actionable insights and consumer engagement.

Orion Health2015 Annual Report013CAL Index

Orion Health26 . 05 . 20152015 Annual Report014The Opportunity in Healthcare is Immense 7%HCIT market is huge estimated at USD 56.7bby 2017, growing 7%every year*Shift globally towardsPHM requires a solid ITinfrastructure# 01Industry analysts recogniseus as a technology leader* Healthcare IT Market, Markets and Markets, p3The opportunity is oursfor the takingWe are a leader in thefastest growing marketsegments: big data,disease management,care coordination

Orion Health2015 Annual ReportSection 04Orion Health Strategy andBusiness Model015SECTION4:Orion HealthStrategy andBusiness Model

Orion Health2015 Annual Report01626 . 05 . 2015Section 04Orion Health Strategy andBusiness Model

Orion Health2015 Annual ReportSection 04Orion Health Strategy andBusiness Model017Healthcare is UniversalHealthcare is universally complicated, expensive and challengedby the same issues. As the largest industry in the world, healthcarerepresents the single biggest expense that most countries face.This level of expense is increasing towards unsustainable levels,primarily driven by:-The growing burden of chronic conditions; representing 60% of alldeaths1 and accounting for over 85% of healthcare expenses2-The unacceptable wastage in the system; failures in delivery, lackof coordinated care, misdiagnoses and duplication of effort result inalmost a third of all healthcare spend being wasted-The effect of medical discoveries; advances in science are resultingin highly effective (yet costly) procedures and drug therapies that arehelping individuals to live longer-The impact of living longer; the proportion of the global populationover 60 is set to double between 2000 and 20503 and with it thenumber of individuals susceptible to encountering multiple chronicconditionsThe impact of these pervasive cost pressures is driving changeto the traditional models accepted across health. Many countriesare now focused on a structural funding shift from fee for servicedelivery models (FFS), to value-based payment models.In combination with a changing healthcare model, there is alsoan increased demand for connectivity via the Internet of Thingsas well as changing consumer sentiment. Individuals will shortlydemand an ability to store their biometric data and to interactwith their healthcare information from anywhere at anytime. Thisis leading to profound change, akin to the digital disruption andonline transformation that many other industries have traversed.This change will be universally driven by the application of newgeneration technology.The success of health technology however, continues to beimpacted by three interrelated market forces:1.How healthcare is funded2.What regulations exist3.The current level of technology adoptionThe variable interplay between these factors is what clearlydifferentiates all global healthcare environments. Market transitionsdriven by regulatory change traditionally create significantopportunities for companies like Orion Health. It is therefore crucialthat we understand the specific market dynamics to which ourtechnology is being applied.1 http://www.who.int/chp/en/2 tm3 “Ageing and Life Course, Facts about Ageing”, World Health Organisation, September 2014The cost of healthcare in theUS is approaching 20% of GDP– approximately twice that ofcomparable OECD countrieswithout showing any materialincrease in life expectancy.The current predominant FFSsystem in the United Stateslargely fails to financially rewardhigh-quality or coordinatedhealthcare across providers.The incentive with FFS is toprovide more services andtreatment, as payments aredependent upon quantity, notquality. Value based paymentmodels change incentives tofocus on value by rewarding betteroutcomes and lower spending.

Orion Health26 . 05 . 2015Section 042015 Annual ReportOrion Health Strategy andBusiness Model018MARKETFUNDING MODEL4REGULATION & INCENTIVESMARKET OPPORTUNITYUnited StatesNZ 3.8 trillion (17% of GDP)-Incentives for Providers toadopt and use electronichealth records (HITECH Act)-Incentives for private sectorto keep people healthy,reduce cost and increaseaccessability of insurancecover (Obamacare)Deliver a platform forinteroperability andcoordinated care, supportingthe regulatory driven shift tovalue based models of care-Spends twice as much percapita as other OECD nations-Workers typically have healthinsurance through theiremployer-Government funded Medicareand Medicaid cover the elderlyand disadvantagedUnited Kingdom and Republicof Ireland--4%12 %47%-33 %NZ 307 billion (9% of GDP)Universal coverage system5Each country hastheir own healthbudget to delivervia their respectiveNational Health Service (NHS)bodies4%9%4%3%-Universal coverage system-Use of government fundingcontrolled at provincial level-Prescription medication,home care and long-termcare funded out-of-pocket orthrough private insuranceNew Zealand-Universal coverage system-Government funding providedto 20 District Health Boards(DHBs) to provide hospitalcare and subsidise mostprimary and community care-Incentives at country level toencourage adoption of EHRs-E.g. NHS England establishedthe Integrated Digital CareFund in 2013, providing over 500m of funding for EHRadoptionNZ 228 billion (11% of GDP)2%15%Target Integrated ClinicalNetworks contracting at riskTargeting public acuteproviders (NHS Trusts),Health Boards, and ClinicalCommissioning Groupswith solutions to improvehospital efficiency, regionalinteroperability and PHMTrends are towards wellnessand preventative care, andcare co-ordination for highuse cohorts82 %Approach to primary vssecondary care differsby countryCanadaIncentives for chronic caremanagement of Medicare(elderly) patientsTarget Payers wanting toaggregate insurance data andclinical data and offer patientengagement strategies1%Federal Government providedCA 2.1b funding to developEHRs through Canada HealthInfowayTargeting provincialgovernments with PHMsolutions and upgradingexisting EHRs to newgeneration solutionsPublicly funded NationalHealth IT Board establishedin 2009 with an “eHealthvision” to make a core set ofpersonal health informationavailable electronically toNew Zealanders and theirtreatment providersTargeting all of system regionaland national PHM solutions,including private, insuranceand non-governmentalorganisations12 %70 %NZ 22 billion (10% of GDP)11%1%5%83 %Driving better outcomes forconsumers and innovationwhich can be exportedTargeting providers with nextgeneration hospital solutions4 All data is for 2013 and is sourced from World Health Organisation Key Indicators and Sources by Country. Local currencies translated to NZD at May 2015 spot exchange rates.5 A healthcare system which provides government funded healthcare at the point of need to all citizens.

