Bill Shickolovich is VP/CIO at Tufts-New England Medical Center of Boston, MA.

You recently spoke at a conference about what hospitals should do now for ARRA. What did you say? 

I think you’re referring to a dialogue we had with HealthLeaders. That may have been back, I think, several months ago. Essentially, it was a nice round table with a series of folks nationally. I think the punch line that I was trying to get through and essentially what the others were aligning to is to first understand where you are relative to your own strategy. I think that’s first and foremost.

What we’re doing is resetting our strategy. We already have a strategy in motion relative to the elements of meaningful use. The stimulus is not making us do anything new. But it has drawn attention to understanding how much of what we’re doing lines up with the various financial opportunities.

So what I recommend people to do is to understand and have a strategy. If you don’t have one, get one. If you have one, ensure that you based on that with your leadership. Then go to a process of education. Overlay what stimulus means relative to your strategy. Simply, do you go in a different direction or do you accelerate, essentially, is what it nets down to.

That’s what we were recently in the process of doing. And it helps us to say, “Here’s the dialogue, here’s what the strategy in our program was prior to this opportunity, and here’s the various elements and scope of schedule and budget, and here’s now what it may mean relative to some of the things that we better understand now, and here are some of the things that we know, here are the things respectively that we don’t know, and of what we don’t know, we’ve gone out on a limb a little bit and through their resources tried to figure where that’s going to go, and help our leadership understand that we’ll be back to you in a monthly basis to talk a little bit about and as things mature, it has the opportunity to affect our direction the following ways.”

So essentially everyone talks about governance, but essentially I think it’s critical relative to this topic to keep leadership informed as to how your current strategy relates to what is happening and what may happen.

You’re actively involved in translational medicine. What are the IT implications?

We are, as you know, a CTSI awardee, and the clinical translation activities have broad implications to try to help various research enterprises collaborate. When we first looked at it, we were thinking, “Boy, this has very, very deep consequences.” But we’re now respectfully at the basic level of trying to just create various toolsets to at least understand and inventory what researchers are doing.

Furthermore, we’re creating some basic level of capabilities and, I hate to admit it, these are basic directories starting with human inventory. Who are the researchers, where do they work, and how do I get in touch with them?

So you’d think when this whole thing first came out, we had a deeper strategy that got into the weeds a little bit. We started to just say, “Let’s get started here a little bit.” And then we realized we’ve got to start at ground zero, and that is basic understanding of what the CTSA is in ARRA, an inventory of what people are doing, putting up a web portal and a collaboration tool, if you will, to try to help people share and exchange information, and help people understand who people are.

Those are some of the early things we found that we took for granted a little bit, because each organization does a certain amount of that on their own. But it’s taken us a little longer than we thought, relative to getting off the ground.

What we do now is we meet quarterly with various CIOs and their respective institutions and talk a little bit about what we’re doing, how it lines up, and how it relates to what other people are doing. I think we’re still in the formative stages, if you will.

What are your capabilities and plans about storing and analyzing data for quality improvement?

Great question. We are making heavy bets in our EHR program. Right now, our capabilities are around basic registry technologies, around claims data. We are working very hard to implement and deploy our EHR technology through eCW — we’re an eClinicalWorks customer. We are deploying that to our community physicians. We’re beyond our pilot now and are into our first wave of general deployment.

We are building in all of the necessary quality measures within that deployment. We’ve got a quality AQHC contract with Blue Cross that we recently completed this past year, and it’s imperative we meet those quality measures. So our quality strategy relative to information technology is leveraging our existing technologies, which consist of the patient registry and certainly our key information system, and working very hard to incorporate and ensure that any and all deployments subsequent to our deployment right now in the community encompass those various quality measures that we are contractually bound to.

It’s exciting. When you correlate investment and technology deployment to physician value and what it’s going to mean to them and to their paycheck, it’s an incredible moment.

Dr. Halamka and I had recently spoken; we collaborated on a dialogue. He had a great way to frame it. Certainly, when you speak of physician compensation, that is a very important driver to compliance. We’re finding that in order to get the adoption that we’re working very hard to gain, meeting the AQHC measures is critically important to our clinician base relative to their compensation.

How is the physician acceptance with your ambulatory and inpatient applications?

The acceptance has been very good. It’s not without its challenges, and I think you and the industry knows that. Our pilot has gone extremely well by the measure that we consider; our adoption rate has been very good.

But as we move out into general deployment, we are certainly uncovering some issues that we all have faced. It’s a constant balance between how fast you go and how much support and how much care and feeding do you give along the way.

And so our general acceptance of the technology and the strategy has been very good. It’s completely tied to our business strategy; our clinicians recognize it’s an imperative.

