An HIT Moment with … Jonathan Phillips

An HIT Moment with ... is a quick interview with someone we find interesting. Jon Phillips is managing director of Healthcare Growth Partners, LLC of Chicago, IL.

What economic and market conditions have most affected vendors in the past year and how does the next 12 months look?

Fundamentally, vendors are indirect victims of the challenges facing their customers. Hospitals have seen access to capital disappear, operating results worsen (due to reductions in elective volumes and increases in Medicaid and self-pay/uninsured visits) and dramatic declines in investment income (which helps to fund operations).

Physicians are seeing operating pressures as well, not to mention the indirect impact of declines in value of real estate and other investments and the effect that has on their ability and willingness to spend. Insurers and suppliers remain profitable, but have become quite cautious as the healthcare reform debate works its way through Washington.

As a result of this pressure on customers, vendors are feeling significant stress related to their financial performance. The capital markets see it differently — HCIT valuations are at or near all-time highs as public investors assume that ARRA-related stimulus spending will drive billions in revenue to vendors in the space. At some point, the capital markets expectations will have to meet the reality of customer spending, or customer spending will have to dramatically accelerate to meet capital markets expectations.

The good news is that we are hearing customer purchasing trends are starting to look up, particularly on the physician side of things. However, given the fact that ARRA actually froze much of the market this year as purchasers have been waiting for clarity, our sense is that there is still a long way to go for vendors to feel that they can achieve strong sales growth.

Spending will likely improve across the board in 2010 with solutions demonstrating clear ROI leading the way. Physician sales of EMRs and related capabilities will continue to be strong as practices position for stimulus benefits. Hospital solutions, payer solutions, and supplier solutions are likely to see cautious growth next year as the implications of any healthcare reform package are weighed with regard to how the new environment will impact IT requirements.

We still see strong interest in “pay as you go” models, providing opportunities for providers to acquire systems capabilities while managing upfront capital outlays. While those types of models seem to be spurring sales, many vendors struggle when making the shift to that type of a model since, absent some type of third-party financing, the “pay as you go” model can wreak havoc on the balance sheet of a company used to selling perpetual licenses.

What will drive the M&A market this year?

The M&A market for the balance of this year and into next will be driven by two main trends. First, you will see an increase in the number of distressed transactions. We look at distressed transactions as ones in which the seller is effectively forced to consummate a transaction, generally due to liquidity (i.e. the company is running out of cash).

We expected the distressed market to pick up sooner than it has, but a number of factors have impacted that part of the M&A market. First, with the potential stimulus spending hanging out there, investors have been willing to continue to fund companies operating at a loss in hopes that revenues will pick up and profitability will be achieved in the near term. Unfortunately for many of those companies, revenue growth will recover, but too slowly for them to reach profitability in a reasonable period.

Second, many companies aggressively cut costs late last year and early this year to extend their financial runway. There is not a lot more “fat” for them to be able to take out of their businesses. The result of these two factors is that a number of companies will likely be at or near the end of their financial runway over the next six months. The closer a business gets to that point, the less leverage it will have in its sale negotiations. As a result, we expect distressed deal volume to pick up.

The second main trend relates to investor expectations versus reality. Because of all of the hype surrounding the stimulus spending on HCIT, healthcare IT stocks have rallied, in many cases to their all-time highs. However, if you look at the results being delivered to date (we’ll see if Q3 continues the trend), revenues have been soft, and earnings improvements have been driven by expense reductions. From our perspective, there is a gap between what the markets expect healthcare IT companies to deliver in revenue growth and what they can deliver organically in the short and mid term.

All of the stimulus talk has actually extended sales cycles, and even as the purchasing environment improves, it will take time for bookings to translate into revenue. Therefore, you will see public and larger private HCIT companies looking to acquisitions to augment their internal growth rates.

What companies need to be bought and which companies need to buy someone?

