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From HealthcareITNews:

Wednesday’s bankruptcy filing by one of the nation’s largest medical transcription providers could touch off a bidding war for the company’s assets.

Spheris, a Franklin, Tenn.-based provider of document services for roughly 500 hospitals and health systems, confirmed a long-standing rumor on Wednesday by filing for Chapter 11 bankruptcy protection in Wilmington, Del. At the same time, the company announced plans to sell its U.S. and Canadian businesses to MedQuist, a Mount Laurel, N.J.-based provider of medical transcription services, under Section 363 of the United States Bankruptcy Code for roughly $75 million in cash. That deal, if concluded, could make MedQuist the largest provider of medical transcription services in the country.

According to officials, MedQuist will act as a “stalking horse” bidder in an upcoming auction of Spheris assets and set the initial bid for Spheris’ domestic assets, subject to court approval. Another part of the deal would have CBay, Inc., acquire the stock of Spheris India Private Ltd. through the auction. MedQuist and CBay are portfolio companies of CBay Systems Holdings, Inc.

MedQuist may have some competition at the auction, however. According to the Nashville Business Journal, Webmedx, Inc., based in Brentwood, Tenn., and described as the fourth largest provider of medical transcription services in the country, and Atlanta-based Transcend Services, Inc., described as the third largest, may join the bidding.

“In such a changing market as the clinic documentation market, it would not surprise me if other parties were interested in some or all of Spheris’ business due to synergies and concentrations in market strength,” Wedmedx Senior Vice President Chris Cashwell told the newspaper. Transcend President Susan McGrogan, meanwhile, told the paper her company could make a bid as well.

From Nashville Post Business:

In a regulatory filing this morning, medical transcription company MedQuist said its deal to buy the U.S. assets of Spheris will cost about $75.2 million in cash, plus the assumption of certain liabilities.

The agreement comes with a $2.1 million breakup fee, plus transaction expenses, if another buyer ends up winning the bidding and auction process required under Spheris’ bankruptcy.

For now, MedQuist has deposited $7.5 million into escrow that will be credited to the purchase price after the acquisition has closed. If Spheris ends the deal because the buyers breach the agreement, MedQuist must pay the difference between $15 million the $7.5 million plus interest as a termination fee.

From HIPAA.com:

Three new HIPAA/HITECH Act rules go into effect this month:

Two weeks from today, on Wednesday, February 17, 2010, Business Associates of Covered Entities must comply with the HIPAA Security Rule. For the first time Business Associates will be regulated by the federal government. Section 13401 of Subtitle D (Privacy) of the HITECH Act (42 USC 17931) states that “[t]he additional requirements of this title that related to security and that are made applicable with respect to Covered Entities shall also be applicable to such a Business Associate and shall be incorporated into the business associate agreement between the business associate and the covered entity.” [Public Law 111-5, p.260] In addition, penalties that apply to Covered Entities also will apply to Business Associates for noncompliance with the provisions of the Security Rule.

The next day, Thursday, February 18, 2010, a new restriction on disclosure of protected health information goes into effect that impacts Covered Entity health care providers. According to Section 13405 of Subtitle D of the HITECH Act (42 USC 17935), a health care provider must honor a patient request to restrict disclosure of protected health information to a health plan for purposes other than carrying out treatment (namely, payment or health care operations) if the patient pays the health care provider out of pocket in full.

Finally, on Monday, February 22, 2010, enforcement of the Breach Notification Rule goes into effect for “failure to provide the required notifications for breaches” of unsecured protected health information discovered on or after the February 22 date. [74 Federal Register 42757, August 24, 2009]. The Breach Notification Rule applies to Covered Entities and Business Associates, provides obligations for each regarding compilation and reporting of information pertaining to a breach by either party, and requires “incorporation [of those obligations] into the Business Associate Agreement between the Business Associate and the Covered Entity.” [42 USC 17934]

From Newsblaze.com: Spheris, a leading global provider of clinical documentation technology and services, today announced that it has entered into an agreement under which MedQuist Inc. and CBay Inc., portfolio companies of CBaySystems Holdings Ltd. and leading providers of medical transcription software and services, have agreed to purchase substantially all of Spheris' assets pursuant to a transaction that is to be implemented under Section 363 of the United States Bankruptcy Code. In order to commence the sale process, Spheris and certain of its affiliates filed voluntary petitions for relief under Chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy Court for the District of Delaware (the "Court"). The Company expects its operations to continue as usual during the restructuring process. Spheris India, a subsidiary of the Company, will be part of the prospective transaction but will not file for bankruptcy.

Robert Butler, Chief Restructuring Officer of Spheris, stated, "Throughout the past year, Spheris has taken steps to strengthen its operations and customer service, and these initiatives are achieving solid results. Spheris has also been engaged in constructive discussions with certain key constituents of the Company to identify ways to enhance financial flexibility for our operations. We expect customers will continue to receive high-performing services through a company with a stronger capital structure."

Tony James, Chief Operating Officer of Spheris, added, "Spheris is committed to maintaining the highest levels of customer satisfaction and we will remain focused on our operations throughout this process. We expect the transition to be seamless for our customers and we appreciate their continued support. I would also like to thank the dedicated employees of Spheris for their commitment to the Company and for working hard to provide the outstanding service quality and quick turnaround times that our customers expect."

