Industry Reaction – Allscripts To Acquire Eclipsys

We have industry reaction to today’s announcement. Let’s start with some random thoughts from Mr. H and Inga.

Some thoughts about Eclipsys

• Above are the two-year share price graphs, with Eclipsys in red and Allscripts in blue. ECLP shares are trading at about half their 1999 price.
• Phil Pead’s background is selling companies, which Eclipsys has desperately been trying to do for many years with no takers (allegedly). He’s been with Eclipsys for almost exactly one year and surely gets the credit for finally finding a buyer.
• Eclipsys started with a relatively small number of big academic medical center clients on the old TDS platform and has struggled to convince them to upgrade to Sunrise (a product it acquired) instead of choosing a new vendor.
• Despite the arguably superior CPOE and clinical documentation capabilities of Sunrise, it has competed poorly against Epic and Cerner.
• Nearly 40% of ECLP revenue supposedly comes from about 20 big customers, with one of those contributing about 10% of the company’s revenue. That one big Eclipsys customer is supposedly North Shore – Long Island Jewish, subject of a September announcement involving its $400 million effort to connect its 7,000 doctors and 13 hospitals with … wait for it … Allscripts. Surely that customer and its Eclipsys relationship had a large impact on the Allscripts acquisition interest. Obviously Allscripts needs to keep NSLIJ very, very happy.
• Eclipsys most likely paid big money for its recent acquisitions, buying the former Medinotes/Bond practice EMR products, EPSi financial management, and Premise throughput management as it desperately sought to diversify away from its at-risk Sunrise user base. Those acquisitions didn’t seem to do much for the company’s performance.
• Eclipsys ran through a long line of executives whose tenures there were unremarkable.
  
  

Some thoughts about Allscripts

• Some of the announcements referred to the deal as a “merger” and some Eclipsys communications implied that Eclipsys was the acquirer, but that’s spin: this is an outright Allscripts buy.
• The new company will have a large footprint, but that’s usually more about sales than it is product performance, integration, or customer satisfaction.
• Glen Tullman is a more competent executive than anyone who has ever run Eclipsys. As was the case with the Misys merger, he gets operational control.
• It’s late in the HITECH land grab to try to integrate companies and products in the hopes that enough hospitals are left that haven’t locked into their vendor partners to prepare for Meaningful Use. This would have been a much better deal a year ago. Companies should be focusing on execution in the heat of HITECH, not trying to bolt two companies together.
• Allscripts will have an even larger roster of competing practice EMR products. Surely they will not all be go-forward products, especially the Allscripts version of MyWay that Aprima (formerly iMedica) sold them while keeping their own rights to it, then vastly improving it to sell under their own name.
• A minimally appreciated benefit of the deal is that Misys, always a stiff and awkward US healthcare IT player that didn’t seem to have its heart in anything but UK banking software, is out of the picture. That should be greatly beneficial to Allscripts.
• We checked the registration date of the new site OneAllscriptsEclipsys.com. It was May 6, two days after Eclipsys announced results.

Thoughts about today’s conference call

• It was touted that both companies run on Microsoft platforms, but the key is whether Allscripts is good at integrating products.
• Glen Tullman says there is little product overlap, but they company will have four PM/EMR products plus Tiger, which is already being retired.
• Sunrise Ambulatory wasn’t on the slides of the combined solution set that we noticed.
• Assuming Peak Practice and MyWay are similar and PeakPractice is the sexier one, will they retire MyWay? It’s sold through the reseller channel, which will make some folks unhappy if so.
• Allscripts needs top-line growth, so the (theoretical) combined market gives it a way to (theoretically) grow.
• Dumping Misys allows Allscripts to control its own destiny, including investing in technology to a degree that Misys was unwilling to do.
• The combined company will enjoy an 8-10% growth rate, the company says, which doesn’t sound impressive if we really are starting the “single fastest transformation in HIT.”
• Helios was mentioned more than once as a go-forward product. It’s the recently announced Eclipsys capability to open up Sunrise to independent developers.
• The usual synergies were proclaimed (firing redundant managers and back-office employees, cutting the cost of running two publicly traded companies, streamlining sales and marketing).
• Allscripts shares were down nearly 10% today. Misys shares were way up on the news it was cashing out. Eclipsys shares were up around 3%. Investors don’t seem to like the deal so far.