As we mention above, larger companies facing the reality of their sales efforts will need to buy revenue to augment their organic growth. These targets will most likely fall into two categories — share buys and technology buys. Share buys are situations where the acquirer cares little about the target’s capabilities. They are primarily interested in their customers and the opportunity to either up-sell or cross-sell those customers new solutions. Technology buys are intended to broaden an acquirer’s capabilities, using the acquirer’s distribution reach to push a strong product out to a broader customer base.

In terms of companies needing to be bought, if a business has less than six months’ cash on hand, they should be aggressively pursuing an exit, whatever products and solutions they offer. Often we see businesses waiting, hoping that they will be able to raise money or that the market will quickly improve. When those hopes fail, the outcome is generally far worse for employees, shareholders, and customers than it would have been if the business had elected to pursue an orderly exit process rather than an accelerated distressed sale.

If you were launching or buying a start-up, what niche would you go after?

We’d go after a “lowest common denominator” physician-focused EMR that qualifies for meaningful use and that is seamlessly integrated into a physician’s workflow. This type of a solution would likely be a hybrid offering, providing for electronic documentation and order entry but doing it in a way (perhaps with scanning or e-forms) that works with existing clinician workflow. The solution would be priced very aggressively on a subscription basis and would be offered as a Web-based service. We think that a simple offering like this would have the chance to revolutionize the market by being rapidly adopted by small physician groups.

What kinds of vendors will benefit most from stimulus money, both in the short and long term?

Depending on how meaningful use is defined, vendors most likely to benefit are those that help providers qualify for incentives at the lowest cost.  We also see incumbent HIT vendors in hospitals benefitting as they can help shape hospital spending to hit compliance levels.

The other group that is definitely seeing growth is the consulting side of the business- it seems that many organizations are looking to consultants to help them plan their approach to become meaningful users. Those consultants are likely to continue to benefit as organizations implement the solutions that they recommend. However, most vendors probably won’t benefit quite as much as the markets think — “up to $19B” and “incentives” doesn’t mean that the proceeds go directly to HCIT, it just means that providers are rewarded for utilizing HCIT. There’s a big difference.

It is also important to remember that the government gives and the government can take away. We are highly skeptical of business plans built on the basis of attracting stimulus money. It is important to remember that fundamentally the stimulus incentives are being paid to encourage providers to do something that nearly everyone agrees is in the best interest of the healthcare system. As unlikely and unfair as it might seem, it would not be out of the realm of possibility to imagine a scenario where incentive payments are drastically reduced to help cover some other government shortfall.

News 10/22/09

Aprima Medical Software announces its EHR and PM systems are compatible with Microsoft Windows 7. Seems like new Microsoft updates always get everyone in a tizzy as companies figure out the nuances of the new O/S to ensure it works with the latest application software. I must say I will not be purchasing and loading the Windows 7 upgrade on the day it is released (October 22nd.) I’ll stick with Vista for now, with all the flaws I’ve already uncovered.

The American Academy of Professional Coders introduces an online ICD-10-CM code conversion tool that converts ICD-9-CM codes to ICD-10-CM codes (and vice versa). The tool is free and looks pretty easy to use, even for someone who knows nothing about coding (like me). Note that the site doesn’t provide any sort of data conversion of your existing files, but advises you which ICD-10 codes will take the place of the current ICD-9 scheme.

A Canadian medical office experiences every practice’s worst EMR nightmare: the permanent loss of patient data. Fairview Medical Clinic in Alberta loses all its electronic patient records from 2004 and 2005 when it switches EMRs. Ouch.

Here’s a great, feel-good story. Gateway EDI donates $10,420 to the Denver affiliate of Susan G. Komen for the Cure. At last week’s MGMA meeting, Gateway EDI pledged to donate $5 for every attendee who allowed the company to swipe their card. Because attendance numbers were down over last year, card swipes also fell 17% from last year. So, Gateway threw in some extra money to help a great cause.

The teleradiology market is expanding slower than it was a few years ago. Off-hours teleradiology services increased from 15% to 44% from 2003 to 2007, but appears to be leveling.  The fastest growth is in small, city-based practices that don’t serve hospitals.

Perhaps the slowed growth is tied to inadequate reimbursement from private insurance, as this article suggests. Proponents of new digital and mobile technologies are encouraging new policies that “recognize the virtues” of telemedicine.

