From Croc Dundee: “Re: academic censorship! The Australian Ministry of Health has forced the withdrawal of Dr. Patrick’s essay on EHR problems in the ED in NSW. See his page now – the download is disabled. Was Cerner involved?” Beats me, but Scot Silverstein archived a copy. It’s anecdotal, opinionated, and more of an editorial than a research study, but interesting. The fact that someone doesn’t want me reading it sent me looking for a copy. Jon Patrick tells me the university took it offline late Friday afternoon and he’s meeting with them Monday to find out why. Rumor has it that complaints were made.

From Fil_Peed: “Re: Eclipsys User Conference. Mr. Pead’s ‘joke’ went over like a lead balloon. Here was the opportunity for him to make a mark on the client base, many of whom he was meeting for the first time, and instead he makes an off-color analogy to what one should do in bad economic times and customers started walking out.” I’ll withhold judgment until someone tells me what he said.

From HITGhost: “Re: lost data. CalOptima reports that its claims imaging vendor, ImageNet, accidentally sent out unencrypted DVDs that contained claims from 68,000 of its members. The DVDs were sent to CalOptima via certified mail, but never reached CalOptima. CalOptima actually posted this information and identified ImageNet on its home page.”

From Avon Calling: “Re: a paperless and telephone-less, state-of-the-art hospital. Babies turn blue, but are always OK. Did Han write the classic CPOE-caused mortality paper from this hospital? And with all of those computers, there are gaps in the record?” UPMC’s Children’s Hospital of Pittsburgh is criticized by the state health department for not responding to a report in which a baby’s mother claimed her baby turned blue but nurses didn’t respond to the emergency alarms. The mother says the nurse’s emergency alert phone wasn’t working, but the hospital disputes that. According to the investigation report, the alarm phones that were claimed not to work were from Emergin (Philips). Children’s was indeed the subject of a 2005 journal article that showed that the use of Cerner Millennium for CPOE was the second-best predictor of patient death, behind shock but ahead of coma (I criticized that conclusion right after and I’ll stand by that – the hospital made some spectacularly bad implementation decisions).

From Ex-Cerner Guy: “Re: Methodist-Gary. They have lost $220 million over the past five years. The consultant was suggesting Meditech, a system they might be able to afford and still be able to pay the consultant.” It’s hard to believe that one hospital would, over just a few years, sign with Epic, drop it for Meditech, and then contemplate going back to Epic.

Speaking of Cerner, St. Bartholomew’s Hospital in London faces fines of $650,000 per month for lengthy patient backlogs that it blames on the “dreadful” Cerner Millennium. I doubt it’s that simple, but blaming the computer is always convenient.

Listening: Muse. I mentioned them before, but I cannot get enough of this band, maybe the best music I’ve heard in a few years. The live album, Haarp, shows they aren’t just studio overdubbers. My highest recommendation.

Welcome and thanks to Dentrix Enterprise, now a Platinum Sponsor of HIStalk. The company is featuring its Dentrix Enterprise Electronic Dental Record, the industry-leading paperless, centralized record system for community health centers. You can read a product review by the National Network for Oral Health Access here (warning: PDF – it’s on page 29). Dentrix Enterprise is a wholly owned subsidiary of Henry Schein, Inc. a Fortune 500 company with annual sales of over $6 billion. Thanks much to Dentrix Enterprise for supporting HIStalk.

GE says the rumor about its Centricity Cardiology layoff is not true and that the system continues to be sold, installed, and developed. Instead, my contact says, “We’re just migrating the business from local to global over the next few years and have shifted some resources for future project development to avoid redundancies.” Sounds like the product is fine but the people working on it aren’t.

A fun practice EMR comment from Gartner’s Wesh Rishel: there are hundreds of systems, not including those developed by “nephews of doctors.” On ARRA: “If they put up $44,000, they don’t want the doctor to buy (Microsoft) Office and open a spreadsheet.” He also predicts that those hundreds of EMRs will shake out to 10. The same article (which is excellent and objective, by the way, since it was written by a local paper’s reporter) quotes Cleveland Clinic CEO Toby Cosgrove on EMRs: “Whether it will drive down quality, I don’t know. It doesn’t increase efficiency or lower costs.” Cosgrove says he told the President that the biggest savings will come from e-prescribing.

A Mass High Tech article covers Lawrence General Hospital’s IT systems, including its Picis ED PulseCheck system that an ED doctor says reduced wait times by more than 30 minutes and reduced ED walkouts from 6% to 1%. It also notes that transcription costs were reduced by $600K per year and revenue was increased by $5 million for IV charges alone through accurate documentation. The hospital will replace most apps (not the EDIS, though) with McKesson Paragon.

The e-mail update subscriber list just passed 4,800 people, some of whom are your archest of enemies and competitors who will read (and possibly act on) time-sensitive news before you if you haven’t entered your e-mail address in the Subscribe to Updates box to your upper right.

CPSI announces Q3 numbers: revenue up 8.7%, EPS $0.37 vs. $0.38.

Two universities get ARRA grants for EMR projects related to genomics. University of Virginia will collect $1.9 million to create a genome-enabled EMR that will be part of Epicare. Vanderbilt is given $415K for its Vanderbilt Genome-Electronic Records project, which will look for a link between blood values and arrhythmia and also develop natural language processing tools to mine EMR data.

Bloomberg profiles rookie private equity manager David Brailer, whose Health Evolution Partners has invested $120 million of California pension money from Calpers so far. He says he will invest $150 to $200 million each year starting next year. A pension consultant comments, “No matter how you look at it, $1 billion is a lot to allocate to someone with no track record.” Some of the biggest investments so far involve radiology. One investment that sounds interesting is in Triveris Inc., which offers an add-on insurance plan just for diabetics that emphasizes preventive care using software to identify diabetes risk. It’s part of Health Network America.

TriZetto issues a press release to notify an impatient world anxious for yet another PHR that “additional features and functions” of its own version will be ready by year end. The opening sentence of the breathy press release is possibly the most awkwardly structured and confusing sentence I’ve read lately.

Not Yet sent a copy of an October 16 letter sent by Senator Chuck Grassley to Cerner and nine other big HIT vendors (I posted the full letter here). The Senator said, as the ranking member of the Senate Committee on Finance, that he is collecting information about healthcare software defects. He cites “learned intermediaries”, “hold harmless”, and “gag orders” clauses that let software vendors shift responsibility to users and prohibit them from disclosing defects. The Senator asks whether the vendor’s contracts include those provisions, asks for copies of all user correspondence involving software complaints or concerns, requests documentation of any lawsuit settlements, asks whether the vendor has offered financial incentives to facilities or providers to get them to choose its products, and wants to know how the vendor tracks reported defects.

My most recent poll asked about your plans for Windows 7. The voting was pretty evenly divided, but reading between the lines is interesting. Around 37% of reader employers plan to use Windows 7 compared to 61% of those readers themselves. New poll to your right, suggested by a reader: what would your reaction be to seeing the CPHIMS credential on the resume of a job candidate?

