High-acuity hospital information systems vendor Picis of Wakefield, MA will announce later today its intended acquisition of LYNX Medical Systems of Bellevue, WA, which markets revenue cycle management software and services for hospital emergency departments.

While terms were not disclosed, Picis President and CEO Todd Cozzens told HIStalk that Goldman, Sachs, & Co., advisor to Picis, will provide the company with a financial package worth $155 million. A portion of that investment will fund the Picis purchase of LYNX from its private equity firm owner, Francisco Partners.

Cozzens says the deal will combine the clinical expertise of Picis with the financial managment offerings of LYNX, both targeting the hospital emergency department. “LYNX Medical Systems focuses on revenue cycle management in the ED. It’s a huge revenue opportunity for hospitals. CMS [Centers for Medicare & Medicaid Services] rules in the ED are much different. There are so many areas in the food chain from patient encounter to patient disposition where charges can get lost or mis-coded. It’s a $25 to $35 per case improvement with this product, which will be even more when integrated with our clinical product.”

Picis offers perioperative and intensive care information systems in addition to its CareSuite ED PulseCheck emergency department information system, which it acquired from ibex Healthdata Systems, Inc. in August 2004. “It does for ED what we did for OR in putting anesthesia and clinical and administration together,” Cozzens told HIStalk. “We have a highly differentiated solution for these areas. It’s a big trend. It’s not good enough to just have clinical documentation and flowsheet information. You have to tie it to factors that are hard dollar, with a proven return that will stand up to scrutiny.”

The LYNX software suite includes ED and clinic modules for patient tracking, documentation, visit level assignment, and CPT and ICD-9 coding. Its health information management application provides browser-based electronic records management, remote access, and coding workflow.

“LYNX is software as a service,” Cozzens told HIStalk. “It’s a great per-click business model. The content and algorithms have been through CMS audits. If you over-code, it’s fraud, and if you under-code, it’s lost revenue. LYNX has been tried and tested with CMS. This is not software you can build in a day. It’s a great little company, a great little business, compatible with our clinical focus in ED. Picis will offer the first end-to-end solution for ED from clinicals to financials. LYNX sells to CFOs and has some great customers like Partners, Vanderbilt, Montefiore, Triad, and Yale-New Haven.”

According to Cozzens, LYNX is profitable, with revenue of over $30 million that has increased by 800% in the past four years. Its 200 employees serve 350 healthcare organizations representing over 15 million encounters. Additional LYNX offices are located in Waterloo, IA and Tampa, FL. No management or location changes are planned.

HIStalk asked Cozzens about integrating the product and company culture into Picis, which is located on the opposite coast. “We’ve been good at merging,” he told us. “It’s not like GE, where they don’t like domain experts and they bring in the plastic and lighting people. We love the domain experts and invest in them and, hopefully, they will multiply. We know this will be one of our easiest integrations. It’s easy to run companies in other locations if you have good management systems in place. Since I talked to you last, we’ve really beefed up our senior management team, people who know the enterprise software business. Big ERP went through what healthcare is going through 10 or 15 years ago. We’ve found that they’re invaluable in driving better practices and stronger management systems.”

The combined organization will service 1,350 hospitals in 19 countries, with reported annual revenues in the $125 million range.

Cozzens disclosed that Picis placed its initial public offering on hold three weeks ago so it could complete the LYNX acquisition, which had been in discussion since early spring. “It could not have happened with the IPO,” Cozzens told us. “We wanted to raise money to do this. The timing wouldn’t allow us to go out and then do the deal. There was too much space in between and it was time-sensitive. The company was going to be sold.”

Goldman’s investment eclipses the estimated $84 million the Picis IPO would have brought, Cozzens told HIStalk. “Private equity valuations aren’t too far off of public valuations. Our shareholders didn’t leave much on the table here.”

Picis will eventually continue with its IPO plans, Cozzens told us, but with the critical mass and momentum that the acquisition will provide. “We never viewed the public offering as a seminal event, just a financing event,” he said. “It was a no-brainer when we could arrange financing through strong terms, be a good deal for our shareholders and Goldman, and not be public at the same time. Critical mass will put the IPO at a different level at a higher market cap, with more analysts folowing and many different revenue streams.”