By the way, teleradiology company Virtual Radiologic upgrades its vRad Enterprise Connect product work with new mobile device and speech recognition support.

More and more doctors are saying voice recognition software is now ready for prime time. Updates to products such as Nuance’s Dragon NaturallySpeaking have made speech recognition more accurate and robust, making them an increasingly popular EMR input option.

TransforMED, a wholly-owned subsidiary of AAFP, partners with Welch Allyn to help physicians pick their EHR vendor. Even though my initial (cynical) reaction was that practices would only be directed to vendors offering connections to Welch Allyn’s devices, the offering actually looks pretty good. Welch Allyn breaks out its EHR Prep-Select Program into three tiers, based on how much help each practice thinks its need. And, the consultants have solid experience. I’d be curious to hear feedback on their services.

Epocrates announces that its drug reference will run on BlackBerrys.

University Children’s Eye Center (NJ) selects SRS’s hybrid EMR product. The Eye Center’s physicians are on faculty at RWJU and St. Peter’s University Hospital.

Nuesoft Technologies launches a new EHR offering, NueMD. It is CCHIT-certified but only for 2007 standards (why not go all the way if you are building a new product?) The EHR fully integrates with Nuesoft’s PM product to comprise NueMD Complete.

GE introduces a cool new ultrasound device it claims could become the “stethoscope of the 21st century.” The pocket-size device, which is about the size of an iPhone, includes a video screen and has an attached wand with a sensor.

E-mail Inga.

News 10/20/09

GE announces ugly Q2 numbers, which included a 20% drop in earning for the healthcare division. The company as a whole reported a 17% decline in revenue and EPS of $.26 vs. $.54.

You know the ambulatory EHR business is heating up when the big hospital guys are hustling to get a piece of the action. Cerner partners with CDW Healthcare to promote its PowerWorks product, marking the first time that Cerner has teamed up with a national channel partner to offer its complete ambulatory suite of products. And, Healthcare Management Systems, another seasoned hospital vendor, announces a new ambulatory EMR/PM offering called HMS Ambulatory EMR. Of course HMS plans to tightly integrate the product with its inpatient offering (just like Cerner seamlessly integrates all its products). It’s not as if the hospital vendors are just now realizing the importance of aligning with the ambulatory world; rather, everyone seems to be angling for the best possible market position in anticipation of a flood of EMR sales.

Cardinal Health strikes a deal with Orchard Software to distribute Harvest LIS and Pathology Diagnostic IS, which are typically sold in physician offices. Cardinal’s sales force will provide additional feet on the street trying to sell the Orchard products. Yet another example of a big healthcare player that probably paid little attention to the ambulatory world a year ago.

I recently accompanied a family member to a doctor’s appointment and of course took note of the technology in place. We were at a large, single specialty clinic and my family member’s doctor used an EHR, complete with pretty graphs to take home. However, the practice as a whole did not have an EHR, which is curious. As we waited in the exam room, I overheard the front desk calling to remind patients of their upcoming visits. We were handed a paper prescription as we checked out.  And, when the follow-up appointment was made, the receptionist used a NCR duplicate reminder form. I asked what the other copy was for and was told it would go in the patient’s chart. Alas, a reminder that HIT has a long way to go in many practices.

athenahealth completes its $22.3 million all-cash purchase of Anodyne Health Partners.

Iowa Health System and Allscripts launch ePrescribe Iowa, in which physicians will be offered a free Web-based e-prescribing tool.

A New York Times article says that time pressures, mandatory multitasking, and real-time attention demands (including EMRs) are burning out doctors who no longer have any contemplative time.

There is likely correlation between those stresses and the decline of physician-owned practices. The NEJM estimates the number of doctors owning at least part of a practice has been declining 2% annually for the last 25 years. Financial realities and quality of life issues contribute to this trend. However, I can remember growing up in a world when single families owned the corner grocery store, or a local garage, or the pharmacy. Perhaps the big hospital chains are simply the healthcare version of Walmart and CVS.