However, it doesn’t help us when there are various technology issues which compromise adoption. We’ve had a few of those recently, and we’re working very hard to mitigate this.

On the acute side, we are a Siemens Soarian customer, and we’re proud to say we’ve done what we consider a fair amount of work with it. We’ve actually got between 47 and 52 percent of our orders that are being entered electronically by our clinicians, and that’s on a voluntary basis.

We did not mandate that. That was actually something that our house staff came to us with and simply stated that the pressures that they are under to deal with throughput and deal with length-of-stay issues and deal with basic efficiencies, it was simply that they wanted to get off paper so badly that they were willing to work with us in a hybrid fashion to create a series of interim states relative to order processing. The house staff has adopted it extremely well.

So what are your top IT priorities over the next three to five years?

Our top IT priorities are to continue the deployment of our community EHR — that’s going to go through 2011. We’re working very hard to get in line and ensure that we have significant penetration, if not 100% penetration by then.

Two is to continue our acute information technology strategy, which includes completing medication administration, which is scheduled to be done in the acute side this fall, and move into the intensive care units, and to begin and complete the deployment of medication CPOE which is scheduled to start this winter.

Our top priorities for the next several years is to essentially meet and exceed the meaningful use criteria, so as not to leave any opportunity if subsequent funding comes on the table. We are not economically in a position to do so.

It’s not driving our strategy, because again, as I stated earlier, it’s something that’s already been in flight, but now that it’s out there, it’s certainly getting a lot of attention in light of our economic position and our competitive space in the market. We cannot afford to leave any of those funding, any of those dollars on the table if we can help it.

What would you say are your three biggest challenges as a CIO?

I think that the number one challenge right now is access to capital. I think that we all understand the economic climate that we’re in, and notwithstanding the value of healthcare information technology — I don’t think we suffer from understanding its value and importance to us; it’s reconciling the other various priorities and institutions, and ensuring that we can do the necessary things outside of IT for capital funding, and also IT.

So it’s access to capital. The markets haven’t helped us, obviously, in that way. It’s a scramble. I think that’s one.

Two, it’s respectfully dealing with the change management associated with deploying these strategies. These are not technical, and I understand not all that complex — they are tricky — but dealing with all the change management issues in a way that deploys technology in a meaningful way, pardon the pun, to get a meaningful business result in a short period of time is tricky.

Dealing with vendors that are still coming up the curve — I think they have a long road ahead of them relative to understanding what it really takes to have a successful deployment. I think we’ve come a long way, but I don’t think we’re there yet. I think the ARRA pressures will further compromise their ability to get it, if you will.

So access to capital and managing the confluence of change relative to clinical information system deployment, I guess, are my top two barriers right now, or challenges that we’re working through. I mean there’s a whole host of others. [laughs]

Keeping the infrastructure alive and running is sort of a variant to access to capital, but everybody wants the sexy new things, everybody’s pushing to deploy, and I think that’s good and we’ll be doing it for many years. But we can’t forget that there’s an investment required to have a stable and secure architecture or infrastructure.

That’s something that I think there’s a temptation, in my opinion in this space, that there’s a recognition and a deference to it, but in organizations that are financially compromised or challenged, it’s sometimes one of those things where people say, “Yeah, I know we need some more servers, I know we need some of these things, but we’re probably going to put that off because we need a new MRI machine.”

Those are difficult decisions, but decisions that are real and get made every day.

If someone asked you to list the three most important things you’ve learned as a healthcare CIO, what would you say?

Be relevant. [laughs] Relevance is probably the top of my mind. Coming from a managing consulting background, I don’t think it was hard for me to understand, but I probably underestimated it, respectfully. It was surprisingly something that I learned early on that can’t be underestimated. I think that that’s significant.

Two, I guess, understand what’s going on. It’s a variant of relevance. I think that one of the most important things that we should be doing is to understand how the operation, how the organization works. If we are to understand the business strategy, if we are to try to align our technology strategy to it, we cannot be irresponsibly neglectful to the operations of the institution.

I think that we have an opportunity or a tendency in the industry simply to look at the business strategy, look at IT high level strategy and just march toward and through it, and we forget what it takes along the way.

So a big lesson learned to me was: a) relevance, and b) understanding. Understanding, connecting all the dots, and not just the top two dots.

That was two, right?

That was two. [laughs] You need a third?

If you don’t have a third, that’s OK. [laughs]

There are so many. I think, communication. Being engaged — it’s all part of relevance. Relevance to me is such a broad and important topic that it covers these other things respectfully, variations of it. Yeah, I think I’m going to hang with my top two.

Anything else you’d like to share? Any wisdom?