Goldman’s private equity financing makes it a major investor in Picis. According to Cozzens, the deal is Goldman’s first direct investment in healthcare IT and the largest healthcare deal in Massachusetts this year. “At $155 million, it’s nearly twice what we wanted in an IPO,” Cozzens said. “Goldman is an investor, very close to being the major shareholder.”

Goldman managing director Chris McFadden was quoted in a Picis press release. “The opportunity to invest in Picis is consistent with our long-standing desire to invest in companies with strong growth and earnings potential in healthcare. This investment underscores our belief that Picis has the strategy to meet this opportunity.”

The acquisition is expected to close later this summer.

Mr. HIStalk’s Cheap Seat, Hastily Thought Out Conclusions

• I like the deal. The only unknown is how much Picis paid. Goldman wouldn’t have put in its own money if it didn’t look good. It gives Picis a nearly unbeatable ED offering, something that no mainstream vendor can match.
• This must have been a complex set of three-way agreements to hammer out, especially with two of the parties being private equity firms.
• Picis is smartly sticking with areas in which the big boys are weak instead of trying to fight an expensive, ill-advised CPOE-and-orders ground war. Plus, revenue-related systems are back in vogue again after lots of money was wasted on unused CPOE applications.
• How did I miss LYNX? I’ve heard the name and mentioned them a few times, but really knew nothing about them.
• When Picis put its IPO on hold three weeks ago, I wrote: “Related to Picis (but written before the IPO news came out) is my editorial in this week’s Inside Healthcare Computing electronic update: ‘Private vs. Public Vendors: I’ll Take the Former,’ in which I argue that the now-trendy private equity investment is replacing IPOs as the primary way for companies to grow. I have to admit that I felt traitorous when I wrote it because Picis is my sponsor and my argument is that current customers historically have fared worse after a vendor goes public (my vendors, anyway) but now I can feel OK about it. I still have confidence in Picis and I bet there’s a positive reason they changed their IPO mind.” Score: Mr. HIStalk 1, lots of other pundits, 0. Lucky guess, I admit.
• Goldman Sachs, $155 million. Damn! No wonder Picis passed on the IPO for now. Why hamstring yourself with all the publicly traded drawbacks and expense when you can get liquidity and financing needs without opening your kimono to the world? Plus, that’s an impressive name to hang alongside your own.
• Assuming Picis sticks with Goldman for its eventual IPO, Goldman can’t weave itself too deeply into the Picis operations. While I’m sure they’ll be involved in strategic decisions, they can’t load up the Picis board and management ranks with insiders and then float the IPO.
• While Goldman will reap management fees and a cut of the profits, that at least that aligns their interests with those of Picis, i.e. they make money together or not at all.
• Francisco Partners flips LYNX after holding it for just 18 months. They just bought Dairyland Healthcare Solutions a few weeks ago, you may recall. The trend of private equity investments in the HIT industry is full steam ahead. It won’t end here, but the real question is how long those companies will sit patiently while waiting for a big payday. Will they buy and hold or slash and burn? It would be fun to know how much they made on LYNX (and how much of Goldman’s interest in Picis ownership hinged on that piece of the puzzle).
• Todd Cozzens is among the best businessmen in the industry, especially given his role as co-founder of a relatively small, privately held company. He just got a $155 million vote of confidence from the Cadillac of investment bankers and hasn’t even IPO’ed yet. Who would have guessed he’d be that much of a star after starting up a fairly unexciting niche vendor in 1994 and sticking around all these years?
• It was cool of Todd to contact me personally in advance of the announcement. I bet his marketing people thought he’d lost his mind in trusting an anonymous blogger with an embargoed story (meaning I was on the honor system not to run it before 12:01 a.m. on July 24). He also offered a potential follow-up to our interview awhile back, which I think you’d enjoy.

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Lots of Misys news to report as announcements are made in London:

• The so-called Diagnostic Information Business, i.e. Sunquest, is being sold to Vista Equity Partners for $382 million. That includes pharmacy, lab, and radiology systems.
• The Misys CPR hospital clinical system is being sold to QuadraMed for $33 million.
• Rumors are that Misys will introduce an open source, EMR-related product (along with other open source products in its banking divisions).
• Vista will try to market Misys EMR as part of the deal.
• Both new owners have agreed to support the Misys Connect strategy.
• UK rules require Misys shareholders to approve the transaction.