UnitedHealthcare and Centura Health (CO) select three rural health clinics for its telehealth pilot program. The clinics participating in the Connected Care program will have the ability to link with remote medical specialists using audio/video technologies and health resources.

Researchers find that in some cases a patient’s de-identified data can be re-identified based on correlating anonymous information left in cyberspace. The researchers were able to re-identify private Netflix data, leading privacy advocates to suggest the same thing can be done with medical information. Privacy rights advocate Dr. Deborah Peel points out there are currently no federal laws prohibiting re-identification. Before anyone tries to re-identify my private data, I’d like the record to reflect that The Sound of Music is my all-time favorite flick.

Regional health insurer MVP Health Care announces plans to reimburse 22,000 physicians using RelayHealth’s webVisit consultations. MVP is partnering with IPA Mohawk Valley Medical Associates (NY) to offer physicians immediate reimbursement and subsidies to defray deployment expenses for the RelayHealth service.

Surescripts says it is adopting a new version of a technical standard being recommended as part of the HITECH act. The new standard allows physicians to use EHR software to electronically access prescription information from pharmacies and health plans. Interestingly, CMS has yet to adopt the standard — though Surescripts is ready, just in case.

E-mail Inga.

From MGMA 10/14/09

What is missing from this picture? If you guessed a crush of people, you are correct! I took this shot in the early afternoon, while most attendees were hunkered down in the educational sessions. Admittedly, during the breaks, attendees made their way to the exhibit hall. Attendees were offered a free lunch and had to walk to the back of the exhibit hall to reach the food, so that obviously gave traffic a boost.

Speaking of the free lunch: like a free EMR, free isn’t always cheap enough. Barbeque sandwiches and corn on the cob. I pitied an exhibitor who had barbeque sauce splash all over her white shirt. I’m sure it was plenty tasty, but it looked a bit too messy and was not what my palate had in mind.

The best session I sat in was “HITECH Action Plan: EHR Incentive Payments and Practical Implementation Issues.” Rosemarie Nelson, who is a principal at MGMA Health Care Consulting Group and an obviously seasoned presenter, offered straightforward advice for administrators looking to move to EHR and qualify for stimulus funds. Some of the tidbits were very simple, but perhaps not something every practice knows: standardize over customize, get a lawyer to review your EHR contract, find a non-techie doctor to be a champion. Her co-presenter was attorney David Schoolcraft, who also supplied good commentary. Based on the questions from the audience, it’s obvious there is still a lot of confusion about what it will take to get stimulus funds. And, I would guess the majority of people in that room (maybe 300?) did not have an EMR in place. In an attempt to stress urgency and warn practices that meaningful use won’t happen overnight, Nelson pointed out that going to EMR was a bit like have a baby: no matter how hard you try, it still takes nine months.

I noticed that sessions that covered financial strategies were packed. I didn’t sit in any, but obviously the money side of the practice is a top priority for administrators at the moment.

I know I mentioned this already, but NextGen has a cool-looking booth. I said spaceship before, but I am changing that to space station. And I was mesmerized by the screen used by the demo guy. (Sorry the above picture is a bit blurry. I was trying to be sly and I didn’t get up quite close enough.) The screen is just like an iPhone and totally touch screen. I have seen them before, but I have to say that anyone a little bit techie can be easily sucked into watching just because the technology is so fun.

A reader sent a note informing me that I should have named the MED3OOO guys to the best dressed list. They had some sort of “come bond with us” theme and all the guys were dressed up in tuxes, a la James Bond. I also noticed a couple of Bond girls (the kind Mr. H would appreciate).

Futurist Mark Anderson helped sponsor the Digital Physician Educational Pavilion, which got screwed with a lousy booth location. The premise was to have two different communities set up and demonstrate interoperability, including how practices with different EMRs can connect via an HIE application. It looked like about 10 different vendors participated. However, their space was past all the regular booths, and not even near where they were serving the free lunch. It’s too bad because it had the potential to be a great educational tool for participants.

