Healthmatics reappearance sparks interest at TEPR
By ARTHUR GASCH
Healthcare InfoTech Contributing Editor
ORLANDO, Florida It was just this past HIMSS (Healthcare Information and Management Systems Society) conference, held in February, that we reported the demise of Healthmatics (Cary, NC). Its disappearance was apparent when no booth arrived to fill the exhibit space rented and the Healthmatics people wandered the floor at Atlanta’s World Congress Center, ferreting out employment opportunities with other companies. Lo and behold, last week’s TEPR ’99 (Toward an Electronic Patient Record) Conference here saw Healthmatics rise from the ashes, just like the Phoenix, recast as a new division of a4 Health Systems (Cary, NC). The timing was perfect for a4 Health Systems. Waiting for Healthmatics to fold lowered the purchase cost from Glaxo Wellcome substantially, while moving quickly after the shutdown allowed a4 to keep system programmers and other key personnel.
A4 itself has gone through some re-engineering and downsizing over the past two years, including moving from Unix-based to Windows-based products. In 1997, the employee-owned company listed 150 personnel. Today, prior to the Healthmatics acquisition, the number of employees was down to 120. This downsizing was a result of a change at the top, as John McConnell was brought in as the president of what was a well-respected, inpatient clinical repository company. He has been in the position for almost a year and already has made some very significant changes. This latest acquisition is important, as Healthmatics expands a4’s inpatient focus to include the alternate-site computerized patient record (CPR) market. The alternate-site CPR market is where the most rapid growth is in that sector. Acquiring Healthmatics broadens the a4 product base and moves it into a league with competitors like SMS, IDX, Meditech, Cerner, McKessonHBOC and other enterprisewide HIS/CPR suppliers.
Clearly attendees at this year’s TEPR gathering learned that the CPR market is going to take longer to materialize than most had expected or predicted. After many years, it has only reached the first or second of the five levels it will have to obtain to become a ubiquitous tool for TQM and outcome studies. Many technical and market hurdles remain to be overcome, not the least of which is market suspicion and skepticism about the ability to work with these systems without sacrificing efficiency at least in the beginning. In the meantime, there is continued system development and market consolidation.
Overall, the healthcare information system market is moving toward fewer suppliers with broader product lines. There are currently around 1,100 vendors 1,800 if you count the smallest players with some computer applications for various alternate-site niche markets. The failures and mergers of small players is happening at such a rapid pace, however, that it is difficult to keep up with them. It is estimated that within the next few years, the number of vendors that will offer an enterprisewide system, which includes everything from the computer-based record to billing, will be down to about 50 large companies. The number of vendors that will offer various niches of the system also will decrease, to perhaps 300 major players. In fact, while many companies will have exited, this consolidation will probably be good for the market and all that remain, since prospective buyers are just confused by the array of products currently available to them. Indeed, most of the small companies aren’t even considered by the larger purchasing groups and healthcare provider groups, unless they get to the account early and establish some reason to be included in the initial vendor pool. Most of the little companies simply do not have the budgets, marketing reach or expertise to do that on a consistent basis.
Adding to the confusion, or one might say provider suspicion, are the business practices of market leader HBOC, now McKessonHBOC. The company initially was lauded as being a prototype of profitable growth through acquisition, moving from a few hundred million in revenues to over a billion. Now it appears that HBOC may have cooked its books to inflate revenues and manipulate its stock prices last year. McKessonHBOC is currently in the process of removing a total of more than $42 million in wrongly credited 1998 revenue from its books, but only after enticing investment with the questionable numbers. What has already resulted is a $30 drop in per-share stock price almost overnight, and class-action lawsuits by angry investors who felt duped.
The explanation offered by HBOC for this retroactive lowering of revenues was that it was the result of the company mistakenly claiming milestone-based revenues from institutions before HBOC actually reached the milestones and received the revenues. In addition to the 30-point drop in stock price, McKessonHBOC is now forecasting lower sales for the remainder of this year. The credibility of HBOC certainly has been destroyed on the street, and in the end some company personnel may face jail before all the litigation is settled in court. Such legal activities will defocus the company further, and potentially slow the integration of all the companies HBOC has acquired.
