News 4/27/12

Top News

Allscripts turns in its Q1 report: revenue up 9%, EPS $0.03 vs. $0.07. Bookings were down 8% and the company has revised its full-year earnings forecast to $0.74-$0.80 per share vs. previous guidance of $1.06-$1.10. CEO Glen Tullman’s reasons for the numbers: lower sales, unfavorable sales mix, high development costs, Sunrise sales delays as cautious prospects wait for the promised integration, and a reorganization of the sales force. Also announced:

• CFO Bill Davis has resigned effective May 18
• Phil Pead has been fired as chairman of the board
• Directors Catherine Burzik, Eugene Fife, and Edward Kangas, all of whom had ties to Eclipsys and who were apparently loyal to Pead, have resigned in protest over the company’s direction and leadership

Shares are dropping precipitously in extended trading following the announcement after Thursday’s market close, down 45% as I write this. That would wipe out nearly $1.5 billion of shareholder value if the price holds when the market opens Friday morning. The transcript of the earnings call should be interesting when it’s posted shortly. If you work in Allscripts sales and haven’t found your job to be challenging enough, this should do it. My question: how will flagship customer North Shore-LIJ react to the news?

Update: the conference call transcript hasn’t been posted yet, but audio is posted here. Notes I took, including my reactions:

• Glen’s list of what went wrong includes just about everything.
• He talks quite a bit about Sunrise successes, but doesn’t say too much about the ambulatory products.
• Bill Davis is leaving to take a non-healthcare job. He was on the call and presented the financial results. He says he isn’t leaving because of anything to do with Allscripts.
• Bill said neither the inpatient or ambulatory businesses performed up to expectations.
• How many of the clients who are waiting on the much-touted integration to occur will just give up and buy something else, especially after reading about this latest company turmoil?
• Stay away from courthouses today – they will be crowded with lawyers filing class action investor lawsuits today, I expect, since that always happens when share prices drop on unexpected company news.
• “Unfavorable revenue mix” – does that mean that the only thing selling is MyWay?
• They mention high non-capitalizable development costs – does that mean bug fixes rather than planned enhancements and integration projects?
• They mention the high cost of attending HIMSS, which isn’t surprising if you saw their monstrous booth village in the exhibit hall.
• The company will spend $190 million this year to improve software integration and user experience. Glen says prospects are withholding their decisions until some of these projects are finished.
• The integration between Sunrise and the ambulatory products met the technical specs, but clients weren’t impressed. The beta of the re-do attempt will start in 50 days.
• Sunrise 6.0 will add high availability and Sunrise Financial Manager will include ACO capability and ICD-10 support.
• Glen said there’s work to be done on the client experience, and 400 employees have been hired to support that effort.
• The company is investing in its hosting capability and adding a new data center in the next 90 days.
• Getting rid of Phil Pead will cost $2 million (or at least as I interpreted).
• Glen said he’d never in his career had a quarter as tough as this one.

The Q&A ran on for more then 45 minutes and was predictably ugly.

