Bruce Cerullo is CEO of Vitalize Consulting Solutions of Kennett Square, PA.
Tell me about yourself and about Vitalize.
Vitalize has been around since 2002, when it was founded by my current partners. The founders are Mary Pat Fralick, who’s been out there in the industry with Elumen Solution and CTG, and Danny Arnold, who’s also of the industry.
I got involved back in very late 2007 where my little start-up company called Lucida — which is where I originally connected with you — was coming head to head with Vitalize everywhere we went. You know, if you can’t beat them, buy them, so we raised a bunch of money from private equity and we rolled Lucida into Vitalize and recapitalized the company. We have been on a wonderful growth trajectory since then.
Vitalize has nine different business units — we call them practices — organized around either software vendors or market segments. Like ambulatory, for example, or product management.
We recently acquired a Minnesota- based strategic consulting firm called Validus. Validus has a very, very strong reputation in some of the important strategic services capabilities that were a little upstream from the traditional Vitalize offerings. They actually do project leadership of Epic and other major software vendors and have done it well at places like Stanford Medical and Grady and Tampa General and the like. What we were looking to do was to continue to improve our service offerings to our hospital clients, so, it was a natural fit.
The Validus partners and founders are all now part of Vitalize and investors in Vitalize. I found that if your key leadership have a chance to invest real money, you get great alignment of objectives and everybody pulls to build an even better company together.
You describe the company as people-centric and team-centric. How’s that different than how businesses usually work?
First of all, we’re organized around individual practices. Instead of having 500 people who all report to this fellow named Cerullo, we have built strong business units within the Vitalize umbrella. You hang around with people like you. If you’re an Epic consultant, you have access to a hundred and something Epic consultants. You’ve got an Epic leadership structure who you identify with and work with and touch on a daily, weekly, monthly basis.
One of the fine arts to your business or mine, no matter how big you get, is to continue to try to feel small. By organizing around the unique people, skill sets, and market dynamics of the different sectors or sub-sectors of healthcare IT, that’s one of ways we do it — organizing around people like you.
At the level of all of our employees, we do welcome baskets when people join us. We send out surprise Amex gift cards a couple of times a year and allow people to take their loved ones out to dinner. Coming up in early April, we’ll have 500-plus people all flying in to Austin, Texas for four days of fun and learning. It will cost us close to a million dollars to bring everybody in, but to us, it’s the glue. It’s the one time during the year where everybody gets to look everyone else in the eye and connect and bond and talk and laugh and have fun. We call it The Extravaganza, but it’s really a part training, part learning, part fun gathering of all our folks. We do that every year. It’s part of the people-centric aspect. It’s expensive, but it’s absolutely worth it.
Has the economy changed the quantity and quality of the resumes you’re getting?
The economy has provided the stimulus to hospitals to further invest in their information technology systems and people. It’s caused a lot of client demand for the kinds of consulting services firms like Vitalize offer. With that has created career portability and career growth opportunities for healthcare IT professionals.
Whether you work in a hospital system or Vitalize, human beings are motivated to build their careers and their resumes and to experience economic gain. The rebound in the economy certainly, and the stimulus dollars dedicated to healthcare IT, have created a lot of new job opportunities and growth for consultants. That’s the good news.
The challenge embedded in your question is making sure that we as a company can recruit and retain way more than our fair share of those seasoned consultants. I got statistics in the other day that said more than 70% of our consultants are former clinicians. They have that added value, if you will, when they parachute into the hospital having walked in the shoes of the people who are actually going to be the user community some day.
The average age is north of 40. The average level of work experience is more than 15 years in the clinical space where we have them aligned in our organization. We go after the senior folks. We’ve been given our growth and blessed with having more than our fair share of them come to us and want to stay with us.
What are the big areas that customers are looking for help in?
Epic’s winning a ton of business. As a result, we’re getting a lot of new EMR install opportunities. Every vendor is active, whether they’re selling a lot of new stuff or not. There’s a lot of work around Meaningful Use and there is increasing amounts of work around 5010 and ICD-10. That’s happening across vendors.
Somewhere north of 60% of our current engagements are around an installation of a new EMR or a new EMR module. Twenty percent is optimization work, and another 20% is strategy and product management.
Are hospitals really doing anything with strategy or are they just executing the plan that the government pushed on them?
Well, here’s the good news. Hospitals that had a thoughtful strategic plan were already well down the path to Meaningful Use, so that’s good. Those who didn’t, they had one handed to them by the government.
However, what we’re seeing smart CIO of today focused on is back to their strategic plan of implementing good systems to manage quality and capture data and to get reimbursed by somebody. Very few are just trying to chase Meaningful Use. They are returning to a plan that is forward-looking beyond Meaningful Use. While we are doing a lot of Meaningful Use-related work now, hospitals are focused on getting the tools in place that will sustain them, regardless of the next hurdle you have to clear for the government.
If you’re getting 60% new EMR installations now, then hopefully you’ll transition that to the optimization down the road, so your level of business won’t just be hump that goes away.
My personal opinion is that we’re in a hump. This hump is going to last well into 2013 — the initial work around installing next-generation software. To follow will be an acceleration in optimization work, for two reasons. Those who did it well in the install want to make it work even better going forward. Sadly, I think there will be a bunch of work around “optimization,” but it’s really fixing systems that were slammed in to try to get the Meaningful Use dollars and to avoid the penalties. I see a second wave hitting in 2013 to 2015, if you’re asking me to venture a guess.
Your acquisitions raised the headcount to over 450. Is that the next level of opportunity and challenge when you get that many folks?