Unanswered questions

• What will the go-forward ambulatory products be?
• How will key Sunrise customers react to having their vendor absorbed into a larger entity that has historically had less focus on hospitals?
• What’s the HIE strategy — Medicity, dbMotion, MOSS, something else?
• Will Allscripts EHR clients with IDX financials be a big target for Sunrise?
• What happens to the arguably most valuable Eclipsys executive – John Gomez?
• What’s the benefit of the acquisition to Eclipsys and its customers?
• What happens to sales of both companies now that the merger has been announced, yet won’t be consummated for months? Prospects hate uncertainty and HITECH forces them to decide somewhat quickly.

We hand-picked some of our readers with deep expertise to provide their analysis, some of which we agreed to run anonymously.

Jeffery Daigrepont, SVP, The Coker Group

It’s an interesting merger, but not a surprising development in that Eclipsys and Allscripts were the few remaining vendors without an alignment strategy to the opposite side of the coin. This announcement comes not long after NextGen acquired Opus and Cerner’s more aggressive move into ambulatory. 

Vendors are clearly getting prepared for hospitals getting back into physician employment and their desire to have a single vendor solution. Therefore the market is wanting to have “one throat to choke” when it comes to selecting a vendor for all of its integration needs. I also think Epic is dominating the inpatient space because they have been so far ahead in offering a true integrated solution for several years now. The other inpatient vendors are having to play catch up and it’s faster to merge than try to build. 

The market should expect some clunky workflow for several years while they try to blend together their platforms, although I am sure the spin machine will sell this as one patient record harmonizing seamlessly across every location of care. The press release is already indicating ONE unified record. I just wonder which of the eight EMRs will emerge as the system for housing the ONE record.

It’s also worth pointing out that both vendors have made past unsuccessful attempts in crossing over own their own. Eclipsys acquired Bond Medical a couple of years ago and has not been successful getting it off the ground. Allscripts tried the same with some inpatient technology as well. Neither could penetrate this market.

It’s also going to be interesting to see how the company operates in terms of where and how they focus their attention. For example, Meditech, Cerner, HealthLand, etc. can offer both inpatient and outpatient technology, but no one will ever accuse these of being ambulatory vendors. Vendors will generally tilt in one direction and will also focus their time and efforts accordingly.  

As for the market’s reaction, it’s going to be interesting to see how this ONE new company can manage so many overlapping products and solutions in this new age of certification and system compliance standards. The timing of this merger is interesting because it comes on the heels of Meaningful Use. Does anyone really believe they will keep all of their overlapping systems up to certification? I suspect they will start commercially discontinuing products that are not considered modern, such as all of the Misys baggage on the Allscripts side. 

After this merger, the new company will be trying to support eight EMRs systems and five practice management solutions with a sprinkling of inpatient technology. I could be wrong with this count, but it’s fair to say they have a boat load of duplication, the most of any vendor in the market. Customers buying from this new company should seek protection from their system being discontinued in the next couple of years as they move to their dream of ONE record.

Hospital CIO and Eclipsys Customer

Sounds like Glen Tullman pulled another fast one. This is the same type deal he architected with Misys. Glen controls the management suite, where all the real decisions are made, and the other company controls the board room. 

Non-Competing Vendor CEO

This is an Allscripts response to the NextGen inpatient deal. Allscripts was probably feeling pressure to have a complete solution for the bundled payment/ACO market. They were probably feeling they couldn’t live up to market expectations. This will provide enough accounting confusion for the next several quarters to hide any shortfall in organic performance.

Bill O’Toole, O’Toole Law Group

This is a great move for both companies. Allscripts has proven itself in the ambulatory world. Physicians on a selection team for an HIS at their associated hospitals will look favorably on the new combined company based on their prior experience with Allscripts. Eclipsys gets a new image, sort of like your father’s Oldsmobile being merged with the Corvette. No offense intended to Eclipsys, but in my days at Meditech I was surprised if they were up against us as a finalist. I believe the growth of the combined company will greatly exceed the individual growth expectations of the separate companies.