Perot (soon to be Dell) announces that it has been contracted to develop a plan for a city-wide RHIO in Changsha, China.

NIH awards the University of Florida a $12.2 million stimulus grant to develop a Facebook-like social network that will allow scientists to find research opportunities.

The creator of the MySQL database says Oracle should sell it to a third party to soothe antitrust concerns about its Sun Microsystems acquisition. Suggested buyers were Red Hat or Novell.

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From Bill Costanza: “Re: HIMSS keynote speakers. I’ve ranted to HIMSS about the lame speakers who have no bearing on either IT or healthcare. They would rather have vapid celebrities to entertain the troops. I can just see Bob Hope and his golf club on stage.” I quickly came up with 10 I’d like to see: (a) Bill or Melinda Gates (to talk about global health and atone for Ballmer); (b) Larry Ellison (an entertaining wacko); (c) Richard Grainger (to describe the folly of massive civil works healthcare IT projects); (d) Barack Obama (he hasn’t done much, but he’s maybe the funnest and nicest President so far); (e) Suzanne Somers (cute and fun for a 63-year-old and full of all kinds of bizarre medical theories); (f) Senator Chuck Grassley (hates government and healthcare waste and suggested that AIG executives who got huge bonuses from taxpayer bailouts should quit); (g) Judy Faulkner or Neil Pappalardo (pioneering industry recluses); (h) any health bigwig from Chinese government; (i) Ben Carson (Hopkins neurosurgeon); and (j) Hans Rosling (Swedish global health expert and inventor of free healthcare statistical display software). I could also be convinced to back Artie Lange, Bill Murray, or Kate Winslet as the token celebrity.

From Doug N. Nuts: “Re: patient safety. Thought you might be interested in Bob Wachter’s commentary on the media and safety. This is an excellent site for safety in general and has great monthly CME.” The editorial postulates that hospitals in the Northeast and those known to house celebrity patients get disproportionate coverage for making medical errors, and even though hospitals shy away from the publicity, they generally emerge better after the public scrutiny (Hopkins, Dana-Farber, and Duke are given as examples). I agree completely. It’s a shame that greedy conglomerates bought local newspapers, loaded them with debt, and mismanaged them into near irrelevance — we need real reporters as public watchdogs. Since the trade rags do little original reporting of real news, especially if it makes any healthcare stakeholder look bad, almost all the big patient safety stories come from the local newspapers or peer-reviewed journals.

From Lady Pharmacist: “Re: hi. Could you put in a kind word? This week is National Pharmacy Week. There are a number of pharmacists and pharmacy technicians (both in hospitals and the vendor side of the world) involved with informatics and are trying to make software / products / systems safer as it relates to the use of medications and ultimately patient safety.” We love pharmacists and techs at HIStalk, so here’s that shout-out, especially for those who serve patients in an IT or patient safety capacity. I always give lab people credit for being excellent developers, adopters, and users of IT, but the unquestionably most complex set of functions and workflows to automate in healthcare involve the ordering, dispensing, and administering of hospital medications. As the photo above proves, lady pharmacists like yourself have been providing pharmaceutical care for at least 50 years.

From Lee Samosa: “Re: GE. GE has pulled the plug on development of the Centricity Cardiology DMS program. All of the developers and most of the support staff in the Sioux Falls office were laid off this week, leaving behind a small team of sustaining engineering and a single Level 4 support person to support the installed base.” My GE Healthcare contact is checking on this. That’s the cardiology data management systems group.

From Certifiable: “Re: Epic. Gary (IN) Methodist de-installed Epic, at the recommendation of consultants who deemed Meditech more appropriate. I have heard they are considering an Epic return.” Any hospital considering those systems as interchangeable alternatives, much less swapping them back and forth, is clearly in need of some soul-searching.

From EndoIndiana: “Re: Mr. Richard Johnson, CIO of Clarian Health. He died in the last few days of metastatic renal cancer.” Richard Frederick Johnson, 50, died Tuesday. Online condolences can be left here.

I messed up the Moment With featuring Jon Phillips last night (I was tired). I posted it to HIStalk Practice by mistake and sent out the e-mail blast without noticing. Inga caught it right away, so I then posted to HIStalk like I originally intended and sent out the corrected link (no spam intended). So, Jon is up on both sites, which I told Inga is like when the president’s speech is on every TV channel.

Dr. Gregg Alexander thanks the folks who stopped by the Pediatric Office of the Future exhibit (under the white roof during setup above) or his get-together after. He was sick as a dog, so I think he was in a daze, but he was a trouper throughout.

Omnicell’s Q3 numbers: revenue down 16.1%, EPS $0.03 vs. $0.09. The CEO says he’s happy with that and shares are up a little, so expectations must have been low.

I was talking to a colleague about today’s Windows 7 launch. Both of us longed for the good old days when desktop software was so important that people slept outside computer stores (remember those?) to be early in line when the store opened at midnight. Actually, I should correct that: there are still massive lines when products launch, but only at the Apple Store.

The nice folks at MedVentive e-mailed to let me know that they’re hosting a Webinar next Thursday, October 29 at 1:00 Eastern entitled “Measuring the Business Value of Business and Clinical Intelligence (BCI)”. The company offers intervention, registry, dashboard, and P4P solutions for providers, along with quality, scorecard, registry, HEDIS, and Medicare Advantage programs for health plans.

AHIMA will publish a new book next month called H.I.T. or Miss: Lessons Learned from Health Information Technology Implementations.

Allen Tien, MD, MHS of mdlogix checked in to say that Johns Hopkins is using the Subject and Protocol Registry of the company’s Clinical Research Management System for all of its new studies. It’s being used for 790 studies, 15,000 subjects, and more than 1,000 users in all departments.

Florence Community Hospital (AZ) brings in a new management team, among them CIO Stephen Franken, formerly CIO of San Juan Regional Medical Center (NM).

Jobs: Clinical Application Educators, IT Manager, Laboratory Systems Application Analyst.

Document management and revenue cycle management vendor HealthPort announces the terms of its upcoming IPO, with a market value of $338 million at the midpoint of the proposed range. The Alpharetta, GA company has annual revenue of $285 million.

International Medical Solutions announces availability of smart forms and Web-based mobile applications to manage informed consent processes digitally.

Fletcher Allen Health Care chooses Netezza and Business Objects for its Cerner-fed data warehouse.

Ranjan Das, the 42-year-old CEO of SAP India, dies of a heart attack. He worked for InterSystems and Oracle previously.

In London, Kingston Hospital NHS Trust goes live with Soliton’s radiologist and pathologist workflow system, powered by Nuance Healthcare and integrated with iSoft RIS, Sectra PACS, and Clinisys LIS.

Cal Berkeley researchers dream up CellScope for the developing world, a microscope attached to a cell phone that allows sending highly magnified sample images to medical experts anywhere.