Having scaled a very large company — Cross Country, a medical staffing company — there are inflection points, particularly in the services business. Typically north of 100 is an inflection point, north of 250, and north of 500.
The trick is to invest in the systems to support these fine people. You know, the billable folks. Having done this before — and this isn’t an ego statement — it’s just that we at Vitalize have invested in and we score in the 95, 96, 97% on all those key statistics in our yearly employee satisfaction survey that someone like me cares about.
Consultant jobs are not easy. They’re on a plane on a Monday. They’re away from their family until Thursday night, and they get home exhausted and if their flights go off on time. A lot of the infrastructure when you get to be as big as we now are is geared to making the consultant’s life as easy on the road as we possibly can. A lot of money goes into that, with good results.
You did quite a few acquisitions in Cross Country. Do you see that continuing to happen at Vitalize?
Not nearly on the magnitude. For one thing the scale in the healthcare IT consulting sector is probably a tenth what the scale is in medical staffing. You’ve got 3 million nurses, you got 750,000 doctors, you got almost a million therapists. Those numbers are a lot larger, so there’s not the same scale opportunity.
Quite frankly, this is a much more highly specialized business than the world I originally came from. It’s nichey for good reasons. If you look at the landscape of companies like us in the early 2000s, Healthlink had been acquired or was being acquired by IBM. FCG and ACS … you know, the whole alphabet soup is huge now. They’re all half a billion to a billion-plus organizations.
Then there’s a huge breakpoint between that level and MaxIT and us, because we’re the two roughly same-sized organizations in that middle market space. Everyone else is five, ten, 15 million in revenue. There’s a couple of up-and-comers who may be a little north of that, so there’s just not a ton of quality targets.
Two, the really good firms and really happy doing their own thing and have created quite a lot of value on their own. They’re not easily acquired.
And, three — and this is probably the most important point — my belief a sign of a healthy organization is one that grows organically. If you’re growing just by acquisition, chances are there’s a reason for it, whereas our growth has been more than 80% organic and with 20% acquisitions of our three health partners back in March of ’09 and then Validus in January of ‘11. We’re not in a hurry, and finding quality partners is not an easy thing.
You mentioned that it’s a nichy-type business, but it’s a niche that everybody wants to play in. It looks like the pendulum has swung back where the big companies in slow-growth industries want to buy into consulting again. What’s your assessment of what’s going on there?
I think you hit that exactly on the head. I can’t speak for my competitors who sit in my chair, but we get two calls a week — more than that — from private equity firms who are dying to invest in our space, and for what you would broadly characterize as a strategic player who may be very strong in IT services, but not strong in healthcare at all. Or, maybe strong in “staffing,” but have no presence in IT.
There’s a lot of interest in our space. I predict there will be an acceleration in M&A activity. We’re stimulating it in our own and are looking to bring on additional capabilities or other big players trying to work their way in.
Two calls a week is interesting. Somebody builds a little consulting company, turns it into a big enough one to get some attention, sells it out, and then goes out and does it again.
Go back and do it again, right. In fact, you know the Encore people, Ivo and Dana. They’re a perfect example of what you just said. They had created something of great value, got absorbed by somebody else, respected their non-competes, and are back at it again. This is a world where you can actually do that.
Especially when the acquiring company messes up what you did.
Yes. All those people are free agents. They make their way back or they join a firm like ours, because truthfully, a lot of our key members are former Healthlinkers along the way.
You’re a venture partner with SV Life Sciences and you do your own investing. How would you describe the healthcare IT market from an investment standpoint, and how is it for start-ups in other companies trying to get a foot in?
I think it’s hard for the true startups. Right now, the mindshare of a hospital CIO is all around the big mandates. Even if you have game-changing software or a game-changing technology for healthcare, it’s not going to get any attention right now because there’s so many other big things to do.
As an investor, it’s a mixed blessing. On one hand, you’ve got a lot of entrepreneurs with really great ideas that aren’t able to get funding, so their valuation expectations drop and you can make investments at more reasonable valuations. That’s the good news. The bad news is it’s hard to scale right now because the attention and the energy and the dollars are going elsewhere.
The government keeps touting innovation, but its mandates to implement existing products doesn’t leave much room at the table for new players. Plus nobody will have money left to buy their product.
In the near term, but a smarter investor is looking out over a four- to seven-year horizon. Once the big things are dealt with, hospitals are still going to have to say, “So now what? We have these systems, we’re collecting this data, we have all these investments in pump and infusion technology, and we got to connect it all, and we’re going to have to farm the data and use it.”
I think enabling technologies around collecting and analysis — true informatics – will be the next wave. But the dollars and the energy on that will follow. This is what I think will be a double wave in the more macro restructuring of the healthcare IT universe.
For somebody who wanted to start a company like that, would this be a good time to get it going?
I think so. As an entrepreneur, you never want to get investors involved too early. They’ll take too much of your company. That’s just the way it works. On the other hand, you can’t do all you need to do without the mighty cash to do it, so it is a tradeoff.
My advice to entrepreneurs is bootstrap as long as you humanly can, because two things will happen. You’ll prove out your concept if it’s truly a good concept. At the end of the day, if you do raise outside money, you’ll be in a far better position to raise it at a valuation that’s favorable to you the owner.
Is there anything else you want to talk about or any concluding thoughts that you have?
If I could wave a magic wand for our industry, there would be additional investment in training the next generation of healthcare IT professionals. The most obvious source would be current clinicians who are ready to expand beyond direct patient care. The Vitalize experience has been that truly some of the most effective consultants are those who have walked a few miles in the shoes of the user community.
I would love to see some kind of a coordinated effort beyond government lip service to try to increase the pool. Everyone will benefit if they are more skilled people in our sector.