Thoughts

• From QuadraMed’s announcement of the CPR purchase, it appears that Quadramed’s motivation was known weaknesses in its own Affinity clinical offferings, particularly for larger hospitals: integration and CPOE.
• Misys bought CPR from Per-Se (as Patient1) for $30 million in mid-2003 and spent a lot of money ($20 million?) tinkering with its technology underpinnings. So, QuadraMed gets an even better fire-sale price than Misys got originally, although with a few more layers of accumulated tarnish. It’s now nearly 20 years old with few installations.
• Misys CPR was once a great product, but it has languished for many years under two unfocused owners.
• Current KLAS rankings: CPR # 6, but notably one notch ahead of Cerner Millennium and two above GE Centricity Enterprise (Affinity had much higher numbers, but too few installs.) Lab: a strong #2 (good job, Sunquest.) Pharmacy: mid-pack, but too few customers to score officially. Radiology: #3 of a four-horse race, but once again the last-placer was Cerner. In other words, if you believe KLAS, QuadraMed gets an instantly competitive clinical product line for $33 million.
• QuadraMed CEO Keith Hagen is familiar with both products: before becoming CEO, he was with QuadraMed and left for Misys (although he was involved in their transaction services, not software).
• One rumor is that the old Sunquest name will be revived. I like that idea.
• Misys took on 200 Per-Se employees when it bought CPR. I can’t imagine very many are left. Ramping up staff isn’t something QuadraMed has done a lot of, so that will be a challenge (as will trying to move the office from Tucson if that’s part of the plan – QuadraMed struggled with that in moving everyone to Reston a few years back.)
• Vista is the same private equity company that bought Surgical Information Systems in February 2006.

Reader Comments

“Affinity was not designed for larger, multi-facility organizations and lacked technical infrastructure to support needed enhancements. Their interfaced, acquired pharmacy product was never going to work. CPR has an excellent integrated pharmacy system and an OK lab solution. Much deeper nursing and CPOE capability. However, CPR is hard to install and most of the knowledgable staff are long gone. It needs to be configured for out-of-the-box installation.”

“I need some help, as a business-ignorant techie. Misys just sold of PLX (Pharm, Lab, Xray) to an investment firm. CPR is probably going to QuadraMed based on another rumor. What I don’t get is this: Verne keeps telling us that Hospital Systems is making money and keeping areas like Physician Systems (that he said is bleeding) afloat. Why sell off the very unit that is keeping the other units afloat? I just don’t get it.” Misys Myopia is an interesting phenomenon caused by bringing over a bunch of Medic people who never bought into the inpatient thing and just assumed their gravy train had endless track in front of it. The old, unprofitable product line wasn’t Sunquest or CPR, it was the ambulatory business, but they couldn’t see that. The cash cow has been sold for a low price to try to plug a few of many lifeboat holes. While this strategy isn’t a bad idea, they need to show far more brilliance and vision in trying to save the only remaining business than they did deciding to sell this one off.