A writer decries companies that jumped all over Second Life, only to leave it littered with virtual ghost towns after they abandoned them to chase equally trendy but newer technologies like Twitter. Called out: Cisco’s Virtual Palomar West, intended to promote “The Hospital of the Future” and Cisco’s medical-grade network, but now “totally deserted and mostly broken.” I’m not sure I believe that even though I always thought Second Life was an over-hyped bust.

The Quantum Group gets a delisting notice from Amex and voluntarily decides to trade its shares on the OTC BB. Amex didn’t like the fact that it “sustained losses that were so substantial …that it appeared questionable, in the opinion of Amex, whether the Company would be able to continue operations …” The company offers “a 21st Century EMR Solution” (not surprising since that’s the century we’ve been in for quite a few years now), an MSO, and provider services. Shares are trading at 55 cents, for a market cap of just over $6 million.

A hospital rabbi is fired for violating HIPAA privacy laws after writing an essay about comforting the family of a security guard killed at the U.S. Holocaust Memorial Museum. She says she didn’t say anything that wasn’t public knowledge. She thinks the hospital fired her for complaining that it pays male rabbis more, so she’s thinking about suing.

Researchers in Japan develop software that predicts with 80% accuracy the chance that a 911 caller will die. It may have application in routing ambulances to the most critically ill callers. I say license it to Hollywood to make another sequel to The Ring.

United Health posts Q3 earnings that beat Wall Street expectations, with one of its fastest growing segments being its Ingenix healthcare IT business.

CareTech Solutions is named one of the best places to work in the Detroit area.

Odd lawsuit: a psychiatric hospital patient sues the facility for $7,500, claiming it should have prevented a female employee from having sex with his roommate. She already admitted it and quit.

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HERtalk by Inga

GE launches a $250 million equity fund to invest in small healthcare technology. The GE Healthymagination Fund will focus on HIT, life sciences, and diagnostic companies developing unique and innovation business models and services. The fund is part of GE’s $6 billion Healthymagination initiative. GE’s total revenues in 2008 were $187 billion, by the way, making the $250 million equity fund look smaller than a rounding error.

System integrator Emtec expands its healthcare offering with the signing of partnership agreements with FairWarning and BridgeHead Software.

Federal authorities admit that the lack of electronic interfaces between labs and provider EHRs continues to be a challenge to the industry. Technological and financial challenges force many labs and providers to rely heavily on paper and fax options. The HIT Policy Committee heard testimony on the topic this week as it prepares its meaningful use recommendations for HHS and the ONC.

Former PracticeOne and Picis CFO Scott Lentz takes over CFO responsibilities at Aprima Medical Software. Interestingly, Lentz started at PracticeOne just this last January.

The American Academy of Professional Coders introduces an online ICD-10-CM code conversion tool that converts ICD-9-CM codes to ICD-10-CM codes (and vice versa). The tool is free and looks pretty easy to use, even for someone who knows nothing about coding (like me). Note that the site doesn’t provide any sort of data conversion of your existing files, but advises you which ICD-10 codes will take the place of the current ICD-9 scheme.

You got to know this was a painful discovery. A Canadian medical office realizes it permanently lost two years worth of electronic patient records, presumably during an EMR conversion.

Across the pond, Basildonand Thurrock University Hospitals NHS Foundation Trust awards a contract to Sentillion to deploy expreSSO single sign-on.

Integrated Medical Services (AZ) selects Allscripts’ EHR, PM, and RCM solutions for the members of its physician services organization.

The White Stone Group installs the latest version of its TRACE software at San Antonio Community Hospital (CA.) The implementation is the first for this newest release, which tracks communication across the healthcare revenue cycle. I interviewed the company founder Guile Cruz a couple of years ago and was impressed with the number of prominent clients and its highly functional product.

Presbyterian Intercommunity Hospital plays host to physicians and technicians from Singapore who were checking out the hospital’s EMR (Eclipsys, I believe). The Singapore group wanted to see an EMR in action before implementing their own at their 1,600-bed Singapore General Hospital.

Hoag Memorial Hospital Presbyterian (CA) implements Amelior EDTracker solution by Patient Care Technology Systems. The hospital will use the system to track patients in its 66,000-census ED.

Here’s a prediction that’s sure to appeal to many readers: up to 50,000 new HIT positions will be created over the next several years as a result of the federal stimulus package. A recent Robert Half survey of healthcare CIOs found that 76% were looking to hire network administrators in Q4 and 72% were positioned to add desktop support. If you need a lower-tech job, be assured that demand for medical records clerks is also on the rise, making Robert Half’s list of 10 Promising Jobs for 2010.

VeriChip continues to try to re-establish itself in the market, announcing a strategic partnership with the Diabetes Research Institute(DRI). VeriChip and DRI are developing a glucose-sensing RFID microchip. VeriChip also hopes to incorporate findings into its Health Link PRH.

I think this may be the best name ever for a business: Snoring Isn’t Sexy, LLC, which offers an online directory service to facilitate communication between patients and providers. The company just announced that it can handle the secure transmission and storage of all electronic communication. Curious logo, don’t you think? Is the suggestion that you get to sleep with beautiful women if you don’t snore, or that perhaps some beautiful women actually snore? (unlikely)

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An HIT Moment with ... is a quick interview with someone we find interesting. Jon Phillips is managing director of Healthcare Growth Partners, LLC of Chicago, IL.

What economic and market conditions have most affected vendors in the past year and how does the next 12 months look?

Fundamentally, vendors are indirect victims of the challenges facing their customers. Hospitals have seen access to capital disappear, operating results worsen (due to reductions in elective volumes and increases in Medicaid and self-pay/uninsured visits) and dramatic declines in investment income (which helps to fund operations).

Physicians are seeing operating pressures as well, not to mention the indirect impact of declines in value of real estate and other investments and the effect that has on their ability and willingness to spend. Insurers and suppliers remain profitable, but have become quite cautious as the healthcare reform debate works its way through Washington.

As a result of this pressure on customers, vendors are feeling significant stress related to their financial performance. The capital markets see it differently — HCIT valuations are at or near all-time highs as public investors assume that ARRA-related stimulus spending will drive billions in revenue to vendors in the space. At some point, the capital markets expectations will have to meet the reality of customer spending, or customer spending will have to dramatically accelerate to meet capital markets expectations.

The good news is that we are hearing customer purchasing trends are starting to look up, particularly on the physician side of things. However, given the fact that ARRA actually froze much of the market this year as purchasers have been waiting for clarity, our sense is that there is still a long way to go for vendors to feel that they can achieve strong sales growth.

Spending will likely improve across the board in 2010 with solutions demonstrating clear ROI leading the way. Physician sales of EMRs and related capabilities will continue to be strong as practices position for stimulus benefits. Hospital solutions, payer solutions, and supplier solutions are likely to see cautious growth next year as the implications of any healthcare reform package are weighed with regard to how the new environment will impact IT requirements.