As I reflect on what I learned over the last couple of days, I fear that a lot of practices are not going to be ready for 2011 stimulus money — and that may be a conscious choice on their part. The money incentives and penalties may not be enough to effect change. And, doctors may not finding the products that allow them to maintain productivity, regardless of effect on quality of care. There are still plenty of seemingly successful vendors that are pushing products that automate some processes that aren’t full-blown EMRs, and they’ll continue to have some short-term success. With the current economic environment and uncertainty in healthcare legislation, practices are going to be holding their pocketbooks close for a little bit longer. If a practice has the money and inclination for change, there is plenty of innovative technology (from some of the  big-name players as well as lots of little guys).  No doubt it’s still a pretty dynamic and exciting time to be in HIT.

E-mail Inga.

From MGMA 10/13/09

Mr. H chastised me last night for not providing adequate trinket and fashion updates, so I’ll start out with the really important  stuff.

Fashion: a lot of function over fashion, especially given how sprawling the convention center is. Thankfully ,there are some golf carts (sponsored by RelayHealth, I believe) that will take you from one end of the center to the other. However, a few brave souls would make my mother proud and have worn some stylin’ pumps. I think I saw particularly lovely pair at either the eClinicalWorks or Sage booth.

Trinkets: I am looking over my stash of goodies collected yesterday. The pocket-size Sudoku game, courtesy of MPV, should be fun. The horse beanie baby was from Zirmed (they are based in Lexington, hence the horse theme). The wad of money pictured above is actually a tightly wrapped tee shirt with a $1,000,000 bill on the cover (the lady at Intuit booth told me I’d look like a million bucks in the shirt). The exercise tube from IntegrityRehabGroup doubles as a water balloon launcher (you can never have too many of those.)

In addition to all the goodies I picked up, there are far more items that I have failed to win, such as iPods, iPod Touches, a Caribbean cruise (courtesy of Capario), a car (from Navicure), and a Tiffany’s necklace (a transcription service – don’t recall the name).

Monday afternoon I noticed a three-deep crowd in front of the SRSsoft booth and was impressed that so many people wanted a demo. Turns out they were giving out $500 and you had to be present to win (I didn’t win, but a very excited woman was being hit up to take her crowd to dinner.)

I’ve asked many folks for their impression of the meeting thus far, and what they think the buzz is. The down economy seems to be a big concern, with practices feeling the crunch more than ever (lower reimbursements, lower patient volumes, higher overhead). Vendors have said that, unlike years past, they don’t have people asking for demonstrations with the intent to actually make a purchase decision in the near term. The EMR vendors especially have mentioned this. On the other hand, several vendors claim the best thing about the meeting is the opportunity to network with other vendors. I saw perhaps half a dozen booths that had a vendor name displayed but the vendor was a no-show. Sign of the economic times, I suppose.

I did see some new technology worth a mention. Last month Intuit announced the launch of Quicken Health Bill Pay and yesterday Allscripts announced it signed on as a reseller. Essentially Intuit pulls A/R data from a practice’s system and as soon as a patient owes money, they are sent an e-mail. The patient can click on the e-mail to find easy-to-understand details on what is owed, what insurance paid, and what procedures were done. Then, they can pay online. The service is $25/doctor/month. It’s very user-friendly, in the same way Quicken or Turbo Tax is. Good stuff.

McKesson is announcing today Bright Note Technology, which works with their ambulatory EMR products to help populate the chart note. The aspect that sounds particularly intriguing is that it works with Dragon Naturally Speaking and actually translates the dictation into searchable patient data. I’m heading over to the Nuance booth this afternoon to check it out.

I also looked at a product called Shareable Ink, which is a new company started by PatientKeeper co-founder Stephen Hau. Their product uses a digital pen to capture billing and EHR data on a printed form. Using wireless or Bluetooth technology, the data can then be uploaded into a billing or EHR system. I think the product has the potential to be a hit with specialties such as anesthesia and ER, where doctors are still clinging to their paper records.

Off to check out some educational sessions this a.m. By the way, if you see one of the HIStalk sponsor signs, please be sure to tell the vendor thanks for their support!

E-mail Inga.