Prior to the Court approval of the MedQuist/CBay agreement, there will be a court-supervised auction process to facilitate competitive bidding by other qualified bidders. The auction process is intended to achieve the highest price possible for the assets and provide the Company with an efficient way to address its capital structure without disrupting operations. The bidding procedures, if approved, would require interested parties to submit binding offers to acquire some or all of the Company's assets within approximately 30 days of Court approval of the bid procedures. If qualified bids are submitted, an auction would be held a few days prior to the sale hearing. A Court hearing approving the sale to the winning bidder would be held soon after the conclusion of the auction, followed by a final closing. If the MedQuist/CBay agreement is approved and the conditions thereunder satisfied, Spheris expects that the transaction will be completed in the first half of 2010.

In addition, a syndicate of lenders has confirmed that they will enter into a Senior Secured Super-Priority Debtor-in-Possession Financing Agreement among the debtors under the bankruptcy case, with Ableco, L.L.C., as Collateral Agent, and Cratos Capital Management LLC, as Administrative Agent, to provide up to $15 million in Debtor-in-Possession financing upon the terms and conditions set forth therein, including entry of an order of the Court approving the financing. The financing facility will be used to fund ongoing operations and repay outstanding revolving credit loans under its pre-petition credit facility as of the filing date.

In conjunction with today's filing, the Company also filed a number of customary motions to continue to support its employees, customers and suppliers during the financial restructuring process and to facilitate a seamless transition to new ownership. As part of these motions, the Company has asked the Court for additional authorizations, including permission to continue paying employee wages, salaries and health benefits without interruption.

Additional information is available through the Company's website, www.spheris.com. Access to Court documents and other general information about Chapter 11 cases is available at www.gardencitygroup.com/cases/spheris.

From PRNewswire.com: MedQuist Inc. issued a statement today outlining its readiness for the extension of Health Information Portability and Accountability Act (HIPAA) security provisions in February 2010 to firms deemed "business associates" of healthcare providers, as well as the provisions of the Health Information Technology for Economic and Clinical Health (HITECH) Act addressing the privacy and security of protected health information (PHI). Standards and Safeguards related to PHI have been implemented across the full range of the company's business operations, including:

Overall Business Process, Transparency & Architecture

• Whether performed with domestic or offshore labor, unless otherwise specified by the customer, all transcription and editing work is processed through MedQuist's DocQment Enterprise Platform®, a centralized and secure workflow platform. This approach allows single-point control and visibility.
• MedQuist has complete transparency with its customers relating to the production of its transcription -- the customer designates and knows whether work is to be performed domestically, offshore or both.
• Offshore work is performed in a center-based model. Unlike many other offshore suppliers, no remote or home-based transcription is permitted, in order to maintain strong security control.
• MedQuist utilizes an independent accounting firm to perform an ongoing audit of its offshore operations and performance to ensure compliance with its Standards and Safeguards.
  

Physical Security

• MedQuist's offshore physical locations deploy a host of security tools. These include biometric access and identity checks to facilities and equipment, facility access rules and limitations on a 24/7 basis, and rigorous logging procedures.

Technical Security

• MedQuist's entire IT infrastructure supporting its service operations is independent, secure, and fully documented.
• Access to workstations and servers is controlled through a combination of unique login/password settings, biometrics, and prohibitions on e-mail, instant messaging, and printer access.
• Damaged hard drives and electronic media are handled according to DOD 5220 standards for electronic data shredding, or physical destruction when shredding is not possible. All MedQuist hardware is subject to full control logging.

Human Resources & Auditing

• All employees are required to execute PHI confidentiality agreements.
• All MedQuist partners execute a business associate agreement.
• An ongoing training program has been established on HIPAA requirements.
• MedQuist assigns a privacy compliance specialist to its own business partners to ensure that privacy and security standards are upheld.

From Washington Post columnist Joe Davidson: On Monday, [U.S. Commerce Department] employees were informed by letters mailed to their homes about "a breach of protocol involving your Personally Identifiable Information (PII), including your Social Security number (SSN) and name."

According to the letter, "a Department of Commerce employee inadvertently transmitted over the Internet a file containing the PII of Commerce employees to other Department employees. Although the Department employees were authorized to send and receive the PII, the transmission of the PII over the Internet in unencrypted form may have compromised your name and SSN."

The real story here for business associates concerned about HIPAA/HITECH compliance is that something as commonplace as sending an unencrypted email attachment containing personal information is now considered a "breach of protocol" by the U.S. government. Notice that the email was sent to and received by the intended recipient, but the fact that the transmission occurred over an open network--the Internet in this case--was a security breach by HIPAA/HITECH standards. Make no mistake; the days of "business as usual" for those of us in the transcription business are gone for good.

From AjaxWorld/BusinessWire - Highlights include:

• Revenue for the fourth quarter of 2009 increased 67% to a record $21,377,000 compared to $12,833,000 for the fourth quarter of 2008.
• Gross profit increased 53% to $7,289,000, or 34% of revenue, for the fourth quarter of 2009 compared to $4,769,000, or 37% of revenue, for the fourth quarter of 2008.
• Operating income increased 20% to $2,736,000 for the fourth quarter of 2009 compared to $2,283,000 for the fourth quarter of 2008.
• Speech recognition technology was used to edit 67% of Transcend's BeyondTXT volume in the fourth quarter of 2009, up from 54% in the fourth quarter of 2008. Offshore processing accounted for 16% of total volume in the fourth quarter of 2009, down from 19% in the fourth quarter of 2008 due to the impact of the MDSI acquisition, which uses 100% domestic resources. "Our goal is to increase the percentage of total volume processed offshore to 25-30% over the next two or three years."