Mr. HIStalk’s Cheap Seat, Hastily Thought Out Conclusions

• CPR was always a better product than the market acknowledged. The problem was the incompetent vendors selling, installing, and supporting it (Health Data Sciences, then Medaphis/Per-Se, then Misys). Several years ago, when I last looked side by side (casually) at all the available products (except Epic), I ranked it #1. Very nice user interface, great for physicians and nurses.
• Affinity Clinicals are pretty good and, despite technology criticisms (MUMPS and Cache’, not much different than the original CPR technology). Epic is obviously a poster child to prove it’s sellable despite the nuts and bolts. Still, QuadraMed’s purchase of Australia’s Detente Systems never really worked out – nobody does real integration via that route and McKesson is much better at convincing a gullible market to the contrary than QuadraMed ever was.
• QuadraMed paid $4 million for Detente in 2004. It paid $14 million to get Tempus Software the same year, a much better investment.
• Affinity Clinicals are best suited for small- to mid-sized hospitals, while CPR’s few customers seemed to indicate a big-hospital preference. Keith Hagen’s video statement about the announcement clearly says they’ll offer both products. That’s been tough for those who’ve tried it before – trying to merge cultures, technology, and sales is a lot harder than just hanging a new name on it.
• I don’t know how many good clinical product people are left at QuadraMed since Affinity Clinicals were doing pretty much nothing. Ditto CPR. Who’ll be involved? It had better be folks with clinical backgrounds who can come up to speed quickly.
• Misys management seemed almost openly contemptuous of the Diagnostic Information Business, but the sales announcement painted a far rosier picture, with margins of nearly 30%. Need proof they didn’t get it? How about this from the press release: “The Diagnostic Systems business has been run largely as a stand-alone operation, and therefore will experience minimal impact in day-to-day operations.” In other words, Misys was adding no value whatsoever and, most probably, actually hampering that division from succeeding due to its own corporate- and division-level bungling. And even then, it was bringing home big profit margins.
• Misys is selling the former Sunquest for slightly less than it paid: $404 million in 2001. Not much value-added there.
• Misys Connect never amounted to much and will be irrelevantly straddled across three companies. The only remaining assets of Misys Healthcare, i.e. the physician systems, will have to make it on their own with fierce competition. Divesting the other businesses will let them focus on trying to salvage that struggling product line.
• Misys finally acknowledges that, grand proclamations about its vision aside, it lacked the execution and vision to play in the hospital market. It’s first and foremost a banking software company that happens to own a troubled physician practice software division hanging on for the ride. It has finally gotten ride of one of its two unaligned albatrosses.
• QuadraMed has had its share of rough rides, too: wildly faulty acquisitions, survival without vision under Larry English, the slow and painful demise of Affinity, and what looked like a wise retrenchment into the company’s only strength: the HIM product and service market. Will the market accept their re-emergence into acute care clinical systems?
• The industry needs another strong clinical systems player, with the odds going down by the minute that a GE-retooled Carecast will be it.
• Tucson employees of Misys, as Gerald Ford said, your long national nightmare is over. Your were already an abused step-child, so it can’t get much worse. The announcements proved what everyone suspected: Misys Healthcare didn’t respect its only successful product lines and the people producing them.

Post Your Thoughts on HIStalk Discussion

Since I have to work for a living on Monday, I won’t necessarily be able to post HIStalk updates as any news breaks and to get your comments online quickly. Post here! You can bet that Misys, QuadraMed, Vista, investment analysts, and everybody else in the industry wants to know what you think.

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From Hamrick: “Re: Misys. Misys will announce the sale of Misys CPR to QuadraMed on Monday, July 23.” QuadraMed already has a clinical product that nobody’s buying, so I’m not sure why they’d want another one. However, since Misys was making big changes Friday (supposedly), maybe the timing was intentional if this is true.

From Wompa1: “Re: CHI. Christopher MacManus, Sr. VP of IS at Catholic Health Initiatives, has moved on.”

From Duuude: “Re: Mayo and Cerner. I’m wondering if Mayo feels left out of with Intermountain being the development partner. They used to hold IDX by the gonads when they were truly a development partner. In my experience with Mayo, even though they can be a big pain in the derriere, they did know their stuff. Even with all of that holding and pain caused by Mayo, they are worth keeping, even just for the perks of having them as a named client. When will GE take notice and stop the bleeding? If I was GE, I would be trotting out Hogan, the executive GE Healthcare board, and whatever is left of Seattle management to keep Mayo.”

From The PACS Designer: “Re: iPhone clones. TPD wants HIStalk readers to know that the iPhone is not the only choice when it comes to ‘combo phones’. The iPhone is getting all the attention, but there are other all-in-one phones to consider. There’s the RIMM Curve, the Motorola Q9, and the Helio Queen. They aren’t truly clones, but they offer more traditional functionality. I’m sure we’ll be hearing about more companies jumping on the bandwagon.”

From TwoDogMom: “Re: Mediware. What does anyone out there know about the Mediware vs IHC lawsuit?” They’re suing each other, it appears. Intermountain bought Mediware’s blood blank system in 2004 with a three-year support agreement ending June 30, 2007, with rights reverting back to Mediware on expiration. Mediware told Intermountain it wouldn’t renew the agreement, so Intermountain is arguing it should be able to keep using the system. Intermountain had already sued Mediware in April for breach of contract. An unhappy, high-profile customer is just the icing Mediware’s cake needs.

