2014 HIS Vendor ReviewPart 2: High-end Vendors

© 2015 by H.I.S. Professionals, LLC, all rights reserved.

By Vince Ciotti, PrincipalHIS Professionals, LLC

Cerner McK Epic Allscripts GE

High-End Vendors• After summing up the market last week, these 3 episodes delve

into the details of each vendor by their size & target market:

– High-end = large hospitals of 300+ beds, AMCs and IDNs

– Mid-Range = community hospitals of 100-300 beds in size

– Low-end = hospitals of under 100 beds, including CAH

• Interesting how the large size of these high-end vendors’ annual revenue corresponds to the bed size of their target market…

• For high-end vendors, we’ll now cover their:

- Annual revenue in 2014, growth/decline over 2013, and $ HIS-tory over 20+ years

- Product line and target markets for each

- Key statistics: # of employees, offices, etc.

- Candid assessment of future prospects

• It’s staggering to visualize below how much this HIS giant has grown since its humble beginnings in 1979 as “PGI,” the initials of its three founders: Neal Patterson, Paul Gorup, and Cliff Illig.

• Equally impressive is to see how they grew over time to pass every other HIS vendor in annual revenue to become #1 today:

Today’s #1 Vendor

Key Cerner Stats• Equally impressive are their other numbers besides revenue:

– Increase in annual revenue from 2013 of 17% (without Siemens’ $1.2B in revenue that closed in February, 2015)

– 16K total FTEs worldwide (without ≈6,000 Siemens FTEs)

– 18K client “facilities” (includes rest rooms?) in 30 countries

• How did they do it? Like many other high-end vendors, they are diversifying their products and services far beyond pure HIT:

– Medical Devices, Patient Engagement, Physician Practices, Pharmacies, Population Health, Workplace Health…

– Like Medhost & CPSI, their “RevWorks” outsources RCM, and like many HIS vendors, they will outsource the whole IT shop.

– They learned the $ value of “remote hosting” from SMS many years ago, and now run most clients from 2 giant sites in KC. Remote hosting brings in far more revenue than inhouse…

Next Year?• We are bullish on Cerner maintaining this #1 position for years:

– Cerner’s recent acquisition of Siemens offers them unfettered access to the C-suites of almost 1,000 hospitals on Siemens 3 legacy products (Invision, MedSeries, and Eagle), which they will only support for the next 3-5 years, plus Soarian clients who have been promised 10 years of support so far...

– Granted Epic will do well in large Siemens clients that go to market, as will Meditech and Paragon do well in Siemens mid-sized clients that look. But between them, Cerner & Siemens have the two best Sales & Marketing organizations in the industry and they’ll scoop up many with nary an RFP…

• So here’s the new “normal” – after 15 years of annual revenue being dominated by McKesson(which ended a 15 run by SMS), Cerner is now king of the hill, just as its stock is on Wall St!

• Slipping to 2nd place is pharmaceutical giant McKesson whose total revenue in FY 2014 was $138 Billion, up 13%, but whose Technology division reported “only” $3.2B in revenue.

– Like Cerner, McKesson Technology Solutions offers many products and services beyond traditional HIS systems, eg: Relay Health, InterQual, Business Intelligence, Imaging, etc.

– To add to the complexity, their fiscal year end is March, whereas most other vendors are calendar year-end only (exceptions are Siemens & NextGen/QSI), so comparing revenue figures is a bit of an apples to oranges challenge...

• But if we waited until June to see McK’s 2015 annual report, by then Cerner will be a Billion $s higher after the Siemens deal closes! So what the hey, we’ll go with each vendors’ annual report issued during 2014, period.

• Like Cerner, McK has staggering numbers of clients, FTEs, offices, countries, etc., but hard to tell what’s from pharmacy versus IT. Unlike Cerner, however, McKesson has a plethora of products:

– “Legacy” = Series (IBAX 4000, DCC…) & Star (HBOC) in hundreds of small to mid-sized hospitals up to 300 beds.

– Horizon’s suite of systems is gradually being sunset in several hundred large facilities, AMCs and IDNs of 300 beds and up.

– Paragon = their “go forward” product for all bed sizes (!?), built on a pure Microsoft platform with about 300 clients.

• Like Cerner sucking up Siemens’ clients, McKesson will probably do very well converting many Series, Star & Horizon clients over to Paragon, especially now that they are working on an integrated Paragon physician practice system to replace Practice Partners…

McKesson Product Prognosis

• In 3rd place is Judy Faulkner’s incredible machine that has sold almost every large AMC & IDN for the past 5 years (except IHC).

• Their revenue only went up a bit from $1.7 to $1.77 Billion, but with this CMS MU audit paranoia, everyone’s sales are slow...

• They will probably win as much as Cerner from Siemens large hospital clients on Invision & Soarian, at least those who look.

– They are starting to sell internationally as well (eg: Dubai), and have an interesting contract clause called Epic Connect that lets their large clients process smaller hospitals.

– Their new “remote hosting” data center surprised everyone, so future revenue prospects are as solid as WI’s frozen lakes.

• About their only down side would be Judy retiring and her successor changing the company’s winning philosophy, which she has prepared for with her recent charity plan to keep Epic private.

• Epic’s revenue growth is the easiest to explain of all vendors: UP!

Epic Revenue HIS-tory

• In 4th place is Allscripts, a leader in physician practices (both practice management and EHRs), per these recent CMS figures:

• Their “Sunrise” suite of HIS apps should finally score a few sales from Siemens & Horizon client hospitals who actually look...

• Paul Black was one of the driving forces at Cerner during their recent climb, so Allscripts future prospects are fairly positive.

• Hard to remember how long the HIS-tory of this firm is, going from Lockheed to TDS to Alltel to Eclipsys… Here’s the recent $s:

• Alltel had a small revenue jump with the Y2k run-up,

• Eclipsys built up revenue with a series of product acquisitions,

• Then a huge jump in 2011 when Allscripts added their enormous physician practice revenue

Allscripts Revenue HIS-tory

(Y2K)

Allscripts

Eclipsys

TDSAlltel

• In 5th place among the high-end HIS vendors is GE, who got into the HIS market when they acquired IDX’s “CareCast” solid HIS and physician practice products, which GE combined with Logician’s hot physician EHR to build their “Centricity” suite.

• A strong player in the physician practice market (ranked #5 on CMS’ list on the previous page), they have lost a large portion of their IDX HISclients to leaders like Epic & Cerner over the past 5 years without a single recent win.

• They recently sold off BDM’s Pharmacy system, which seemed like the start of their demise in HIS, but their recent acquisition of API (a leader in PR, HR and T & A systems) is quite positive.

• Like other high-end vendors, they have a wide array of non-IT products in their $18B Healthcare division, and we estimate their HIS revenue to be “only” around $800M and probably declining.

Next 2 Weeks• We’ll delve into the details of the remaining 7 HIS vendors’

performance over then next 2 episodes of this review, covering the 2 smaller market segments (in terms of beds and revenue):

– Mid-Size – vendors whose target market includes mainly mid-size hospitals of 100 to 300 beds in size, including Meditech (all 3 product lines), NTT Data (Keane) and QuadraMed.

– Small – vendors whose client base consists of mostly under 100 bed facilities, including CAH (Critical Access Hospitals) of under 25 beds: CPSI, Medhost, Healthland and NextGen.

• With a subject area so wide and deep, I’m sure I got a few things wrong or missed important points, so feedback is welcome at:

vciotti@hispros.com

505.466.4958