2016 HIS Vendor ReviewPart 2: High-end Vendors

© 2016 by H.I.S. Professionals, LLC, all rights reserved.

By Vince Ciotti & Elise AmesHIS Professionals, LLC

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

delve into the details of the vendors by 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 size of most of these vendors’ annual revenue corresponds to the bed size of their target market…

• For each vendors, we’ll delve into their:- Annual revenue in 2015, 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:

#1 =

• Equally impressive is to see how they passed every other HIS vendor in annual revenue over the past 35 years to become #1 the past 2 years, a position they’ll likely keep for some time:

2nd Year in a Row as #1!

Recent Cerner Developments• Some other developments in 2015 have helped Cerner grow:– Increase in annual revenue from 2014 of 30%, due mainly to

Siemens’ $1.2B in revenue that closed in February, 2015.– 17K FTEs worldwide were asked to sign agreements limiting

rights to sue the company in return for annual increases.• How do they make so much? Like most high-end vendors, they

are diversifying their products and services far beyond pure HIS:– Medical Devices, Patient Engagement, Physician Practices,

Pharmacies, Population Health, Workplace Health…– Like Evident (CPSI) & Medhost, their “RevWorks” division

outsources RCM, and Cerner outsources entire IT shops, a huge boost to revenue transferring millions of Payroll $s...

– They learned the $ value of “remote hosting” from SMS many years ago, and now run all their clients from 2 giant data centers in KC. Remote hosting brings in far more revenue!

Next Year?• We are bullish on Cerner maintaining the #1 position for years:– Cerner’s acquisition of Siemens gives them access to the C-

suites of hundreds of hospitals on aging systems like Invision & Medseries, many of which will drink the KC Kool-Aid...

– Cerner’s huge win of the DoD contract worth ≈$10B was a major coup in 2015, although most of that revenue will go to their “consulting” firm partners Leidos and Accenture.

(can anyone remember when “consultants” were independent experts who gave advice and then left, leaving the work for HIS vendors?)

– Cerner also scored many other wins last year, such as the Great Plains Health Alliance in their home state of Kansas.

• 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 again is pharmaceutical giant McKesson whose total revenue in FY 2015 was $179 Billion, up 30% from 2015, but their Technology division dropped 8% to ≈$3B.– 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, which is why we have to wait until April to run this revenue report.

• Other bad news in 2015 for McKesson:- Rumors about their entire technology

division possibly being up for sale…- Retirement of VP Jim Pesce who saved

Paragon from sunset circa Y2K.

McKesson Revenue History• Here’s McKesson’s revenue history since the days of HBO back

in the 80s. A bit of a roller coaster ride around Y2K when McKesson bought HBOC, found they had cooked the books, and then slowly built things up through many acquisitions:

• Like Cerner, McK has a huge numbers of clients, FTEs, offices, countries, etc., but hard to tell what’s from pharmacy versus IT. Unlike Cerner, however, McKesson has four diverse HIS products:– “Legacy” = Series (IBAX 4000, DCC…) & Star (HBOC) in a few

hundred small and mid-sized hospitals of up to 300 beds.– Horizon’s suite of systems which is being sunset, with the

handful who tried to convert to Paragon failing miserably...– Paragon = their “go forward” product implemented in about

300 small to mid-sized hospitals is their one bright spot.• McKesson did deliver an integrated Paragon

MD practice management system (reg, sched & BL/AR), that replaced the interfaced Practice Partners (sold to eMDs), but their promised integrated EMR module has now been deferred again, thus time to mid-year 2017…

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 (e.g.: Mayo).

• Their revenue went up 14% from $1.7 to $2 Billion in 2015, amazing considering almost every hospital by now has an EMR so the number of system selections has been relatively slim…

• They will probably win as much as Cerner from Siemens’ large hospital clients on Invision & Soarian, at least those who look.– They have an interesting contract clause called Epic Connect

that lets their clients process small neighboring hospitals.– Their new “remote hosting” data center surprised everyone,

so future revenue prospects are as solid as WI’s frozen lakes.• As SMS & Cerner have proven, remote hosting

increases revenue enormously over inhouse processing; like Meditech, Epic has not sold hardware, lowering past revenue substantially.

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

Epic Revenue HIS-tory

• In 4th by revenue is Allscripts with $1.3B, a slight increase from 2014; they are far stronger in the MD niche where they placed 2nd place in MD attestations, per these recent 2015 ONC figures:

• Their “Sunrise” suite of integrated MD/HIS apps should sell to some Siemens & Horizon hospitals who actually go to market...

• Paul Black was one of the driving forces at Cerner during their past growth, so Allscripts’ future prospects are fairly strong.

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

• 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

• We dropped GE from our Top HIS Vendor list this year due to their shrunken number of “Centricity” hospital clients - only 11 attestations per the ONC list. GE had acquired it from IDX as “CareCast,” re-named from “LastWord” and “PHAMIS”...

• GE remains a very strong player in the MD practice market (ranked #5 on ONC’s list of attestations), but they have lost so many hospitals to leaders like Epic & Cerner over the past 5 years that they’re hardly an HIS player.

• Like other high-end vendors, they have a wide array of non-IT products in their $20B+ Healthcare division, and we estimated their HIS revenue to be “only” around $800M last year, mostly from physicians and ancillary department systems like OB monitors. We will feature them prominently in our review of physician systems, which will follow this HIS vendor review.

Dropped:

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

performance over then next episodes of this review, covering the two 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, and the 2 latest new entrants into the hospital market: eClinicalWorks and athenahealth..• With a subject area so wide and deep, we’re sure we got a few

things wrong or missed some points, so feedback is welcome at: vciotti@hispros.com eames@hispros.com 505.466.4958

413.329.6925