I don’t know about wisdom. [laughs] I’m just a simple CIO, right? I think that it’s an extremely exciting time; I think that we all recognize it. The good news is, in light of the healthcare reform in ARRA, it’s shining a light on the topic that I think many of us have implicitly understood as needed, but we’ve struggled with one of the number one barriers, and that is cost. ARRA doesn’t make that go away, but it certainly greases that conversation, right?

I think that’s great. It’s a wonderful time, it’s a perfect storm. I hope we get it right. We are in an interesting time where it’s directionally correct, if I may use that term, where we understand how healthcare reform has to happen and it’s not something we should wait for forever to materialize.

Technology is important to the space in achieving its local and national goals relative to quality and safety outcomes, and certainly some level of fiscal responsibility around the space.

So it’s directionally correct, but the devil is in the detail. I hope that we find an effective balance between our drive and our desire to move forward as quick as we can in light of what we haven’t done, in the last 10 to 20 years, but yet I hope we don’t do so in a way that doesn’t take into account the necessary details that really need to be thought through.

That’s the tricky balance that I think, respectfully, we as an industry and the government has to reconcile. We all know good strategies that were directionally correct but got caught up in the mud and didn’t go anywhere, and we’ve also seen directionally correct strategies take off significantly without the appropriate — not vetting, but appropriate balance of reality.

This is so important not just to our healthcare ecosystem. It is almost a fifth of the economy. We’re talking about a significant element to who we are, that the stakes are so high that finding an effective balance is so critical. I think in the short term measured in months, call it six, and in the long term within the next three to five years.

I personally have a high confidence level in John Glaser and others as a former customer, and certainly as a colleague, who’s such a good rational thinker. I just hope that our governmental process gets it right.

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After our interview, Dell announced its expanded presence in the PM/EMR world. It turns out Tufts was instrumental in helping Dell (and eCW) develop the basic framework for Dell’s offering. We went back to Bill and asked him if Tufts is working with any major corporations in developing their EMR strategies.

To summarize Tufts’ role, about a year ago Bill approached Dell and asked them to assist with the deployment of EMR to their community physicians. Though Dell and eCW already had a relationship, Bill brought the parties together to discuss how everyone could work together to create a new delivery model that would benefit the health system, the physicians, and the vendors. The health system lacked the resources required to provide physical support, including helping physician offices with infrastructure assessment, design, hardware procurement, deployment, and support.

Dell was interested in expanding its footprint in healthcare, especially on the services side. eCW’s expertise is software and not hands-on support.

In the end, Tufts established a support model that does not require an in-house help desk, but relies on Dell for physical support and eCW for software support. Bill anticipates the model will save 5-10% on support costs over five years, compared to providing services in-house or through a boutique vendor. Based on the success of the initial pilot installation with Tufts and ECW, Dell further tweaked its healthcare strategy into the model announced this week.

From Herb Alpert: “Re: Eclipsys. They are designating three business partners that will replace their own professional services people. Eclipsys is emphasizing speed-to-value, pushing cookie cutter implementations. They listed the partners last week on their Partners page, but appear to have removed that page from their site.” I know that Orchestrate Healthcare picked up some of their people and used them on their SCM/eLink project at UC Irvine (someone from there told me).

From Roger Dodger: “Re: videos. These hit the big vendor mentality on the head.” The animated videos are pretty funny (Video 1, Video 2). Guess along with me which vendor the animated CIO is talking about. “Our front-end processes blow and your 1970s-build application is the problem. The competition is killing us with ease of access and the payors are denying every claim we send them. When is your effing next generation system going to be ready?”

From William Faulkner: “Re: Epic. I can tell you without much discomfort that expectations are high and few places give 20-somethings this much autonomy. I have truly enjoyed working for one of the two hottest companies in one of the hottest industries despite little healthcare experience. The employment structure is incredibly flat, so high turnover and burnout have put five-year vets in fairly senior positions, which keeps new hires motivated. KLAS is king – I must have seen our KLAS ratings 15 times in training. Everyone does get an office, in my case fully equipped with an office mate.”

From Been There, Done That: “Re: Caymans. It’s been a while since I heard of Cayman Island Healthcare! At one point, the old CIO from U of Miami was ‘consulting’ there and bringing in his old friends from Cerner.” Brand new CIO Dale Sanders posted a comment to Monday’s post, so I e-mailed to ask him for an update. Nothing heard so far, but I’m sure he’s busy.

The Health IT Standards Committee submits its recommended EHR privacy and security standards. The initial set is basic, but by 2013, EHRs would be required to use HL7 BRAC role-based access control, security assertion markup language, and WS-Trust for secure exchange of Simple Object Access Protocol messages.

Several new events were added to the HIStalk Calendar (and you can add yours for free, of course). Among them is a September 22 free Webinar entitled Understanding State and National HIT Policy, sponsored by eHealth Initiative and featuring John Glaser.

