BREAKING: Industry Analysts React as Allscripts Pays $185 Million for McKesson’s Enterprise Information Solutions | Healthcare Informatics Magazine | Health IT | Information Technology Skip to content Skip to navigation

BREAKING: Industry Analysts React as Allscripts Pays $185 Million for McKesson’s Enterprise Information Solutions

August 3, 2017
by David Raths and Rajiv Leventhal
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Says one industry watcher, “The price [of the deal] was a low one; it’s a fixer-upper in a bad neighborhood. McKesson wanted to get rid of it.”

Last year when McKesson Corp. announced the creation of a new healthcare information technology company with Change Healthcare, it also said it would seek strategic alternatives for its EHR-focused business unit and promised a smooth transition for its customers. On Aug. 3, Chicago-based Allscripts (NASDAQ:MDRX) announced it has agreed to pay approximately $185 million in cash to acquire McKesson’s (NYSE:MCK) hospital and health system IT business, Enterprise Information Solutions. 

The Enterprise Information Solutions portfolio includes Paragon (EHR); STAR and HealthQuest (revenue cycle solutions); Lab Analytics and Blood Bank; and OneContent (content management solutions).

Previously, McKesson had divested itself of ambulatory EHR assets. In March 2016 the company, which ranked No. 4 on the 2017 Healthcare Informatics 100 with $2.8 billion in HIT revenue, agreed to sell several of its ambulatory EHR assets to Austin, Texas-based e-MDs. Included in the sale were McKesson Practice Choice, its cloud-based EHR; its Medisoft and Lytec MD server-based EHRs; and Practice Partner, its practice management software.

Allscripts said that after the transaction closes, the combination of Paragon and Allscripts Sunrise hospitals will double the company’s EHR hospital client count in the United States.

“Adding these assets to Allscripts existing portfolio enables us to better serve our clients, increase our scale and further drive our investment in innovation,” said Allscripts CEO Paul Black in a prepared statement. “The healthcare IT market remains highly fragmented. Today’s announcement is a proactive and strategic measure to maintain Allscripts’ long-term leadership and position Allscripts for continued growth.”

John H. Hammergren, chairman and chief executive officer, McKesson, noted in a statement, “We have selected a company that can serve the long-term interests of our customers and has the experience and capabilities to deliver value through its population health, precision medicine, consumer and care management solutions. The conclusion of this process demonstrates our commitment to support the success of our hospital customers and provide growth opportunities for Enterprise Information Solutions employees.”

Allscripts, which ranked No. 13 on the 2017 Healthcare Informatics 100 with $1.3 billion in revenue, stressed that it would invest in and continue to offer Paragon as its integrated EHR and revenue cycle management solution for the small hospital market segment, while Allscripts Sunrise will continue as the primary platform for larger institutions.

Industry Observers React

Given the moves that McKesson has made in the health IT market in the last 12 to 18 months, industry watchers seem not at all surprised that the company ended up selling off its hospital and health system IT business. Ben Rooks, founder of strategic and financial advisory firm ST Advisors, says that this latest deal was a “finishing off of the Change Healthcare transaction.” He notes that it was well-known that McKesson had been looking for a home for these assets for the past few years, and that it was not a matter of if, but when they would close a deal. “The price [of the deal] was a low one; it’s a fixer-upper in a bad neighborhood. McKesson wanted to get rid of it. I think it’s safe to say that it was broadly shopped and that this was the best they could do,” says Rooks. An analysis of the deal from Jamie Stockton, senior analyst at Wells Fargo, also noted that Allscripts bought McKesson’s hospital software business “on the cheap.”

Rooks notes that while this move on the part of Allscripts carries some risk with it, it would have been far riskier had the price been higher. He says Allscripts bought the assets at a price that “buffers the execution risk,” and that in his view, “the product is not great and its customers are not incredibly happy.” Adds Michelle Mattson-Hamilton, associate principal at ST Advisors, “The deal is about McKesson doing what they needed to do to move back to their core, and Allscripts doing what they needed to do to maintain relevance.”

A key question that will emerge is if this acquisition could tighten the gap that currently exists between the two dominant vendors in the marketplace—Epic and Cerner—and others. Rooks notes that Allscripts needed to do something to this effect to maintain its market relevance and perhaps close up that gap. “You have two sides of the Cold War with Epic and Cerner battling it out, and Allscripts is one of the non-aligned states. They can take some customers of course, but I don’t think it will end up being [substantial],” he says.

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