• The first question was basically, “Why weren’t you fired instead of the board?” Glen’s answer: it was a bad quarter, but boards take a longer-term view. The follow-up: our numbers don’t match anything you’ve said, so why should we believe you? Glen’s answer: we’re making progress even though our Sunrise integration flopped.
• Question: who’s the chairman now and how do you give confidence to investors given that a third of your board just quit saying they had no confidence in you? Glen’s answer: the board will name a chairman soon and will add new members. Clients evaluate companies on their products, not their board members. We’ve changed our development methodology from Waterfall to Agile.
• Question: why aren’t the surviving board members on the call and will they have a vote of confidence? Glen’s answer: they’ve voted their confidence by remaining on the board.
• Question: I’ve never seen that much board turnover due to bad bookings. What really caused the turnover? Glen’s answer: merged companies often have a different vision about the direction of the combined entities and you can look at who quit to figure out the issue (all the Eclipsys people, in other words).
• Question: you implied at HIMSS that integration wasn’t all that important, but now you’re saying that prospects are not buying because your integration effort wasn’t good enough. Glen’s answer: it matters to a segment and customers waiting for 1.0 found it disappointing. Some problems due to sales execution, some customers waiting on the 1.5 version of the integration, some due to accounting changes.
• Question: how do you get clients to stick with you when the window isn’t all that wide? Glen’s answer: we have 350 new clients this quarter and three Sunrise signings. Some waited and that’s what impacted sales. First time that our close rate dropped. The new sales team is the best we’ve had.
• Question: all the Eclipsys people have left the board, but you said earlier that all the growth was centered around the Eclipsys products. What’s the difference in direction? Answer: we still have many Eclipsys employees and good products. There’s no change in strategy.
• Question: have you been approached to be acquired and maybe the board members left because you turned it down? Glen’s answer: no.
• Question: who will certify the first quarter’s 10Q? Answer: Bill Davis.
• Question: you said customer attrition is low. Is that current or predicted? The data looks like you’re having problems in the market. Glen’s answer: no big bump in attrition. We’re the beneficiary of our competitors having attrition problems, but everybody is struggling to compete with Epic (as I interpret it, anyway).
• Question: your stock’s going to be hammered and your credibility is shot, so why should Allscripts remain a public company? Glen’s answer: I wouldn’t speculate on that. The stock has fluctuated between $89 and $1 over the years and we just keep pushing forward.
• Question: where was the underperformance in the acute care area? Bill Davis’s answer: some Sunrise deals didn’t materialize and EPSi analytics fell surprisingly short given prior performance.
• Question: what’s the sales force stability? Glen’s answer: very good. We have some open territories. We lost only one significant salesperson and they became a CEO of another company, which indicates the quality of people we have.
• Question: where is Bill going? Bill’s answer: that will become public knowledge in a couple of weeks, but it’s a private company not in healthcare IT.
• Question: the numbers look like sales numbers on the Allscripts side are going down. Is the problem Allscripts or Eclipsys or both? Bill’s answer: it’s both.
• Question: how can you turn this around? Glen’s answer: we’ve released software timelines and there’s a vibrant market. We have the right sales structure and product deliverables, so I don’t think we’re talking about a lengthy process. We’re betting on this for the next 10 years.
• Question: will there be any other management changes? Glen’s answer: no.
• Question: a year ago at HIMSS you said that you didn’t need a single database and that service oriented architecture would do. Has that changed? Glen’s answer: yes. Epic (he didn’t actually name them) talks a lot about single database, but their customers use EPSi and other products and with genomics and other advances, you’ll always need more than one database. 93% of healthcare organizations can’t afford to rip and replace with Epic (he named them this time) and our open platform makes more sense. Some people have Enterprise and Sunrise — that’s a limited but important universe and our 1.0 release was technically acceptable but customers said it wasn’t exactly what they wanted, while 1.5 will offer that.

Glen mentioned on the call that the company has opportunities in England, but it was announced Friday morning that both Cambridge University and Papsworth have chosen Epic over Allscripts and Cerner.

Reader Comments

From Shaken The Tree: “Re: Allscripts. Time will tell, but news is MDRX is in big trouble — big financial losses, CFO resigning, COB resigning, and no one is sure what or why the CEO is safe. If this rumor pans out, it will really just be an Epic vs. Cerner market. Then again, isn’t it already?” I’ve been getting regular and entirely credible rumor reports about the company’s problems over several weeks that turned out to be almost eerily accurate, but I either didn’t run them or did so without naming the company since I’m not comfortable putting out rumors on publicly traded companies (I picture me as Charlie Sheen’s Bud Fox being hauled off bawling in handcuffs, a la Wall Street.) This anonymous Rumor Report came in at noon Wednesday, which would have given me almost two full trading days to short-sell MDRX shares had I been so inclined. I’m poorer for my inaction, but at least I’ll sleep soundly.

From Nasty Parts: “Re: Allscripts. There was a Tuesday evening board meeting where they attempted to fire Glen Tullman. He survived on a 5-4 vote. As a result, Phil Pead (above) will be leaving the board.” I don’t think TV stock picker Jim Cramer necessarily saw this coming, but he flipped his recommendation at a great time.