We still see strong interest in “pay as you go” models, providing opportunities for providers to acquire systems capabilities while managing upfront capital outlays. While those types of models seem to be spurring sales, many vendors struggle when making the shift to that type of a model since, absent some type of third-party financing, the “pay as you go” model can wreak havoc on the balance sheet of a company used to selling perpetual licenses.

What will drive the M&A market this year?

The M&A market for the balance of this year and into next will be driven by two main trends. First, you will see an increase in the number of distressed transactions. We look at distressed transactions as ones in which the seller is effectively forced to consummate a transaction, generally due to liquidity (i.e. the company is running out of cash).

We expected the distressed market to pick up sooner than it has, but a number of factors have impacted that part of the M&A market. First, with the potential stimulus spending hanging out there, investors have been willing to continue to fund companies operating at a loss in hopes that revenues will pick up and profitability will be achieved in the near term. Unfortunately for many of those companies, revenue growth will recover, but too slowly for them to reach profitability in a reasonable period.

Second, many companies aggressively cut costs late last year and early this year to extend their financial runway. There is not a lot more “fat” for them to be able to take out of their businesses. The result of these two factors is that a number of companies will likely be at or near the end of their financial runway over the next six months. The closer a business gets to that point, the less leverage it will have in its sale negotiations. As a result, we expect distressed deal volume to pick up.

The second main trend relates to investor expectations versus reality. Because of all of the hype surrounding the stimulus spending on HCIT, healthcare IT stocks have rallied, in many cases to their all-time highs. However, if you look at the results being delivered to date (we’ll see if Q3 continues the trend), revenues have been soft, and earnings improvements have been driven by expense reductions. From our perspective, there is a gap between what the markets expect healthcare IT companies to deliver in revenue growth and what they can deliver organically in the short and mid term.

All of the stimulus talk has actually extended sales cycles, and even as the purchasing environment improves, it will take time for bookings to translate into revenue. Therefore, you will see public and larger private HCIT companies looking to acquisitions to augment their internal growth rates.

What companies need to be bought and which companies need to buy someone?

As we mention above, larger companies facing the reality of their sales efforts will need to buy revenue to augment their organic growth. These targets will most likely fall into two categories — share buys and technology buys. Share buys are situations where the acquirer cares little about the target’s capabilities. They are primarily interested in their customers and the opportunity to either up-sell or cross-sell those customers new solutions. Technology buys are intended to broaden an acquirer’s capabilities, using the acquirer’s distribution reach to push a strong product out to a broader customer base.

In terms of companies needing to be bought, if a business has less than six months’ cash on hand, they should be aggressively pursuing an exit, whatever products and solutions they offer. Often we see businesses waiting, hoping that they will be able to raise money or that the market will quickly improve. When those hopes fail, the outcome is generally far worse for employees, shareholders, and customers than it would have been if the business had elected to pursue an orderly exit process rather than an accelerated distressed sale.

If you were launching or buying a start-up, what niche would you go after?

We’d go after a “lowest common denominator” physician-focused EMR that qualifies for meaningful use and that is seamlessly integrated into a physician’s workflow. This type of a solution would likely be a hybrid offering, providing for electronic documentation and order entry but doing it in a way (perhaps with scanning or e-forms) that works with existing clinician workflow. The solution would be priced very aggressively on a subscription basis and would be offered as a Web-based service. We think that a simple offering like this would have the chance to revolutionize the market by being rapidly adopted by small physician groups.

What kinds of vendors will benefit most from stimulus money, both in the short and long term?

Depending on how meaningful use is defined, vendors most likely to benefit are those that help providers qualify for incentives at the lowest cost.  We also see incumbent HIT vendors in hospitals benefitting as they can help shape hospital spending to hit compliance levels.

The other group that is definitely seeing growth is the consulting side of the business- it seems that many organizations are looking to consultants to help them plan their approach to become meaningful users. Those consultants are likely to continue to benefit as organizations implement the solutions that they recommend. However, most vendors probably won’t benefit quite as much as the markets think — “up to $19B” and “incentives” doesn’t mean that the proceeds go directly to HCIT, it just means that providers are rewarded for utilizing HCIT. There’s a big difference.

It is also important to remember that the government gives and the government can take away. We are highly skeptical of business plans built on the basis of attracting stimulus money. It is important to remember that fundamentally the stimulus incentives are being paid to encourage providers to do something that nearly everyone agrees is in the best interest of the healthcare system. As unlikely and unfair as it might seem, it would not be out of the realm of possibility to imagine a scenario where incentive payments are drastically reduced to help cover some other government shortfall.

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From Winston Zeddemore: “Re: SNOWMED. Almost as bad as ‘HIPPA’ eruptions are ‘SNOWMED’ eruptions, where the terminologically naive misspell the name of SNOMED-CT. Here is a link to the latest, courtesy of Government Health IT.” Revisionist history does not work well with Google caches (see previous and current images above). While they were doctoring it up, they should have corrected physician’s to physicians’ unless they are being extra-pessimistic in assuming that only one doctor will be using an EMR by 2015 (not likely since they’re owned by HIMSS now). The same reporter misspelled it the same way in Government Computer News, so it’s time to fire up that spell check dictionary. Googling turns up several other examples by people who should know (or is that KNO?) better.

From Will Weider: “Re: de-identification. Wired finally picked up a story you highlighted months ago.” They sure chose odd sources in trying to flesh out a New York Times article about patient privacy: CCHIT’s marketing director, investment guy George Hill, and a 2007 quote from PAMF’s Paul Tang from Modern Healthcare (which they spelled wrong). They did, however, spell HIPAA correctly and put up a nice graphic from Patient Privacy Rights (although it was too small to read).

From ITRN: “Re: Epic. Did KLAS report they had a de-install in 2008?” I don’t have access to KLAS (I have no KLAS, in other words) so I’ll ask readers to chime in.

From DDD: “Re: Windows 7. I upgraded a month ago and have found it to be more and more intuitive every day. There’s no ‘killer app’ per se, but management of multiple apps, windows, files, etc. are amazingly different. Learn how to use it, and I’ll bet you become a fan.” They said that about Office 2007. At work, I de-installed Access 2007 and went back to 2003, every minute in front of Word is torture, and the only reason I don’t dislike Excel and PowerPoint is that I don’t use them much. Like they say, change is welcome only when the status quo is untenable, which it wasn’t. Maybe I should install Win7 on a spare PC (I love that PCs are so cheap that everyone has spares) and report.

From Secret Squirrel: “Re: McKesson. Horizon Clinical Infrastructure (HCI) appears to use hard-coded database passwords. A security organization has run the entire password list online.” I thought everyone knew that, but maybe not (I reconsidered adding fuel to the technical fire, so I’m not including the link). The poster was amused that e-mailing security@mckesson.com bounced back as undeliverable. I would imagine that many vendors have services that log on as “users” that may or may not use encrypted passwords, some of which give full read/write/update database privileges. I would also imagine that vendors ship default passwords (some intended as their own “back door” in case clients screw up) that unlock every system they’ve ever sold. The clients I’ve known never seem to worry much about that.