Weird News Andy likes this story detailing Medicare’s stance on buying assistive technology for patients with speech problems. They will buy an $8,000 desktop PC whose only function is generating speech from text, but not a $150 iPhone app that does something similar. Personally, I’m riding the fence here because I keep remembering those “free scooter” commercials that beg any Medicare recipient with any kind of walking problem to get their sporty ride, courtesy of taxpayers. And if it’s that great of a device, maybe patients should spend their own money on it instead of relying on Medicare to cover every little thing.

Retired hospital CEO and current hospital consultant Ronald Gade, MD joins the board of Doctations.

Hybrid EMR vendor SRSsoft is named to the Inc. 5000 list of fastest growing private companies in America.

Newt Gingrich does a video pitch for StatCom, remarkably coincident with StatCom’s ponying up big bucks to join Newt’s civic-sounding yet entirely for-profit Center for Health Transformation.

IASIS Healthcare implements Sentillion single sign-on in seven of its 15 facilities, yielding a 60% reduction in password reset calls to the help desk. They say they’ll have all 15 running by the end of the year.

Inga and I thought it would be interesting to get a look at eClinicalWorks from the customer perspective, so she attended their user group meeting in Las Vegas this week. Her updates are on HIStalk Practice: #1, #2, #3, where she also covers some eCW announcements, including opening some new offices.

Speaking of eCW, Children’s Boston announces that its Indivo/MyChildren’s PHR will bring in data from both the hospital’s Cerner system and the eCW system used by its physician group. It will use eClinicalWorks Electronic Health Exchange.

Athenahealth announces its guarantee that physician users will be able to quality for HITECH incentives, offering them six months of service free if not. The announcement covers in some detail the complex corporate accounting that’s required to offer something like that, which is interesting in itself. Jonathan Bush quotes Malcolm Gladwell in saying it takes 3% to reach a tipping point, so he’s hoping the program takes the company over the top.

Swedish Medical Center (WA) takes an equity position in 72-doctor multi-specialty group Minor & James Medical, citing their belief that healthcare reform will require cooperation beyond having hospitals simply buy practices. The local newspaper article speculates that the group will move to Swedish’s Epic system, which sounded possible if not likely when I interviewed Swedish CIO Janice Newell a couple of weeks ago.

I visited my doctor recently and have to say I was impressed with the practice’s EMR use. He conducted the whole session with both of us looking at the monitor, walking me through labs and meds (sounds simple, but it was amazingly effective and the display was great even on his puny 15” or so monitor). He mentioned that he would never put a keyboard or monitor between him and a patient, which was cool. I had a sleep study done awhile back and he pulled up the on-screen transcription from the polysomnography people and walked me through their findings. I needed a prescription refilled and he shot that off electronically, saying he was a big fan of e-prescribing, especially for drug interaction checking. The practice is just starting to use speech recognition, which he seemed to like, and also templates, which he seemed to hate (he said he refuses to use them because they create reams of worthless junk data in the EMR). He likes his EMR, I’m in fine health, and we’re both happy. He also said he would definitely get the H1N1 flu shot when it comes out, just in case you’re waffling like me.

A Buffalo group gets a $1 million grant to develop a data sharing pilot project.

Spacelabs announces its Sentinel cardiology information system.

The West Virginia Health information Network delays its RFP for creating a statewide HIE as it figures out how stimulus money and meaningful use definition could change its plans. The new date is November.

Odd lawsuit: a hospital stages a fake pharmacy stickup as a drill without telling employees. A pharmacy technician is suing the hospital and its parent company for false imprisonment, claiming the drill’s aftermath required her to have ongoing therapy for depression, anxiety, panic disorders, post-traumatic stress syndrome, and emotional distress.

E-mail me.

The views and opinions expressed in this blog are mine personally, and are not necessarily representative of Texas Health Resources or its subsidiaries.

The Politicalization of Health Information Technology
By Ed Marx

Admit it. Health information technology (HIT) deployment is headed nowhere fast. Despite the evidence and supply side rhetoric, demand wanes. Depending on whose study you believe and their definition of HIT, industry adoption of CPOE is languishing in the low teens at best. We can do better for our patients.

Before we dive in, I want to acknowledge the Office of National Coordinator for Healthcare Information Technology (ONC). The National Coordinator plays a central role in how information technology transforms our care delivery system. The leadership is strong, and the Office is blessed by a greater level of funding and authority than in the past. ONC is the principal Federal entity charged with coordinating nationwide efforts to implement the use of the most advanced health information technology, including the electronic exchange of health information. The position of National Coordinator was created in 2004 through an Executive Order and legislatively mandated in the Health Information Technology for Economic and Clinical Health Act [HITECH Act] of 2009.