From Lumpy Rutherford: “Re: Allscripts. Rumor we heard was that the board tried to fire Tullman but he held on. Dissenting board members, including the chairman, resigned on the spot. Bill Davis (above) was the sacrificial lamb and was let go also.” The wheels have fallen off at least temporarily, but Glen is still driving after winning the Allscripts vs. Eclipsys arm-wrestling match with Phil Pead (shades of the “tank over the cliff” scene from Indiana Jones and the Last Crusade). So much for Glen’s insistence about the ease of integrating Eclipsys and Allscripts products just because they both run on Microsoft technology – prospects apparently aren’t buying it (literally). I like Sunrise, but Eclipsys was a disaster, with recurring self-inflicted wounds from management gaffes and overpaying for acquisitions in a desperate and failed attempt to be a player. I don’t see any way that Allscripts will ever get back the $1.2 billion it paid for the company, which everybody knew was vulnerable to losing its few big Sunrise clients to Epic and Cerner due to lack of an integrated ambulatory solution and a narrow product line. I take no pleasure in this news – we need more strong competitors in the inpatient clinical systems market and headlines like this usually send the risk-averse CFOs of hospital prospects fleeing to the HIT billionaires.

From Dismayed ExECLP: “Re: Allscripts. So all Eclipsys board members are out, Glen’s new CFO Bill Davis leaves, numbers are terrible for last quarter and the year looking forward, and Glen survives? He is destroying shareholder value, client relationships, and what had been a highly motivated workforce on both the Allscripts and Eclipsys teams pre-merger. This is worse than what Pam did at McKesson.” Certainly Allscripts suffers more from their HIT-related challenges since they don’t have a hugely profitable cash cow of drug sales to fall back on. Maybe Allscripts should rehire Newt for the EHR Stimulus Tour Part II: he’s tanned, rested, and ready.

HIStalk Announcements and Requests

Highlights from this week’s HIStalk Practice include: a federal agency fails to update its list of medically underserved communities, leading Medicare to overpay physicians millions of dollars in bonuses. More physicians could and would participate in the MU program if their EHRs provided the required functionality. Physician compensation fell in 2011. Medicare and Medicaid paid EPs $1.4 billion in MU incentives through the end of March. A Louisiana woman steals over $700,000 from her plastic surgeon employer. You know the drill: visit HIStalk Practice; sign up for the e-mail updates; bask in the knowledge that you are smarter than the guy in the next cubicle or corner office.

I am amused and touched that so many readers have sent e-mails asking if I am OK given my recent mentions of doctor office visits. Thanks for the concerns and be assured I have nothing life-threatening. I have an injury that is annoying and that has created a particularly nasty side effect: it’s hindering my ability to take full advantage of all my fashionable shoes. 

A reader suggests this as a gift for Inga: a custom bobblehead that turns photos into a 3D image of a person’s head. Cute and apropos, although maybe not $200 worth.

My Time Capsule editorial last week challenged anybody to prove that healthcare IT improves outcomes and costs. TeleTracking responded on their blog with what they say is proof. I’ll defer to your assessment – were they successful?

On the Jobs Board: Director Project Management, Implementation Project Manager, Epic Certified Builders, Senior Business Development Executive. On Healthcare IT Jobs: Cerner Orders iVew Consultant, Healthcare Services Systems Analyst III, PACS Application Coordinator II.