One incident reported previously in Healthcare InfoTech was HBOC’s claims about its home healthcare system installation at a large VNA in central New Jersey. HBOC announced the successful installation of its homecare application and the benefits to the agency in its own newsletter just this past April. The story highlighted how content the VNA was, and how efficient the VNA’s data capture and flow now was. In reality, the people we spoke to within the VNA organization in question said that as of April, only 20% to 25% of its employees had even been trained in using the system, which was still in pilot stages. The VNA personnel also spoke of numerous delays in implementation as weeks went by when no one was being shown how to use the system due to ongoing problems with the software, and lost revenues by the agency.
To date, this VNA still does not have the system rolled out as a live installation agency-wide, and the nursing personnel just this past week were beginning to be trained on the system again. This was a source of conversation at the TEPR gathering. We spoke with a medical transcriptionist from the Atlanta area who reported that her hospital was having the same difficulty with another HBOC application, reporting the system as up and running when she knew that this was not the case.
One has to wonder who reads HBOC’s newsletter or if anyone ever bothers to call the personnel from the installation sites highlighted therein to check out the referrals cited. When we called the people using the HBOC system at the VNA in New Jersey, they certainly did not hide the problems they were experiencing, but discussed them openly.
Whether misreporting milestones achieved and revenues is shown to be a $42 million isolated incident, or a pattern of irregularity by McKessonHBOC, will ultimately come out in the investor lawsuit. Perhaps the investors involved may receive some financial relief, but that misses the point. What has occurred is a loss of confidence in the biggest IT competitor in the healthcare market, and that hurts every other company by creating skepticism and doubt about the many excellent companies who are working hard to introduce their outstanding products to the market. In the end, this may be an encouragement to the smaller vendors who have resisted such practices, chosen to hold onto their integrity and continue doing the right thing. In the end, everyone will have more sales if the market has faith in the vendor’s data published, milestones cited and references given.
Maybe what this underscores is just how gullible the healthcare market is concerning the big names and their claims. It raises a question: Is there any inherent benefit to dealing with a big player compared to dealing with a mid-sized company with a track record of profitable growth? The well-established and reputable large companies have taken the time to truly incorporate their acquired products prior to offering them as part of their total solution. But one advantage of mid-sized companies is that they are less likely to have applications written for three or four different computer hardware platforms, all of which were developed at different times, in different languages, and by different software design teams all of which have different ideas of what a "good user interface" should be, and as a result, design products in which there is little continuity in the GUI across applications and platforms. Supporting such a variety of disparate systems can tax the resources of even the biggest IT companies.
On the other hand, the mid-sized suppliers have fewer applications, many or most of which are designed by the same design team, resulting in more continuity of the user interface across applications. These applications run on one or fewer total platforms, making user education and support a more manageable task. As a result, the mid-sized companies are offering better solutions. This is masked, however, by companies like McKessonHBOC, whose astounding revenue growth comes from adding together pieces which they have acquired, even if these do not inherently work together.
Even at TEPR, with the small number of vendors present, this was clear. The interesting applications were those from newcomers like JMJ Technologies, SEC Inc. (Ann Arbor, MI), and a4 Health Systems as well as from established players like Cerner, 3M Health Information Systems (Murray, UT), Clinicomp (San Diego), Medicalogic (Portland, OR), the Medical Manager Corp. (Mountain View, CA), Purkinje (San Antonio, TX), Sequoia Software (Columbia, MD), Oceania (Redwood City, CA), Medicomp (Chantilly, VA) and others. Many of these companies announced new products and new customers for their products. For example Medicomp announced Avio Corp. was a new licensee of its Medcin interface vocabulary, and so was a4, presumably, as Healthmatics was a Medcin licensee before it folded. SEC was showing a new system developed at the University of Michigan (Ann Arbor, MI), and live at four sites in that area. Sequoia was showing its XML Portal products, of great interest to new companies developing web browser-based server applications.
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