Next to the ONC, the Centers for Medicaid and Medicare Services (CMS) is another powerful division of the Department of Health and Human Services (HHS). The CMS mission is “To achieve a transformed and modernized health care system.” A key tool for success in their workbench is leveraging information technology. CMS, a professional bureaucracy, was clearly the driver for federal HIT direction and investment until recent legislative changes codified ONC. The ONC and CMS will need to work in concert, finding unity of command and vision, in order to achieve their unsynchronized goals.

Complicating the situation is the legislative branch attempt to control healthcare reform and policy via HIT. On one hand, you have ONC laying out a firm HIT direction; they have the necessary framework, but it’s juxtaposed to the quagmire of healthcare reform. Congress and the white house are materially on different sides of what to do, when to do it, and how. The only certainty is that HIT will be a key component. Unfortunately, due to the lack unity of vision and clarity of goals, HIT is quickly becoming a political lever. And that scares me. HIT is the means, not the end.

Morphing into a government program, HIT could rank with cash for clunkers. We’re incentivized to turn in the old and adopt the new. Although I’m a serious advocate of care transformation via IT, I fear that the motivation is becoming more political than substantive. Where the cash for clunker strategy is a onetime event, we should be investing long term (10 plus years) in HIT and looking for sustainable advocacy with demonstrable support. Incentives are misaligned.

We need to push for challenging meaningful use criteria. What started out provocative and game changing has since been watered down to a welfare-like program. The bar is set too low. Everyone qualifies!—which means we’re not demonstratively leveraging HIT. Instead of reaching high, expectations are lowered, thus removing the incentive to progress materially.

Advocacy groups. Although active dialogue is essential and everyone deserves a seat at the table, too much politicking will derail HIT. Potential is lost in the quagmire of uber engagement, and special interest groups tend to lower expectations and standards. Each group claims to represent a large number of constituents, but at the end of the day, hospital leaders are the ones who will need to make the tough decisions, and execute.

While I appreciate the private/public approach to forming advisory committees, we must intentionally set aside our personal biases to favor the common good. If you look closely at the outcomes derived thus far, you can trace the DNA back to some of the participating organizations. I face the same challenge at the State and City level. It takes a degree of maturity to set aside personal thoughts, prejudices, and organizational goals to pursue the common good. Keeping the patient benefit foremost in our minds will yield the best outcome.

What can we do to help ensure ideal outcomes and prevent the politicalization of healthcare information technology?

• Actively support the ONC leadership.
• Contact senior staff of the House Committee on Ways and Means.
• Contact senior CMS leadership.
• Advocate for more meaningful meaningful use.
• Provide feedback to advisory committee members and pushback on tailor made recommendations that may be of a minority interest.
• Lead by example by ensuring your organization is ahead of the curve.
• Actively participate in your region and state HIT efforts.
• Keep pressure on for healthcare reform

Do it while we still have the freedom to make these choices and influence government decisions.

Ed Marx is senior vice president and CIO at Texas Health Resources in Dallas-Fort Worth, TX. Ed encourages your interaction through this blog. (Use the “add a comment” function at the bottom of each post.) You can also connect with him directly through his profile pages on social networking sites LinkedIn and Facebook, and you can follow him via Twitter – User Name “marxists.”

Thanks to all who commented on my earlier posting, I appreciated all the feedback and look forward to an ongoing dialogue here courtesy of Mr. HIStalk and the lovely Inga. I’ll compile all questions asked and answer one or two with each posting in addition to my current topic.

With the recent stock market recovery, companies are once again going public (or, as they say on the Street, “the IPO window is open”). Emdeon returned to the public market with a successful IPO in mid-August and Healthport recently filed its prospectus with the SEC. I’ll sound off on both of those shortly, but I’m sure some might appreciate a plain English translation of what I just said along with how it happens.

Following my last post, Healthfreak asked, When does an investment banker tell a company to go in for an IPO or plain loan from a bank?

First, traditionally there were two types of banks — commercial banks (loans) and investment banks (IPOs). Both did much more, of course, but the Glass-Steagall act signed in 1933 drew strict firewalls between the two. While Glass-Steagall was repealed by the Gramm-Leach-Bliley Act of 1999 (and we can see what fun that led to in the financial world of late), let’s assume it’s still in place as different bankers within the a larger bank that offers both services still do different things.

Why would a company go public? It’s expensive, intrusive, and, as the leadership of such companies as Epic, Meditech, or eClinicalworks would likely attest, requires a dramatically increased focus on short-term results over potential long-term benefits. Not to mention it means anyone with a Web browser can learn what senior management is paid.