From Just Curious: “Re: EMR. I’m sure you got this question by the thousands already, but I’m curious as to what vendor your PCP uses for his/her EMR? Thanks and keep up the great work!” It’s McKesson, he told me last time, although he didn’t seem too certain.

From Enrico Brizzi: “Re: CPHIMS. I was wondering what the industry’s current view of the CPHIMS designation is, specifically in Canada since CPHIMS-CA is fairly recent.” I have my own opinions, but I will leave others to express theirs for a change.

From Sore Arm: “Re: flu vaccine. The Atlantic is running a major article questioning the received wisdom about flu vaccines and antivirals, for both seasonal flu and H1-N1.” The article speculates that the benefit of flu vaccine has been wildly overestimated due to the inherent variability in a self-selecting patient cohort (i.e., it’s healthier people who get the shot even though unhealthy ones are the target audience, so naturally they live longer). Also, that a lot of “who the hell knows” deaths get incorrectly coded as influenza. The conclusion from a noted investigator: getting the flu shot doesn’t reduce mortality rates at all. The high-powered naysayers say, studies aside, they still believe in it and don’t like all the frowny talk. The article also questions why the US government has stockpiled millions of doses of Tamiflu and Relenza despite lack of evidence that they are effective.

From Bernie Tupperman: “Re: Archimedes. Kaiser licenses it to corporations to screen employees, but you can use it free since it was licensed to the American Diabetes Association. You put in your numbers and it takes about 10 minutes to crunch your data to show your 30-year risk of diabetes, stroke, heart attack, and complications. You can then play with the numbers – what if you lose 20 pounds or start taking aspirin? This is a great patient motivational tool and I am busy telling EVERYONE.” That is just cool (access it here). I didn’t realize that it was Kaiser’s but it is definitely an eye-opener. Brilliant.

The VA engages the Industry Advisory Council to identify the issues involved with keeping and modernizing VistA. This sounds ominous: “… opportunities and impact of modernizing and deploying VistA upon private industry …” Surely they aren’t considering dumping VistA just to protect for-profit vendors.

Weird News Andy sniffs out this story about a high-tech scalpel that detects the presence of malignant cells from cauterization smoke, helping surgeons remove all parts of a tumor.

Gila Regional Medical Center (NM) chooses the Cboss patient payment portal.

Cleveland vendor Lakeshore Health System announces Urgicode, which notifies the pharmacy via a cellular network when a code cart is used, then allows restocking by bar code. They probably should have held off on the press release until they improved their Web site a bit, like maybe adding the company’s address, phone number, or that same press release.

Healthcare Growth Partners releases its Q3 2009 Healthcare IT Transaction Summary (warning: PDF). Not to give away the conclusion, but merger and acquisition activity is on the upswing.

TPD forwarded a link to the Kaiser Family Foundation’s tool for comparing health care reform proposals.

I enjoy reading comments left for articles, but I need to disclose that I have the obligation to edit or remove those with advertising, personal attacks, or questionable claims. That almost never happens, but just so you know.

GE Healthcare announces that something has finally come to market from their Intermountain relationship: a new real-time decision support product. Details were skimpy and buzzwords were ample, but it might be interesting given Intermountain’s original HELP system and the work of Brent James. It will be “unveiled” at HIMSS.

Speaking of HIMSS, I keep forgetting to mention the keynote lineup for the March conference: Sprint Nextel CEO Dan Hesse (I’ve never heard of him and Sprint’s shares have dropped from $25 to $3 in four years, so I’ll pass); celebrity doctor Sanjay Gupta (you can see him free everywhere); Harry Markopolos (him I’d see – he’s the former Army officer and securities executive who tipped off the SEC boneheads about Bernie Madoff); and pilot Sully Sullenberger (who has started a safety consulting firm and might be interesting). Given the propensity of HIMSS to grab whomever is popular at the moment, I expected Balloon Boy (like Dana Carvey and that guy who sawed his own arm off in previous conferences). I should run a poll on who they should get since I haven’t been happy with the choices for several years.

Vangent, Inc. says ONCHIT has chosen its HIEOS HIE system as a component of NHIN CONNECT Gateway Version 2.2, which includes XDS.b and XCA profiles (its open source Wiki is here).

Sequel Systems announces GA of its SequelMed Patient Portal for practices, priced at $75 per provider per month according to its site.

San Francisco IPA Brown & Toland Physicians says one reason for its spat with UCSF is that the hospital didn’t want to participate in its EMR program. From Googling, it appears that the practice uses GE for practice management and Allscripts for the EMR. UCSF, you may recall, just halted its own GE Centricity Enterprise project. According to a rumor posted here last year, the IPA was threatening to cut off referrals to doctors who wanted to stop using its EMR and billing services.

More e-health fraud accusations in Canada, this time in British Columbia. Allegations have been made that health ministry officials paid falsified invoices and improperly chose vendors for an $108 million project.

And more: Canada Health Infoway is under government scrutiny for heavy use of consultants, missed deadlines, and having spent $1.6 billion so far with another $500 million on the way. The newspaper article points out that Infoway fell far short of its goal of covering 50% of Canadians with an EMR by March 2010, currently stuck at 17%. The federal auditor’s report will be out next month.

Geisinger Health System (PA) partners with Navigant Consulting to offer consulting services, including those related to EMRs and process improvement. I’m not sure how I feel about that or any other hospital business that has nothing to do with caring for their own patients, but it’s all the rage.

The managing partner of consulting firm Courtyard Group, stung hard by the reports of auditors investigating eHealth Ontario, says his firm was deeply entrenched in the project, but only because the agency’s people were clueless and without goals. He claims the company billed only $7 million of an authorized $10.6 million. His quote about the predecessor agency Smart Systems, which spent $800 million to build a non-Internet based network that went mostly unused: “I remember a conversation with the previous CEO of Smart Systems and he was very proud of the fact Ontario was the only jurisdiction in the world building a private health network. My reaction was, maybe the fact we are the only ones doing it might be an indication this is a bad idea.”

Epocrates announces that its drug reference will run on BlackBerrys.

Virtual Radiologic upgrades its vRad Enterprise Connect product work with new mobile device and speech recognition support.

Cedars-Sinai and GE Healthcare get their first lawsuit (of many, no doubt, and this one seeks class action status) over the CT radiation overdoses caused by unnoticed equipment settings.

Odd: the IT guy at an animal hospital changes the computer system to record a Valium tablet dispense when artificial tears were ordered, allowing him to pocket 18 of the tablets worth $3. The animal hospital let him slide after he quit over it, but then filed a report after the admitted addict tried to claim unemployment.

