Time Capsule: HBOC 1, Everybody Else 0

I wrote weekly editorials for a boutique industry newsletter for several years, anxious for both audience and income. I learned a lot about coming up with ideas for the weekly grind, trying to be simultaneously opinionated and entertaining in a few hundred words, and not sleeping much because I was working all the time. They’re fun to read as a look back at what was important then (and often still important now).

I wrote this piece in November 2006.

HBOC 1, Everybody Else 0
By Mr. HIStalk

I didn’t even know Charlie McCall was on trial. The former HBOC chairman was acquitted of a securities fraud charge last week and got a mistrial on six more counts as a lone juror’s holdout deadlocked the jury. I feel deprived that I missed a blow-by-blow report of his being grilled and then left to await his fate. All these years of waiting: “Wonder when they’ll get Charlie?”

In case you’re a newbie, HBO & Company was the pre-Enron corporate malfeasance poster child, a prodromal symptom of dot-coms in waiting that used its optimistically valued stock to buy everything in its path. The frenzied transacting caught the attention of drug wholesaler McKesson like the mating dance of a spider, which paid a mind-boggling $14 billion for the company in January 1999.

Industry long-timers chuckling knowingly, having watched similar companies take it in the shorts for the same expensive, ill-advised, and dispassionate dabbling in healthcare IT. Investors scratched their heads after running their calculators and finding no possible way that HBOC was worth that kind of money. The general consensus of all interested parties: what the hell was McKesson thinking?

Three months later, McKesson’s stock tanked on charges of book-cooking by Charlie’s crowd. Shareholders lost $9 billion of wealth in a single day, thereby unwillingly participating in the ultimate assessment of HBOC’s value.

McKesson’s executives were perhaps the only people on the planet who weren’t suspicious about the Atlanta high-flyers. Everyone was swapping insider horror stories. I sent two anecdotes to a healthcare IT publication in 1998 (who missed out on the scoop of the century by ignoring them.) First: I’d heard from an HBOC employee that he was ordered to mail out empty tape boxes to customers for not-ready enhancements so revenue could be recognized anyway. Second: HBOC programmers, all of whom in some areas had revenue targets, griped about booking their estimates long before any work was done. Recognizing revenue on the basis of a shipping receipt? Oh, my.

You know how it ended. HBOC’s brass were indicted, McKesson’s were fired. Charlie went off sailing (so the story goes.) The reeling McKesson lost employees, came up with strange ideas like co-CEOs, jumped on the dot-com era right as it imploded (taking with it hastily conceived names like i-this and e-that), and retired the stench-ridden Pathways name.

Cipher in the nearly $1 billion they eventually paid to settle shareholder lawsuits and the grand total for those few weeks of financial fornication is $10 billion. What they got for their trouble was a mongrel pack of products HBOC had hastily snapped up for financial growth without any real plan except to keep the printing presses busy running off stock certificates.

Among those involved were certainly some crooks and some fools, but let’s not forget those who suffered most, those McKesson lifers who had stashed away years’ worth of shares of their unexciting company’s stock instead of risking their future on flaky fads like Microsoft and Dell. When lonely old conservative widower Dad McKesson brought home a sexy young step-mom named HBOC, she stole the kids’ piggybank.

The stock went from the mid-80s to the mid-teens. People I knew glumly tried to estimate how many more years they’d have to work until retirement with 80% of their investment gone. Even today, after eight years and with good company management, McKesson’s stock has recovered by only about half.

Only the jury can decide whether Charlie McCall and his associates are guilty or innocent, but I can say one thing: if they are found guilty, then I hope the pain they receive is commensurate with the pain they caused.