Companies typically go public for two reasons: they need the money for corporate purposes (such as developing a product, expanding a sales force, or making an acquisition) or they want to provide liquidity to investors or shareholders. Microsoft, for example, never needed additional capital, so its IPO was to allow its employees and founders to ultimately sell stock. Even if existing shareholders aren’t selling stock in the IPO, part of the goal is to create liquidity and a marketplace so they ultimately can, be they founders, employees, or investors.

A loan makes more sense if the company needs growth capital and has, importantly, a business that will generate sufficient cash flow to ensure the loan’s repayment, and if the owners don’t want to give up any control by selling stock. In the case of, say, a biotech or early-stage software company, the business is perceived as too risky to loan to, but is often financeable, as equity investors will take on significantly more risk (in exchange, of course, for significantly higher return potential). Incidentally, the economics of running IPOs are inherently more attractive than loaning money, hence the spate of commercial banks buying investment banks — Citi, Bank of America, and Chase, to name a few.

What’s the process? It typically begins with the company and its board of directors selecting the underwriting team (aka, “syndicate”) by conducting what is fondly known as a “bake-off”. This is a grueling ordeal for both sides, where the company invites a large number of investment banks to come pitch for the business. The banks are often pre-screened based on the firm’s reputation, the quality of the research analysts they have covering the space, and how successful the bankers have been at showing love to management and the private investors.

Bake-offs consist of 60-90 minute sessions during which a team of bankers from each firm parades through the company’s boardroom and explains, through dramatic interpretation of huge PowerPoint decks, why their firm should be part of the underwriting team and, ideally, lead the process.

In an act that has become almost ritual, each bank comes in and presents their firm’s credentials and skills in taking companies public as well as which buy-side accounts they would expect to participate in the wonderful stock offering. Each firm has, in effect, the same map of the country with the same mutual and hedge funds highlighted and talks about their special relationship with the buyers. “But we’re not here to talk about ourselves, we’re here to talk about HIStalkCo” the senior team member says (typically the more the merrier in these meetings, as it shows the prospective firm’s view that this is a client worth dragging senior people across the country for).

The bankers then drop to their knees to talk about what a wonderful company HIStalkCo is (“transformational” and “game-changing” are always good words) and how they would position the story to prospective investors. Prior to Elliot Spitzer’s intervention, this part was done by the research analyst, but subsequently, the bankers have had to play that role, with varying degrees of success.

Next comes the part the investors really care about: stating just how much the bankers think the company is worth.

Here’s where people lean forward. As I shared in an earlier post, stocks trade on their earnings potential and so the company has already shared its projections with the bankers to help them prepare their valuation analysis. I’ll note that at this point one assumes that management’s projections are gospel and (at this point) never challenges them.

(Incidentally, everyone seems to ignore the fact that management’s projections rarely see the light of day — prudent analysts always “haircut” management’s forecasts to help ensure the company can actually achieve them, and valuation is ultimately driven off those projections.)

To predict value, the bankers define a “comp group”, a peer group of similar companies with similar characteristics. The assumption is that similar companies will trade at similar multiples of earnings / revenues / EBITDA, and it’s not an unreasonable assumption. Of course HIStalkCo will trade at the high end of its peer group, so one assumes a similar forward price-earnings multiple and then applies a 15% “IPO Discount” to reach your best guess of the likely value of the stock once it’s publicly traded. The reason for the IPO discount is that portfolio managers need to be compensated for taking the risk inherent in an untried stock. For some reason, it’s always 15% — I’ve often wondered why (perhaps it’s like 186,000 miles per second or other laws of nature).

The fun part in valuation, however, is choosing the comps themselves in such a way as to maximize the predicted value. Everyone wants to hear their company is worth a huge amount, so this is where it gets laid on the thickest. Every software-as-a-service (SaaS) company is comped to salesforce.com. Every HCIT company is comped to athenahealth or whoever the high flyer-du-jour happens to be. Desperate to win the battle of the value, some bankers were comparing Emdeon to Mastercard to goose the expected value — after all, they both process transactions!

It astounds me that companies seem to give so much credence to this part of the presentation, because picking an underwriter based on their take on value is like picking a realtor based on what they tell you your house is worth. As I’ve said in more than one pitch (stating the obvious), it’s the buyers that will set value here, not the bankers.

After all this bragging, positioning, discussing the marketing plan, and valuation, the board room has become a bored room and it’s time to thank the bankers for their thoughtful work and invite the next group in. Then, most likely, hear a presentation that has 90% overlap with all the rest. Finally it’s time to chose the lucky team and move to the next phase.