MIT’s Technology Review interviews ONCHIT head David Blumenthal. I like his terse answers: the writer asked why insurance companies don’t push EMRs, and he said, “The insurance companies have been able to pass along the costs of waste in our health-care system to their clients.” When asked about why progressive hospitals like Blumenthal’s own Mass General don’t share data, he said, “There has never been a business case for health-information exchange. As a matter of fact, there has been a negative case: if you give away your information, you may lose it. You may lose the patient.”

E-mail me.

HERtalk by Inga

California-based St. Joseph Health System cancels its Perot IT outsourcing contract and establishes a new system-wide service center in Lubbock, TX, expecting to add 60 jobs and $3.1 million in salaries the first year.

Healthcare deals represented nearly 30% of all US mergers so far this year, based on dollar value. Typically, healthcare represents only 10%.

Swedish company Anoto Group announces that the EDs at Western Maryland Health System have transitioned to MEDITECH’s EMR and are using Anoto’s digital pen and paper technology. In case you missed it, I mentioned a similar product called Shareable Ink that I saw at last week’s MGMA meeting. As long as the data capture will fully integrates with the EHR and the price point is reasonable, I think the digital pen technology has a lot of potential.

I’m thinking about trading out my Snuggie for one of these. Arizant Healthcare introduces a fully covered hospital gown that features a built-in warming system that blows warm air through tiny holes in the garment. The “Bair Paws Flex” gown sounds like the perfect Christmas gift for that hard-to-buy-for relative.

Cerner teams up with CDW to promote Cerner’s PowerWorks, the first time Cerner has offered its ambulatory suite through a national partner. Clearly Cerner wants to make sure it receives its share of the ambulatory EHR money that vendors expect to flood the market.

Picis announces that 25 hospitals have selected its Anesthesia Manager software this year. Among the new contracts are two with the VA for Picis Anesthesia Manager, PACU Manager, and Critical Care Manager.

University Children’s Eye Center (NJ) selects SRS’s hybrid EMR product. The Eye Center’s physicians are on faculty at RWJU and St. Peter’s University Hospital.

Axolotl Corp. realigns its management team, naming a new president, COO, and two VPs.

Wolters Kluwer Health announces new sales, including SwedishAmerican Health System’s (IL) and Signature Healthcare Brockton Hospital’s (MA) purchase of ProVation Order Sets to automate authoring and maintenance of evidence-based order sets. Sadler Clinic (TX) is also adding ProVation MD for procedure documentation and coding.

Oregon Health & Science University says it has received $51.5 million in ARRA funding, which has helped create 116 full- and part-time jobs. That’s about $444,000 a job, though the university does expect to add more. So far, the grants have funded over 100 research projects which require additional lab employees.

Eclipsys names six winners in its 2009 Circle of Excellence Awards. Winners had to demonstrate innovation and achievements in  process improvement, adoption, or collaboration, or actively participate in the Eclipsys ClientConnect program. Recipients were given $2,000 to be donated to a charity of their choice.

Rutland Regional Medical Center (VT) agrees to serve as a national host site for visiting community hospitals. Rutland will demonstrate to visiting clinicians and administrators how they utilize various GE solutions.

The MEDSEEK folks informed us of their ranking in Deloitte’s Technology Fast 500 program, based on the company’s 346% fiscal year revenue growth over the past five years. There was no healthcare-specific grouping. but I identified several in the “software” group. Congrats to GetWellNetwork, CAREfx, Red Hat, CodeRyte, athenahealth, and other HIT companies making the list.

BryanLGH Medical Center (NE) contracts for Salar’s electronic forms tool.

NorthBay Healthcare (CA) retains PHNS to assess its readiness for obtaining ARRA funding, an example of stimulating the economy without the government spending a dime.

Physicians are using Kryptiq’s escriptMessenger software to send 310% more electronic prescriptions than last year. Its 10,000 users send about 1 million electronic prescriptions per month. I think it is safe to say that e-prescribing is finally catching on, in the same way everyone has long been predicting EMR will.  Hard to believe it has been 5-1/2 years since George W. Bush made mention of computerized health records in his 2004 State of the Union address.

Social media update: I now have 25 friends on Facebook (and frankly pretty amused by the amount of time some of our readers spend doing goofy quizzes). Also, 216 connections in LinkedIn (which is about 100 less than Mr. H, but who is counting?) Also, 574 followers on Twitter (200 less than Mr. H, not that I noticed.) Forever the undercard.

E-mail Inga.

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Initial Public Offerings, Part 2

The IPO market for HCIT continues to show some signs of life, or at least hoped-for life, as Accretive Health filed its IPO Prospectus (known as Form S1) with the SEC for a $200 million capital raise in late September, with part of the use of proceeds to pay back its private equity investors. Those who notice, track, or even care about such things observed that the company filed with four of Wall Street’s largest firms (known as Bulge Bracket banks) as lead managers — Goldman Sachs, Credit Suisse, JP Morgan, and Morgan Stanley.

These four Goliaths will take about 90% of the offering fees (known as economics), leaving the crumbs for one or two smaller firms that actually focus on HCIT to take or divide. An interesting choice to motivate those smaller banks and their analysts who will actually be paying long-term attention, but, clearly their prerogative. By the way, if this paragraph is meaningless to you, you probably missed my last post and might want to read it before proceeding (here).

Loyal readers will recall that when last we tuned in, our intrepid management team of HISTalkCo had just decided to go public and, after completing the ordeal of selecting underwriters (and, almost as bad, the economics negotiation) was getting ready to start the next phase of the process. After the dust settles on economics and cover order discussions, it’s time to begin the process in earnest. This starts with an “org meeting,” short for organizational.

The org meeting ritual sets the stage for the fun to follow. They generally start first thing in the morning in a location at or near the company issuing the stock (known as “the issuer”, or “the client”). Org books are handed out by the lead underwriters’ junior bankers and the meeting is called to order by the senior banker from the lead firm. The first 30-40 minutes are what I always refer to as “Mousketeer Roll Call”, aka introductions. This is where everyone in the room introduces themselves. Why so long? It’s a big crowd. For an org meeting, you’ll almost always see a few members of the management team (3-10, in my experience), three or four bankers from each firm (except for the lead, who brings a small army of bankers and capital market folks), two sets of lawyers (one set for the company, one set for the underwriters), and often some accountants. Before Elliot Spitzer changed the rules, you’d always have the equity analyst and usually their associate at the shindig as well, but those days are gone. It’s a big group, and usually a costly one.

Then the managing director of the lead firm re-takes control, reiterates their pleasure in being there, and then starts going through the rest of the agenda for the day and the subsequent weeks of the process. It always seems to be “a great story” that he or she “expects to have minimal issues with the SEC” and there’s always an “aggressive, but achievable” timeline. All agree to that, and it’s on to D&D — no multi-sided dice though, it’s time for diligence and drafting. The CEO, usually aided by the CFO and a few others, begins telling the story of the company in, of course, as glowing terms as possible, all with the goal of creating a prospectus that, in addition to having the required disclosure of risks and history, is as much of a marketing document as possible. This prospectus and the roadshow presentation delivered are the tools management and their bankers have to market the stock to potential investors.

