Health information technology (IT) vendor McKesson has held talks about merging its IT unit with healthcare technology company Change Healthcare, according to a Reuters article.
Reuters posted an article Tuesday citing sources, specifically, “three people familiar with the matter,” who are reporting that McKesson has explored separating its healthcare IT unit, called Technology Solutions, and combining it with other companies in the sector.
The article stated, “A combination of McKesson’s IT unit with Change Healthcare would create one of the biggest players in the healthcare information technology sector, potentially worth more than $10 billion, including debt, the people said this week.”
According to the Healthcare Informatics 100, which ranks healthcare technology companies based on their 2015 health IT revenue, McKesson Technology Solutions ranks at No. 4 with $3.1 billion in health IT revenue. The company fell one spot from No. 3, where it ranked in 2015 with $3.3 billion in revenue. McKesson’s technology solutions business also consists of RelayHealth, a provider of online physician communication services that McKesson purchased in 2006.
“[RelayHealth] is now seen as being worth around $2 billion, and is widely considered to have significant potential to ramp up future revenues, some of the people said,” the Reuters article stated.
Nashville, Tenn.-based Change Healthcare, formerly known as Emdeon, ranks at No. 11 on the Healthcare Informatics 100 this year, with $1.47 billion in revenue. This year, the company jumped up from the No. 12 spot in 2015 when it reported $1.35 billion in revenue.
Earlier this month came news, via a Wall Street Journal article, also citing “sources familiar with the matter,” that McKesson is “weighing a separation of its IT unit as the health care giant grapples with pricing pressure in its core drug distribution business,” the article stated.
McKesson sold its ambulatory electronic health record (EHR) assets to e-MDs back in March. As previously reported by Healthcare Informatics’ Contributing Editor David Raths, the sale of the ambulatory EHR assets in March had some health IT industry watchers asking if McKesson could also be looking to exit the acute-care space as well.
For instance, Raths reported, David Chou, who is a former CIO at the University of Mississippi Medical Center and now a consultant, posted a video of himself on Facebook saying he thinks there also will be a shakeup on the in-patient side.
There also is speculation that selling its health IT unit would continue McKesson's perceived strategy of shedding assets that are not core to its pharmaceutical distribution business.
Three months ago, Erik Bermudez, research director at KLAS Research, told Healthcare Informatics that based on feedback from McKesson customers it seemed that the company would stay in the acute care health IT business. However, Bermudez also noted that healthcare technology is a small fraction of McKesson’s overall business.
“Pharmaceuticals is a huge portion of their revenue and the healthcare software itself is a small fraction of the overall revenue,” Bermudez said. “On the acute side, they also have a whole services arm, population health services, along with revenue cycle services and back office services.
Looking at the hospital electronic medical records (EMR) space, many hospitals decided not to replace their legacy system for the initial stages of meaningful use, but understood they must upgrade soon. For vendors like McKesson, it raised the question of how many of the hundreds of hospitals on their legacy systems would move to their newer version. And, according to many health IT industry watchers, hospital and health system IT leaders increasingly want EHR/EMR systems with ambulatory and acute care integration. When McKesson sold off its ambulatory EHR assets three months ago that also fueled speculation that the company would sell off its acute care health IT line as well.
According to a KLAS Research report on the acute EMR market and market share in 2014, smaller to midsize hospitals have been overwhelmingly choosing Epic, followed by Cerner, effectively squeezing midtier vendors Allscripts and McKesson from the market. In fact, according to the report, McKesson saw a dramatic decline in new contracts in 2014—from 36 in 2013 to only 4 in 2014. And, according to the KLAS Research report, in 2014, McKesson saw 49 Horizon losses compared to two Paragon Clinicals migrations. In addition, McKesson also had seven Paragon “losses”—most were single implementations of Paragon replaced as part of larger integrated delivery network decisions, the report authors stated.