Orion HealthSection 04Orion Health Strategy andBusiness Model2015 Annual Report019MARKETFUNDING MODELREGULATION & INCENTIVESMARKET OPPORTUNITYAustraliaNZ 158 billion (9% of GDP)-Government incentives toencourage take up of privatehealth insuranceTargeting providers with nextgeneration hospital solutions5%-2015 federal budgetcommits A 485 million tocontinuing and improvingthe national PersonallyControlled ElectronicHealth Record-Universal coverage system-State and territorygovernments control hospitaland community care--Federal governmentsubsidises primary care andpharmaceuticals19%8%Active private sector withapprox. 30% of populationcovered67%Targeting public providers/funders at state level with PHMTargeting private funderswith PHMContinue working with federalgovernment for national PHMKeyGovernmentPrivate InsuranceOut of PocketNon-profit InstitutionsOther privateGlobal Movement to Population Health ManagementIn all healthcare markets a natural delineation has appearedbetween those that fund healthcare (“Funders”) and those thatprovide healthcare (“Providers”). Although operational drivers maydiffer, both are inherently connected through a desire to betterserve healthcare consumers. Similarly, they both understand thepotential for technology to revolutionise their industry, by:-Creating an in-depth longitudinal patient record for every individual-Applying knowledge gleaned from population and genetic analysisto every individual-Delivering tailored health and wellness plans to every individual-Engaging individuals in their own healthcare across multiple channelsThese principles underpin the new approach to healthcare - holistic,proactive and patient-centric care enabled through widespreadinformation sharing across all healthcare touch points. This newapproach is defined as Population Health Management (PHM).Orion Health’s ultimate vision for Population Health Management“ If we could make sense of healthdata for an entire population,patterns could be identified andevidence about the most successfulmedicines or treatments could beused to create an optimised preciseplan for an individual. There wouldbe rapid, scalable, precise andaccurate diagnostics as well as theunderstanding of each individual’sbiology and genetic make-up toapply the most effective courseof action. Keeping people healthywould in turn help reduce the needfor expensive interventions suchas emergency department visits,hospitalisations, imaging testing andprocedures, reducing costs to thehealthcare system.”Ian McCrae, Chief Executive Officer

Orion Health26 . 05 . 2015Section 042015 Annual ReportOrion Health Strategy andBusiness Model020New Generation Product DevelopmentWhilst many health IT vendors have had to strategically reorganisetheir business to address the burgeoning PHM market, we simplycontinue to build as we always have - embracing the latesttechnologies; innovating through design; open and interoperable;and always keeping scalability top of mind. In the area of patient andclinical engagement our mobility strategy is embracing changingconsumer trends and the growing mobile nature of healthcare.Our integration heritage directed our thinking towards buildinga platform that could seamlessly aggregate clinical informationfrom multiple sources across organisations, communities andstates as well as combine that information with insurance claimsand consumer device data. This would then enable us to provideadditional tools, applications and functionality aimed at enhancingthe delivery of coordinated care, patient engagement andstreamlined clinical processing.Orion Health Open Platform forms the base of our PHM solution andis powered by our big data engine Amadeus – representing the onlytrue big data solution specifically for health. The ability of our OpenPlatform to support extremely high volumes and velocity of dataand seamlessly stream this data to feed real-time analytics is a keysource of strategic advantage.Our technology allows Funders and Providers to deliver precisehealthcare via targeted interventions, whilst concurrently creatingthe most comprehensive longitudinal patient record possible. Dueto its open architecture, it also provides the ability to extend oursolution with custom built applications and tools, further enrichingthe underlying patient longitudinal records. The result is a trulyunique market offering built upon sophisticated and future prooftechnology that will deliver value to all stakeholders in health.Our goal is to become the providerof the leading health data platformin all of the markets we operate in.“Orion Health surged to the top of the class this year, earning A-minusesacross the board for its expanding portfolio of deployed solutions andgrowing list of customers Orion Health has improved its solution setand market standing considerably in the last year All in all, Orion Health’sproduct portfolio continues to be one of the leading platforms for healthinformation organisations.”Chilmark Research, December 2014

Orion HealthSection 042015 Annual ReportOrion Health Strategy andBusiness Model021Target Market SegmentsIn designing the approach to our geographic markets we havespecific engagement strategies for the Funder, Provider andConsumer segments we encounter.Funder EngagementWe position our PHM platform as the cornerstone technologysolution that will revolutionise how healthcare is deliveredthroughout the community. We have a compelling offering for anyorganisation / group of organisations that have multiple sources ofdata across many different settings. We strengthen this propositionwith three key differentiators:-Our ability to deliver real time analysis on population data whichenables proactive targeting of patients and the delivery ofpreventative care-Our unique open architecture which allows us to supply further valuevia our own applications and tools as well as interface directly withcustomer built tools and applications-Our patient engagement solution that gives Funders the ability toencourage individuals and their Circle of Care to proactively engagein the management of their own wellnessTypically the Funders we engage directly with include all levelsof government, large private insurers and large networks ofhealth organisations.Provider EngagementWe position our in-hospital solutions across both acute andambulatory

Section 1: Orion Health at a Glance 05 Section 2: FY2015 Business Milestones 06 Section 3: Letter from the Chairman and CEO 10 Section 4: Orion Health Strategy and Business Model 15 Section 5: Overview of FY2015 Financial Performance 25 Section 6: Board of Directors 38 Section 7: Global Lea