Time to start writing the prospectus? Sorry, there’s still the happy task of informing the winners, consoling (and justifying decisions) to the losers, and then dividing the hoped-for spoils of victory. Companies, in effect, typically pay the underwriters 7% of the offering proceeds. For a $200 million IPO, that means there’s $14 million to go around. How it’s divided is, as you’d expect, is topic near and dear to everyone’s hearts.

IPOs have a lead manager who typically does most of the work — running drafting sessions, coordinating diligence, scheduling investor meetings (the “road show”), taking orders from accounts, and ultimately setting the price. Not unreasonably, they want a good chunk of the fees for those services — sometimes as much as 70% (way too much, IMO).

There’s also some prestige associated with it. Lead-managed deals are tracked and give bragging rights, so the phenomenon of “co-lead managers” emerged. After negotiating with the lead (aka, bookrunning manager) on how much they get, the company needs to divide what’s left with the co-managers. Each co-manager will insist that they need more — for fairness’s sake, to “motivate the organization to pay attention to the deal”, or due to precedence.

Start writing? Not yet. Besides how much they make on the deal, the banks also care about what order they appear on the cover as that’s another source of prestige and bragging rights. While names on the prospectus cover are first set by order of how big a share of the underwriting the banks receive, after that, it’s due to “precedence”, and it really matters to the banks.

(Please don’t laugh — in my banking career, I’m sure I spent literally hours pleading for a better placement on various prospectus covers even though there was no extra money involved. I even had junior bankers research the vaunted precedence to prove that William Blair was listed under B, not W, and my counterparts no doubt did the same to prove the opposite! Why do the banks care? Candidly, I always wondered.)

Now that the underwriting team has been chosen, we’ll take a short break and my next topic will take us from the organizational meeting through pricing the deal and beyond.

In the mean time, RustBelt Fan asks, What are the signs and symptoms that my vendor is being shopped for buyers?

Ideally, there should be none. Part of a banker’s job is trying to minimize the potential of a leak. As you can expect, that’s a challenge, as information exchange is the lifeblood of the Street. However, while investors and companies might find out, it’s much harder for customers and employees to learn it.

I first encountered HIStalk a number of years ago when a client of mine whose business we were selling called us on the carpet for allegedly leaking information to Mr. HIStalk. The blog had almost perfect information about the process. I confessed with embarrassment that I’d actually never read it (nor had any of my colleagues). But, needless to say, I started reading it then.

Bottom line, RBF — in a skillful process, you rarely can tell. But remember, where there are outside investors, there’s an ultimate need for them to get liquidity in their investment, either through a sale or IPO. Whether you’re talking to a potential vendor or employer, I don’t think asking about investor plans, or, in fact, the state of the company’s balance sheet, should be taboo. As a customer, you’re making a commitment to a vendor, and while a sale of the company might not impact it, hearing what the vendor says can never hurt. Just keep the grain of salt in mind, as they’re often not able to predict what investors will want them to do.

 

Ben Rooks is the founder of ST Advisors, a strategic consultancy offering long-term and project-relationships to companies and financial sponsors. He earned an MBA in healthcare management from The Wharton School of the University of Pennsylvania, has done healthcare IT equity research, and has worked as an investment banker in over 25 successfully closed healthcare and medical technology transactions valued from $40 to $365 million.

From Ex-Cerner Guy: “Re: Cerner. Not only does Cerner re-sell the data they collect, but it’s part of their Lighthouse agreement and the client gets to pay for the privilege of giving their data away. Look closely at the wording of the agreement — it’s in there. It’s good to read their contracts closely. It’s more fun to sit in on the negotiations and watch the squirming.”

From The PACS Designer: “Re: Govt 2.0 Summit. Tim O’Reilly, of Web 2.0 fame and founder of O’Reilly Media, had some interesting comments at the Gov 2.0 Summit about turning government into a platform to foster true innovation in the years to come.” Tim’s got some shopworn analogies about the iPhone and Twitter in case you haven’t had enough of those, making the point that third-party products should plug into the “government platform” to build citizen services, no different than the Interstate system and the Internet (oops, more analogies). All I could think of was the cool movie Startup.com that documented the quick ride up and equally quick ride down of Govworks.com, which was going to make the founders zillionaires by allowing people to pay parking tickets online. Where were you during the dot-com wars?

From Needs_Gas: “Re: Eclipsys. A recruiter says they have a new model and will be partnering with third-party firms to provide services.” Unverified.