Oftentimes these meetings start with a draft that’s been developed between company, lead underwriters and lawyers, making the process easier, but it’s primarily committee-driven, with all the fun and efficiency that suggests. From this point, there are multiple steps required to create the prospectus that will ultimately be submitted to the SEC for review.

First, the underwriters have a fiduciary responsibility to exercise “due diligence” to ensure that what’s being claimed is, in fact, the case. That means over the next few weeks, representatives of each bank will share conference calls with their clients’ clients, suppliers, and others who can verify that the system or product does what the prospectus and marketing materials claim. At the org meeting or subsequent drafting session, each member of the executive team will stand before the underwriting group (and lawyers) and discuss how they manage their department and discharge their other responsibilities. Sales pipelines and how they’re tracked will be discussed; product plans reviewed, and financial controls and forecasts are analyzed and “diligenced”.

It’s an important part of the process, and, in my experience, taken quite seriously. In addition, risk factors have to be discussed (and blessed by lawyers from both sides), though they are quite often cribbed from competitors’ SEC filings. Cover art is shown and discussed over and over again and the first few pages (known as the summary, or “the box” for the box it appears in) are virtually, and not inappropriately, obsessed over (“should the logo be that big?”).

Drafting a prospectus can generally take months and it can be painful. After the first diligence session, the herd of attendees is thinned dramatically, however. Senior bankers who aren’t at the lead firm rarely if ever show up after the first meeting. In many instances, I’ve been the most senior non-book-running banker in attendance, in part because my “pitch” to get my firm on the cover was that I’ll bring the research perspective to the process. Hopefully I always managed to.

While the diligence aspects of the meetings are often interesting (at least to me), it’s the drafting sessions that really drag and drag and drag. These are where the document actually gets written and rewritten and each mid-level banker (generally associates, but occasionally VPs, who should know better) tries to put a few fingerprints on the prospectus and show that their firm really and truly cares. There’s nothing quite like being in a room of 15 or more people, some of whom are paid by the hour (remember the lawyers present) arguing over whether something is a ‘strategy’ or a ‘tactic’, which SIC code to use, or how to punctuate a sentence to really get your blood running!

Possibly my favorite drafting session moment was underwriting a company that made blood glucose meters. The prospectus had a table that showed various parameters of each meter the company made, one of which was atmospheric tolerance (how many feet above sea level it could function). An associate from a co-managing firm asked (in her only speaking role of the day, I might add) if that meant they couldn’t be used on airplanes. The CEO took a breath, and patiently explained that no, it didn’t, because airplanes tend to be pressurized. I’m guessing said associate earned over $250,000 that year. The number of drafting sessions vary depending on the complexity of the story, whether any are done via conference call (where senior bankers are often on for the beginning and ends and have junior folk listen and throw in occasional comments for the vast middle) and how much the story needs prettying up for the investors.

Are these as bad as they sound? Yes, except for a few aspects, top of which can be the food! I had one Minnesota-based IPO client that had its meetings at its New York law firm, and, with apologies to Mr. HIStalk’s meeting comments, the spread they brought in was better than some weddings I’d been to. I remember commenting to my junior colleague that only in New York could you see sushi, corned beef sandwiches, and buffalo wraps (plus much, much more) at the same buffet. All that was missing was a bar.

How else could you pass the time? Like other corporate types, there was the ubiquitous BlackBerry usage. Recall that the BlackBerry was first popularized by bankers and you’ll have an idea of just how much your thumbs could hurt after a marathon drafting session. Clients, bosses, even friends and loved ones could be contacted during these meetings. Once in a while a banker would get caught, but for the most part, it was more or less ignored — though the CEO of Visicu imposed a strict no-BlackBerry rule in his sessions — at least for the ones he attended. Aiming for subtlety, I sometimes worked on other things, but on paper. My best use of time during an endless tangent was writing a poem for my wife, so it wasn’t a total waste.

Many, many circulated drafts later, hopefully close to the scheduled date, it’s time to “go to the printer”. Now, I’ve never been to the printer, as I became a banker at a senior level and my old firm never lead-managed a deal in HCIT, so much of this relies on colleagues’ stories. The printer, not surprisingly, prints the prospectus and oversees its transmittal to the SEC. Back before computerization, this relied on typesetting and other complex processes, but in the days of WYSIWYG (you young folks look up that term), it seems needlessly complex.

While at the printer, auditors sign off on the financial statements, the lawyers do their final bit of obsessive wordsmithing and editing — helped by junior bankers (analysts and associates) who’ve been instructed to find times to chime in to ensure the smaller firms are perceived by the management as “adding value”, final battles are fought over cover order (believe it or not) and the i’s are dotted and the t’s are crossed before the lead manager “pushes the button” and it’s off to the SEC. Printer sessions can last well into the wee hours and there’s a fair amount of idle time while these things happen, so I’m led to believe the place is stocked with an array of goodies (from snacks to beers) and toys (from pool tables to massage therapists) to occupy the oft-abused junior folk, where they’re finally treated the way many of them believe they should be. Sadly, the advent of WiFi and laptops makes the printer less fun than it used to be as they’re expected to keep working through the night on other projects. But, all good things come to an end and now the S1 is on file with the SEC.

I apologize if this is starting to sound like Schoolhouse Rock (I’m an S1, I am just an S1 and I’m telling you that drafting’s not fun…), but Bismarck must have forgotten this task when he said Laws are like sausages: it’s better not to see them being made.

Once the SEC has the first draft of the prospectus (and it’s simultaneously posted to www.edgar.sec.gov), a few things occur. First, HISTalkCo’s clients and competitors can all rush to read how profitable the business is (if at all), how it describes its business and, for the nosy friends, how much senior officers earn (“wow, I knew Inga had nice shoes, but always wondered how she could afford them”), and how much stock they have and what it will be worth at the time of the offering (“hmm, guess she’ll start shopping at Ferragamo”). Competitors can have a field day sharing the bad parts (like boilerplate risk factors or accounting details) with potential clients: “It says here if an asteroid hits their facility, they may experience service-related issues. Are you sure you want them as your vendor?”

Meanwhile, the issuer is assigned an SEC examiner who carefully reads the whole document and has approximately 30 days to send the company and its lawyers and underwriters a “comment letter.” These letters vary in length, but are usually at least a dozen pages and require the company to substantiate virtually every claim made, or at least tone them down. While at times these comments can get a bit silly, by and large, I think they do protect the investing public, which is, after all, the agency’s primary goal, we’re told. While the SEC doesn’t rule or opine on the veracity of prospectus statements, they do, in general, ensure that risks are disclosed and the worst hyperbole is eliminated. The company (and its underwriters and lawyers) amend and resubmit the draft and the process iterates until all the comments are “cleared” and the document ruled acceptable — kind of like a software QA process.