I always feel like a failure when I see people around me lost in an iPhone Zone while ignoring everyone around them, happily absorbed with their make-believe Internet friends in their self-imposed Cone of Silence. Was I not adequately scintillating to draw their limited attention away from the electronic lure that is infinitely more time-wasting than the “vast wasteland” of 1960s TV? Have I failed to meet their need for human interaction, forcing them to flee for the comfort of the electronic equivalent of a blow-up doll? And yet I seek such illusory validation myself, measured by the number of people who (a) sign up for my e-mail updates;  (b) Friend/Like/Connect frenetically with Inga, Dr. Jayne, and me, secure in the knowledge that we reciprocate unconditionally; (c) peruse and uncontrollably click those gloriously non-animated ads to your left because my sponsors offer such an interesting variety of valuable products and services that you really can’t stop yourself; (d) send me rumors, news, and other goodies that I can use here to appear smarter and hipper, at least to people who don’t actually know me; and (e) use the Resource Center and Consulting RFI Blaster since you would be indirectly helping the less fortunate (the grateful offshore programmers to whom I paid a pittance to develop those). You may have noticed that I’m using Twitter slightly more to prove that I’m just as pedantic as the tweet-happy crowd, so you may get some early glimpses of HIStalk stuff there if I’m in the mood. Lastly, I would ordinarily say that having a 2,400-member HIStalk Fan Club on LinkedIn is the ultimate manifestation of narcissism, but unlike some of my fellow HIT netizens, I didn’t start my own fan club, so I’m just a guest there as you could be, courtesy of Dann. That is all, other than the obvious: it means a lot to me that you read what I write.

Acquisitions, Funding, Business, and Stock

Cerner announces Q1 results: revenue up 30%, EPS $0.51 vs. $0.37, beating consensus estimates on both. The company raised guidance to yearly earnings of $2.25-$2.32 on revenue of $2.6 billion.

Athenahealth announces Q1 numbers: revenue up 38%, EPS $0.07 vs. $0.09 (unchanged in non-GAAP reporting, beating expectations).

CPSI’s Q1 numbers: revenue up 10.2%, EPS $0.51 vs. $0.49.

Quality Systems, the parent company of NextGen, acquires Matrix Management Solutions, a NextGen reseller that provides RCM, implementation, and support services. Quality Systems says the acquisition will “enable NextGen Practice Solutions to expand its footprint among private and hospital-based physicians and groups by leveraging Matrix’s RCM expertise.”

Emdeon completes the repricing of its existing senior secured credit facilities and borrows $80 million of additional term loans for general corporate purposes, including potential acquisitions.

McKesson will pay $190 million to settle yet another lawsuit over its average wholesale price debacle of a few years ago. I don’t have the numbers in front of me, but I would guess they’ve paid out nearly $2 billion over that mess.

Sales

Siemens Healthcare signs a global radiation oncology partnership agreement with Varian Medical Systems, displacing Varian incumbent GE Healthcare. Siemens also announces four Soarian revenue cycle sales: MD Anderson (TX – a 10-year agreement for Soarian financials); North-Shore LIJ (NY – a six-year extension for Soarian financials and adding Soarian physician revenue management and scheduling to the faculty practice plan); Shepherd Center (GA – a five-year extension to migrate to Soarian clinicals and financials); and Baton Rouge Medical Center (LA – a 10-year extension to install Soarian Enterprise Revenue Cycle).

Iowa Health System expands its relationship with MediRevv to include use of its Revenue Integrity Service.

The VA awards Harris Corporation an $80 million, eight-month contract to support the VA’s migration to 5010.

People

MEDecision names Ellen Donahue-Dalton EVP/chief marketing officer. She was previously with GTECH Corporation.

HealthTrio promotes Dominic Wallen to president and COO.

Announcements and Implementations

Beacon communities Quality Health Network (CO) and HealthBridge (OH) announce an agreement that allows QHN to access HealthBridge’s data analytics and BI tools.

Montgomery County Memorial Hospital (IA) goes live on NTT DATA’s EDIS solution. The hospital is a user of the company’s Optimum solutions.

Orthopaedic & Spine Center (VA) expands its use of White Plume solutions with the addition of AccelaMOBILE, White Plume’s mobile charge capture app.

OTTR Chronic Care Solutions announces OTRRbmt, a pediatric bone marrow stem cell transplant patient management system.

The New York eHealth Collaborative, the NYC Investment Fund, and the NYS Department of Health launch the New York Digital Health Accelerator, a program to promote HIT initiatives in New York state. It will offer up to $300,000 and mentoring to 12 early- and growth-stage companies that are developing technology solutions for care coordination, patient engagement, analytics, and message alerts, primarily products that could benefit the state’s Medicaid program redesign. The initial investment of $4.2 million is expected to create up to 1,500 jobs over five years and to attract up to $200 million in venture capital investment to graduating companies. Mentoring will be provided by 18 provider organizations, including New York-Presbyterian Hospital, North Shore-LIJ Health System, NYU Langone Medical Center, Maimonides Medical Center, and Community Healthcare Network.