Rumor: physician practice vendor AcerMED has abruptly ceased operations.

Jon Philips of Healthcare Growth Partners asked me to clarify that the number of deals I quoted the other day was of the principals, not the company itself. They’re doing great, of course, but he didn’t want anyone to think they were trying to mislead.

iSoft couldn’t even get a date a few weeks ago, now it has two marriage proposals: Germany’s CompuGroup trumps IBA’s bid with a $329 million cash offer of its own, a 19% premium to IBA’s offer that iSoft’s management is urging shareholders to accept. Part of their offer: CompuGroup will sell off the NPfIT business to CSC and both companies will own the Lorenzo product line.

Mediware shuts down its OR business line and fires 20 employees under the new COO. They announce their focus on so-called closed loop systems. Well, good luck with that. That’s bad news for GE: Mediware’s exit frees up the dead-last KLAS surgery spot for Centricity Perioperative. Doh!

I didn’t hear first-hand about the scheduled Misys bloodletting on Friday. Did it happen? Maybe you’ll be offered another position, like this one: Misys needs a PR specialist. Desperately, some might say. Guess the layoffs freed up some salary dollars.

CPSI announces Q2 results: revenue down 3.5%, EPS $0.31 vs. $0.38, falling short of expectations.

Emergin sent over their latest newsletter. It includes an Emory neuroscience CCU case study on alarm integration.

My editorial this week in Inside Healthcare Computing: “‘Best’, ‘Most Wired’, and Other Hospital Surveys: Good for Selling Stuff and Not Much Else.” I won’t spoil the suspense by revealing my opinion.

Speaking of the Most Wired BS, even H&HN had to punt when it came to the obvious: “The analysis shows an association between IT adoption and key quality measures, but association is not causality.” That wasn’t on the cover, of course. Those paying for the survey: the magazine, Accenture, AHA, CHIME, and McKesson. All but AHA have a vested interested in encouraging the “buy more stuff” bandwagon. Just another meaningless award given to customers by their vendors.

eScription announces the release of a new version of its speech recognition software, AutoScript. They casually mention in the second paragraph that it’s twice as fast at processing dictation as the prior version. I’m thinking there was little debate about whether that justified a new version number.

El Camino Hospital creates a CMIO position and recruites Eric Pifer from the University of Pennsylvania Health System.

Charles Wagner leaves IBM/Healthlink to become SVP of professional services for Eclipsys.

Discuss today’s news here. Lots of you have registered for HIStalk Discussion, so why not use it? I rented the hall and brought the band, but I can’t make you dance.

E-mail me. But only if you want to.

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From Joey Cheesesteak: “Re: CHOP. Regarding your 7/13 item: their outage was due to loss of power in the Primary Data Center. Operations did not shift to the remote data center because the SAN was not configured to cooperate. This outage was not an Epic problem (not to say that the Epic implementation is going smoothly). Also, three of the four CIO direct reports have left recently. One moved to a different department within the hospital and the other two have found other employment. The CIO will hit a five-year anniversary in January 2008. What’s the average tenure of a CIO after an Epic implementation?”

From Dr. Mark Bellows: “Re: Cerner. Look for Cerner and Mayo to make a huge ‘Kaiser-like’ announcement soon. Also, Clarian is looking for an out in their Cerner contract (it’s not looking good AT ALL over there …) I have always enjoyed reading your blog and have laughed at times when rumors are stated about Cerner well before they have made them public. You and your readers have been on the nose 90% of the time with most things.” Unverified, but, from what seems to be a good source.

From Lance Le Gault: “Re: Cerner. The funny talk around here is that Cerner would take any temp, put ‘em in a suit, and say, ‘We are sending you a VP.’ Cerner losing 20 of those VPs means very little.”

From Nancy Greenly: “Re: Cerner. It’s obvious that Neal is putting the company up for sale with all the cost-cutting and moving everything to centrally-based KC for an easier transition. Sales are slow, but the stock price keeps going up. The Indian outsourcing is in place and a European presence makes them a ‘global’ company. I’d bet a non-current player picks them up within three years.”

