Open-source healthcare firm Medsphere settles lawsuit against co-founders, looks for funding

(UPDATED: See below.)Medsphere Systems, a healthcare software developer that sued its co-founders after an open-source software disagreement, has finally settled that case. The press release doesn’t exactly burst with detail — in fact, it devotes exactly one sentence to the lawsuit — but it represents at least a modicum of good news for the worthy effort to promote more widespread use of an open and standardized medical-record system.

Medsphere essentially aims to turn VistA, an electronic medical-record system originally developed by the Veterans Administration and later made publicly available, into the Linux of healthcare. VistA generally wins high marks from its users, although so far it’s mostly used by government agencies. See my earlier piece on VistA and Medsphere’s spotty history — including its legal dispute with co-founders Scott and Steve Shreeve — here. (The lawsuit apparently originated with an open-source release by the Shreeves to which Medsphere’s board and CEO took exception. Scott Shreeve blogged about the matter here.)

I’d been scheduled to speak with Medsphere’s new CEO, Mike Doyle, on Friday, but never heard back. Scott Shreeve, who said the settlement agreement limits his ability to speak about the case, told me that “basically, we hope Medsphere comes in and does a good job. We wish them the best.” For more background on Shreeve, Medsphere and VistA, see this 2005 interview from a site called HIStalk, which does predate the lawsuit.

Meanwhile, Medsphere is apparently moving ahead with plans to raise more than $15 million in a third funding round, VentureWire reports (subscription required). Doyle told VentureWire he hoped to have the funding round completed in three to six months.

Over the past year, Medsphere has signed up at least three new customers — Century City Doctors Hospital in LA, a Wyoming hospital and Brooklyn’s Lutheran Medical Center — for OpenVistA, its open-source version of the VA software. The company has raised $16 million in financing to date, including a $7.5 million second round in 2005.

UPDATE: Added a link to Scott Shreeve’s account on the origin of his dispute with Medsphere and made a few minor wording changes to better describe that controversy and Medsphere’s customer-acquisition gains.