Moffitt Cancer Center (FL) goes live with a clinical trials recruitment and personalized medicine application, built on Oracle tools, that it says will allow it to more closely connect patient care information and research results to improve clinical decision support tools.

Max Healthcare becomes the first hospital in India to reach HIMSS Analytics EMRAM Stage 6.

Government and Politics

CMS awards CPA firm Figliozzi and Co. a three-year, $3 million contract to audit payments and compliance with the EHR incentive program.

VA CIO Roger Baker says the first VA-DoD integrated EHR sites will go live two years ahead of schedule in 2014. He also announced that the VA is testing an iPad EHR app in a 1,000-clinician pilot. 

Pentagon researchers are exploring the use of computer-based simulated therapists to conduct therapy sessions with service members, with the system using motion sensing and a webcam to detect signs of post-traumatic stress disorder. The video above is of a similar DoD project that was intended for service members to use in their homes, but without the symptom detection hardware. Thanks to Guy for the link.

Technology

The US Patent and Trademark Office issues a patent to DR Systems for technology related to automated selection and forwarding of medical data to secondary locations, such as EMRs.

Other

Weird News Andy ponders whether anyone’s up for a third-hand kidney. Surgeons at Northwestern Memorial Hospital (IL) transplant the same kidney twice in two weeks in two different patients when the first recipient’s existing disease renders it useless to him. The donor was the first patient’s sister, who was disappointed that her kidney didn’t help her brother but happy that at least someone benefited from it. And being on a transplant roll, WNA also finds this story bizarre: the father and grandmother of a two-year-old boy are arrested for kidnapping him as his family sits by the phone waiting for the call saying the boy – #1 on the heart transplant list – needs to be rushed to the hospital to receive a donor heart.

One more gem from WNA. The Utah Department of Health, alerting 273,000 people of a Medicaid data breach that exposed their Social Security numbers by sending an unsigned letter advising them to call a hotline number, gets complaints about the first question scam-wary people are asked when they call: what’s your Social Security number?

Cincinnati Children’s Hospital (OH) announces an $180 million addition that will bring its total research space to 1.4 million square feet, which will make it the largest pediatric research facility in the country.

Pennsylvania’s State Health Department finds that two patients at St. Luke’s Hospital were dangerously overdosed on IV meds because nurses incorrectly programmed their IV pumps at 10 times the ordered rate. At least it wasn’t erroneously programmed PCA pumps this time, which the state said was the cause of three patient overdoses at the same hospital a few months ago.

Sponsor Updates

• Cisco honors World Wide Technology with six awards at its annual partner summit. 
• MEDSEEK recognizes five customers with eHealth Excellence Awards at its 2012 eHealth Client Congress. 
• Boston Business Journal names eClinicalWorks to its Pacesetters Powerhouse Elite in recognition of its 148% growth over four years.
• TripleTree names Awarepoint and Optum as finalists for its 2012 TripleTree iAwards for Wireless Health.
• CynergisTek will feature its HIPAA Audit Readiness Solution Portfolio at this weekend’s 16th Annual HCCA Compliance Institute in Vegas.
• Billian’s HealthDATA adds home health agencies and nursing home financials to its market coverage for subscribers.
• Aventura partners with Choice Solutions to provide one-click access to patient data.
• Gartner names MedVentive as a 2012 “Cool Vendor in Healthcare Providers” for providing innovative and potentially transformative solutions for healthcare delivery organizations.
• EBSCO Publishing adds continuing education modules for PT/OT/ST to its Rehabilitation Reference Center that’s used by rehabilitation clinicians at the point of care.
• Capsule posts the next video in its Connected Consultant series intended to educate clinicians and IT people about medical device integration, this one on hardware.

Contacts

Mr. H, Inga, Dr. Jayne, Dr. Gregg.

More news: HIStalk Practice, HIStalk Mobile.