Investment Banker

The combined business looks great on paper with little overlap in capabilities (PeakPractice being the biggest one) and a substantially bigger platform. The challenge will be integration, of which this will be the largest attempted in this industry for a while. Even though they have a highly talented team, the challenges will be significant.

I would ask why two companies that have strong growth opportunities on their own (as they have constantly communicated to investors) would see the need to take on massive integration risk in a market that presents once in a lifetime growth opportunities.

Eclipsys Physician Practice Customer

I don’t think this’ll have a major impact on my little neck of the trenches for the foreseeable future. These acquisitions / mergers aren’t shocking given that we all know they’re going to happen in this period. I’m guessing bigger ones are in the works even as we type.

Though their press release really doesn’t address it (nor does it address the plans for the “Helios” platform which I hope continues), I know that they’ve recently sold millions of dollars of PeakPractice (originally, Bond Technologies’ “Clinician”) to some large companies and I was told the PeakPractice development team would be receiving even greater resources now. Of course, things do change, including corporate direction, but personally, I’m not worried about my software yet.

Todd Cozzens, CEO, Picis

There is an increasing trend for general practitioners to be employed by hospitals, but an opposing trend that specialist areas like emergency and anesthesia are outsourcing physician services.  So net/net, though on the surface it makes sense to combine the two areas, there is no real market force pushing for an end-to-end hospital-to-physician EHR. To the contrary, the one thing that really is taking off with lightning speed from ARRA is interoperability within and outside the hospital enterprise.

I can cite 10-15 real examples of systems already pushing CCDs among disparate EHRs, for example. Hospitals just aren’t in a position for wholesales swapouts of their IT systems across the board — it’s too disruptive and expensive. The new interoperability mandates will allow more modular approaches to building out EHRs.

With regard to the high acuity market, the merged entity will have an ED product from Allscripts, an ICU product from Eclipsys, and I assume they will acquire an OR product. So they will look like a company that’s serious about high acuity, which I think is good because it endorses our long-held belief that hospitals are becoming big high acuity care centers as the population ages and needs these services more and less acute services move out.

That’s where it stops. Our high acuity suite has been integrated and developed now for seven continuous years, has much deeper functionality, and is much more intuitive than a loose patchwork of independent applications. Our investment in analytics and interoperability with the big EHRs is starting to really pay off as well as we are the go-to, embedded high acuity enterprise suite for a growing number of IDNs. The proof? Tell me which HCIT other than us has taken on over 100 net new hospital customers in the last two years. Not even Epic has done that.

Is it too late in the HITECH game to be making a major acquisition? No, I think they’re trying to build a sort “shadow” Epic and it does make sense, as I said, on the surface. This deal definitely helps Eclipsys a ton more than Allscripts, however. And don’t forget the last time a physician-focused system company took over an in-hospital EMR vendor — IDX taking over Phamis and the subsequent sale of that mess to GE. That was a Harvard business case on how not to execute post-merger.

What happened there is that selling small ticket items to docs is totally different than mega-systems to mega IDNs — it’s kind of like Cessna buying Boeing. And then you have all these legacy technologies and systems — Allscripts with 3-4 legacy physician systems and all the legacy technology still embedded in Eclipsys. Any customer that thinks some sort of new, singular, integrated, magical, cloud-based, miracle hospital / physician solution is going to suddenly appear on the market in the next 5-7 years from this entity will be seriously misguided. Huge execution risk here. Good time to be a duct tape and bailing wire salesman, however.

All the market dynamics are in place for further consolidation. ARRA HITECH and healthcare reform — the perfect storm. I don’t subscribe to the idea that it’ll be Google or Oracle or Microsoft that will drive the consolidation. I think it’s more than just a technology convergence. I see much grayer lines between payors and providers and enabling technology providers that make the system much more transparent for the three P’s – payors, providers, and patients. 

Margin pressures are already forcing payors and providers to both to think very differently. The two things that healthcare reform were supposed to fix — cost and quality — aren’t going to improve at all for the vast majority of patients, providers, and payors. Something has got to give, or else healthcare passes 50% of our GDP by mid-century. If you look at other industries that had this pressure, it was things like supply-chain integration and other forms of co-opetition among former adversaries that drove change and finding ways for all to make money. It’s actually a time of huge opportunity.