From Sean Murphy: “Re: non-competes. That was nice of Mike Etue to ride out his non-compete from the other folks in Malvern on someone else’s dime and then jump ship a few months after it expired. Wow, that Epic document is brutal. Too bad the federal government says that you can’t prevent someone from earning a living. It would never stand up a real court. Do we have any legal readers that could lend an opinion of the language?” I asked a non-compete attorney I ran across to chime in, but he hasn’t replied so far. The bottom line is that non-competes are almost always unenforceable, but unless you take the company to court to obtain a summary judgment (kind of like a class action suit), each employee has to spend their own money fighting retainer lawyers in court. That’s assuming you can even get a job offer, that is. You’d be proven right, but not before you went broke. The threat alone is enough to tilt the landscape to the company’s side.

If you’ve had problems accessing HIStalk recently, my apologies. It’s hard to believe, but even after my big upgrade in May, the site’s server red-lined on memory this week and killed the Apache service several times (that causes “Page Not Found” errors). Inga tells me some of the notification e-mails may not have gone out either, although they looked OK on the server. I thought the May upgrade was overkill that would guarantee enough horsepower for years. Well, two months later, a punishing number of HIStalk hits maxed it out again, so I’ve doubled the memory and had extra bandwidth allocated. I’m not complaining – it’s a great problem to have.

The LA Times writes up Prem Reddy MD, a cardiologist turned for-profit hospital entrepreneur who claims to be worth $300 million. He tools around in a $1.4 million helicopter and has a 15,000 square foot mansion with gold-plated toilets formerly owned by Roy Rogers. How he does it: he buys struggling community hospitals, cancels their insurance contracts, dumps services that don’t have a big profit, (allegedly) turns away patients without insurance, and (allegedly) lets quality slip. He does that Bob Dole thing in referring to himself in the worshipful third person: “There isn’t anybody like Prem Reddy that can face so many challenges in the medical field.” I mentioned him two years ago, when his brother, a CEO of one of his hospitals, fired the CNO and HR director after they claimed he (Prem) was drinking while working in the ED and using a triage system based on insurance coverage.

Reminder: use the sign-up to your right to get e-mail updates when I write something new. I notice that list is up to 527 subscribers in a very short time, plus the 1,843 on the “old” e-mail list.

Jason Baker has joined Healthcare Growth Partners as Managing Director. He comes from Cerner, where he was head of corporate development (high-level strategic stuff like investments and acquisitions, not programming-type development.) I didn’t realize that Healthcare Growth Partners has been involved with over 100 deals worth over $1.5 billion in just two years. Nice.

Some Misys folks have been asking about severance (wonder why?) Typical for the company is supposedly one week per year of service. They also don’t go after non-competes too hard, rumor has it, which is to their credit when folks leave under something other than their own volition.

Off-hours teleradiology provider NightHawk Radiology buys Midwest Physician Services, a radiology business process company, and another off-hours teleradiology company. Total price: $62.5 million cash. They’re creating NightHawk Business Services, which will offer services for revenue cycle, HR, transcription, and other back-office stuff for radiology practices.

Someone who should know tells me that Cerner is indeed slimming down implementation teams as Bedrock gets built out, running implementations from the KC Accelerated Solutions Center. Apparently it really does work and they won’t need virtual implementation staff any more. Another tidbit: supposedly Paul Black left because he didn’t like how the customer-facing employees are being treated (accessibility to client, work-life balance, etc.). Unverified, of course.

Comanche County Memorial Hospital (OK) signs a $13 million deal with McKesson for Horizon Clinicals.

The Most Wired list is out. I don’t care, so I won’t mention it or the winners. It’s meaningless, was created by vendors solely to encourage the “buy more IT” bandwagon effect, and keeps going only because the “winners” pretend it shows how excellent they are. I’ve worked for winners and all those I spoke to laughed about it behind closed doors, but it’s better to win than not, they always figured (harmless CIO resume expansion and hospital chest-puffing).

Bizarre lawsuit: a nurse changing clothes in a Kentucky hospital’s anesthesia office finds a hidden camera in the ceiling tiles. She says the hospital then tried to throw her and her surgeon husband off the property for trashing the camera, also threatening to revoke their privileges. Another nurse was fired. The hospital says the camera was there to monitor controlled substances that are kept in the office and that the women should have used unmonitored areas set aside for changing. The nurses are suing for voyeurism.

News, rumors, changing room video: e-mail me.

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