From Luke O’Scyte: “Re: anonymization. There is no such thing as real anonymization any more due to the science of re-identification. You can uniquely identify 87% of Americans with only zip code, date of birth, and gender. Release of such information by companies like Cerner should not be allowed.” I’ve covered that topic before, but it’s worth another mention: all you need is a second database that state or federal governments sell cheap and you can re-identify most of the records in a “de-identified” set. Luke sent a link to a fun article describing a well-intentioned 1990s mandate from Massachusetts state government to release anonymized data covering state employee hospitalizations, which sounded great until a grad student mailed the medical history of the governor to his office. She had easily obtained his full record of his diagnoses and prescriptions by matching the anonymized employee data to a voter database she bought for $20. Only six people in Cambridge shared his birth date, only three were men, and only one (the governor) lived in his ZIP code. That grad student was Latanya Sweeney, now a noted Carnegie Mellon professor and privacy technology expert.

The Conficter worm shuts down takes down all hospital information systems in the Cayman Islands. What’s most interesting about the story, though, is that the article quotes new CIO Dale Sanders, who has been on the job less than a week and who, until recently, was CIO at Northwestern Medical Faculty Foundation. I’m interested in how he ended up there since that sounds like a fun move. I’ve been to the Caymans several times and my impressions are (a) it’s beautiful with stunning green-blue water great snorkeling; (b) it’s also horrendously expensive and has a bad exchange rate on the US-to-Cayman dollar, and (c) it’s an international haven for tax-dodging corporations and shady banks (was that redundant?) whose physical presence is a post office box. Oh, and it has a turtle farm and rum cakes.

Opinions about working at Epic are mixed on Job Vent, which is always entertaining as well as hardly reliable. General observations of those posting: (a) they hire only easily controlled new grads of any major; (b) job evaluations and promotions are based only on hours worked; (c) if you quit to work for a customer after the mandatory one-year waiting period specified in the contracts of customers, you are an untouchable who isn’t allowed to interact with current employees; (d) the money, benefits, and the non-cubicle environment is nice for new grads. Some of the posters claim a 1984-type environment where employee conversations and Web activity are monitored, warning of the “thought police.” One pro-Epic cheerleader claims, “We hire scary-smart people, so if they can’t cut it at Epic, they will still be a rock star somewhere else” which maybe means in a different industry since 22-year-old philosophy grads with zero work experience of any kind aren’t exactly in high demand in HIT. As a capitalist, though, I like the model: pay a little more than you have do, bring people to a location where they have few career alternatives, demand more than you should expect, proclaim cheap meals and snacks a benefit instead of a way to get extra hours out of employees who might actually leave for lunch otherwise, keep enough quirk on hand to fool wide-eyed noobs into thinking that wintry Wisconsin farmland is a hip Silicon Valley Midwest, and keep a big file of backup resumes to feed the churn. It’s working for Epic and, greenhorns or not, they innovate more than their competitors.

Cerner will hire 12,000 new employees by 2020, Neal Patterson says to the government of KCMO to soothe the civic feathers he ruffled by choosing the Kansas side of the border for his soccer and HIT complex.

Thanks to Kronos for becoming an HIStalk Platinum Sponsor. The Chelmsford, MA company offers a wide range of workforce management systems that optimize the cost of delivering quality care, minimize risk due to noncompliance with requirements, and maximize productivity. Some of its applications include timekeeping, human resources management, payroll, workforce analytics, employee scheduling, and absence management. They have several research and case study papers on their site. My thanks to Kronos for supporting HIStalk and its readers.

Results from my poll about vendors notifying customers when their software has patient-endangering problem: 37% said their vendors were bad about that, 39% said mediocre, 25% said good. New poll to your right: how much impact will Dell have on the healthcare IT market now that it will offer EMR hardware, software, and services?

I like this idea: an online debate on whether to implement CPOE vs. barcoded medication administration first. It features two highly regarded pharmacists with informatics expertise. 

I think I may have joked before that RHIOs might as well try for ARRA grants as regional extension centers since they often don’t have a business model otherwise. Apparently it’s no joke: the Harrisburg Health Information Exchange (PA) submits its grant request. 

Another reason to ignore stock analysts who cover industries they clearly know nothing about: this article covering Dell’s announcement about reselling EMRs is full of eye-rolling inaccuracies: (a) the headline says Dell will “make” electronic records; (b) it calls EMRs “the device”; and (c) it opines that Dell’s big competitors will be Google and Microsoft, apparently confusing PHRs with EMRs.

An odd lineup on yesterday’s CBS News Sunday Morning: “Dennis Quaid discusses electronic medical records; the end of ‘Guiding Light’; poetry; upcoming fall films.” Dennis’s G.I. Joe did great until word got around, disappearing without a trace after three weeks. He’s up next in the sci-fi (or is it Syfy?) thriller Pandorum, which opens September 25. The trailer looks lame to me, but my taste varies considerably from the apparent mainstream.

Merge Health extends its agreement with Russian medical equipment vendor Rossyln Medical, which will integrate Merge’s PACS technologies into its custom solutions.

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