HISTalkCo now has an acceptable prospectus, it’s time for the Roadshow!

While the review process has been taking place, the lead (and occasionally the co-) managers have been working with the client on the presentation that the CEO and CFO (say, Mr. HIStalk and Inga) will give to institutional investors on the roadshow. With the help of the underwriters (and occasionally consultants or colleagues), Mr. HIStalk and Inga have rehearsed their presentation over and over again and also been prepared for any potential question that might be thrown at them. New suits (and perhaps shoes for Inga) are bought, hair is cut, and it’s time (cue the music).

Most firms have set itineraries that they like to use for roadshows and have it down to pretty much a science to ensure that the parts of the country that matter (to them) get covered as efficiently as possible. At the very least, this tour will include New York, Connecticut, Boston, Denver, San Francisco, San Diego, and Kansas City. Minneapolis, Chicago, Los Angeles, and even Europe, depending on the type of company and how much demand is forecast, are often added to the itinerary. The two fun-filled weeks go like this:

First, the management team delivers the 30 minute or so presentation to each of the underwriters’ sales forces (the people who call on the mutual funds, pension funds, and hedge funds that will buy the stock and pay all the underwriters’ commissions), then they hit the road along a pre-planned itinerary where they’ll repeat the presentation 50-100 times. Then it’s almost one of those scavenger hunts where management (accompanied by bankers of varying ranks) go from fund to fund in city to city in limos and often private planes (as schedules are tight).

The itinerary is constantly evolving as the sales people (perhaps mindful of the higher commissions inherent in an IPO) call their institutional clients and suggest they take a meeting with HISTalk Co (“as it seems to be a great play on the growth of HCIT in America”). Large funds get private meetings, smaller or less-active funds are relegated to group lunches or breakfasts where they hear the same story. When I was an underpaid associate research analyst, I’d sometimes go to these lunches, partly because hearing lots of stories was a good way to get trained (and hone my BS detector) and partly because the food was often better than I could afford for dinner, let alone lunch.

The quality of the meetings varies greatly and range from buy-side analysts who have no intention of recommending their firm buy, but are doing a favor to the sales person who took them to a game last month (it’s good to be at a big fund), to portfolio managers who’ve not even looked at the S1, but liked the sales pitch, to analysts who will grill the management team on even minute items and likely read the document more carefully than some of the bankers or even the company did. So, the meetings vary, as do the accommodations (but generally we’re talking Four Seasons level) and the amount of annoyance generated for both sides.

Management’s goal here is to convince the investor that HISTalkCo is a stock worth owning for the long haul. Simultaneously, the firms’ research analyst is fielding calls from potential investors, answering questions, sharing his or her estimates (which, incidentally, are never provided in writing), and trying to help sell the deal as well. They’ll have done separate diligence from their bankers to build their own models and (in theory) form their own opinions (thank you, Mr. Spitzer).

After the management meetings, the investors decide whether they want to own the stock and, if so, how much and at what price. As I mentioned last month, while the underwriters suggest a target price, it’s the investors who actually determine it, and it works as follows. Readers will recall from the last post that the underwriters (now, primarily the lead), have established the likely price of the stock as it relates to comparable companies and applying a 15% “IPO discount” to offset the risk inherent in buying a stock with no trading history. This range of values is what’s put on the cover of the prospectus a week or so before the road show so that investors will have an idea of what the company is worth, at least in theoretical terms.

Economics teaches us that prices are set by the intersection of supply and demand. The supply of stock is generally limited, so price depends on demand. Each fund that wants the stock will decide how much (up to a ten percent order) they want, and at times will say, we want none at $x/share, 5% at $y/share, but would take 10% if it’s priced at $z/share. Others and smaller funds will just say no, or how much they’d like to buy. Meanwhile, the lead underwriter’s capital markets department is keeping track of all this in a “book”, hence the term “book-runner”. The goal (and, in fact, some of their art) is to build a book that is over-subscribed (more demand than supply), so the stock will be priced within the hoped for range and, ideally, jump up after it opens on the market as funds buy more to build the amount of stock they want to hold (a position).

In some cases, demand within the range exceeds supply to an extent that the underwriters will “raise the range” and target a higher price, and/or the company will sell more stock. In less happy situations, issues price “below the range” and the price is lowered. Because companies want long-term shareholders, not funds that will sell the stock immediately to gain the 15% (or higher, in the case of a hot issue), the book runner primarily focuses on those funds that indicate they like the story or have a history of being loyal shareholders. I say primarily because, if an IPO is dramatically oversubscribed, the stock will rise immediately, and some funds will sell into that demand (a practice known as spinning) and make a very quick and easy profit. This can be a way for underwriters to reward loyal clients (saying, in effect, “sorry the last IPO you bought didn’t work, we’ll make it up to you with this one” or, “thanks for all that other commission business you’ve given us lately”.) Back in the dotcom days, banks did the same thing for CEOs of hoped-for clients as a way of currying favor (see “Friends of Frank” for details, or ask me in a follow-up post to discuss that phenomenon).

Once the calendar says the road show’s over (and hopefully it’s even close to the same date as we predicted at the org meeting), it’s time for “bring down diligence” and the pricing call. Bring down is simply checking in that nothing material has changed. In my experience, it rarely has. Then the lead banker and capital markets guys have a chat with Mr. HIStalk and his board or other advisors. The state of capital markets over the past few days is rehashed, the team congratulated on what a great road show they put on, the orders summarized, and the lead underwriter recommends a price of $x/share.

Assuming that’s acceptable to the company, the orders are then filled based on an amalgam of size, price, importance of fund to the investment bank, promises made by the funds to buy more the next day (known as the aftermarket), favors owed, and the best judgment of the capital markets group. The orders are thus filled in the morning, the Registration Statement is declared “Effective” by the SEC and HISTalkCo is now a public company (maybe Mr. HIStalk even gets to ring the opening Nasdaq bell). Depending on the state of the broader market that day or week, how strong the book is, and how good the allocations were, the stock than starts to move. Part of the art is to allocate and price it so that there are more buyers than sellers and the stock goes up and everyone is happy. That said, if it goes up too high, the company (and bankers) just left money on the table as they could have sold the stock at a higher price, but a big first day pop gives some bragging rights, so issuers don’t tend to complain too much when that happens.

From this point, all that management has to do is manage their business as before, but pay attention to investors, analysts, and the SEC, while ensuring they always hit the quarterly targets that investors are expecting. Miss a quarter, you can see your net worth plummet. Hit them consistently and it can skyrocket. It’s all just part of the fun that being a public company entails (well, that and Sarbanes-Oxley). I’m stunned, simply stunned that Ms. Faulkner continues to pass it up.

This was a long post, and I appreciate your patience in reading it. Please keep the questions coming, I’ll devote more of the next post to answering them.

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.

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