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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.”

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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.

Noted Wells Fargo’s Stockton in the above-mentioned analysis, “More importantly, [the deal] gives Allscripts more logos in a hospital landscape what has been increasingly dominated by Cerner and Epic. Choosing Sunrise on the high end or Paragon on the low end should now seem like a safer idea.”

Coray Tate, KLAS vice president of clinical research, agrees that since Epic and Cerner are so dominant in the market, the other EHR players aren’t “throwing big rocks into their pond at this point.” But that said, notes Tate, Allscripts was one of just four EHR companies that had net positive growth last year. “So they are hanging in there and they are actually picking up market share, and this deal does double their market size,” Tate observes. He adds, however, that Paragon has been in a state of limbo over the last year or so, with customers leaving and no net wins to speak of in the last year.

To this point, another question that comes with this deal centers around the Paragon customer base, which Tate—who has worked intimately with both companies over the years—says has been in limbo for quite some time with rumors swirling that McKesson was looking for a sale. He notes that Paragon customers have been through an interesting history with McKesson from the pre-meaningful use days in which expectations were reasonably set and everyone was happy. But then came meaningful use and all of the requirements that came with it, and it was at that same time when McKesson decided to shift resources away from its Horizon product with the goal to have Paragon step up and take on bigger hospitals, he explains. “Paragon was then asked to be more than just a community solution by being able to organize billing and other things, as meaningful use pushed clinicians to be much more involved. So you had to meet the expectations of bigger hospitals. They got hit with a perfect storm,” says Tate.

However, he notes that soon after that, the rumblings about poor coding quality with Paragon diminished and the quality of its updated releases started to get better. So while the customer base doesn’t have all they want at this point with Paragon, their EHR has been more stable and on a steadier path of progression, he attests.

Tate draws a parallel of this acquisition to Cerner’s purchase of Siemens' health IT division a few years back, though he cautions that there are some differences. For one, Cerner at the time bought what it thought was the leading-edge technology on the market, Soarian. But that customer base was different than Paragon’s, as it was a group with more money and more options. On the contrary, most Paragon customers likely bought the solution due to its lower cost compared to other market options. To this point, Tate says that KLAS will likely do a survey a few months down the road to gauge how the deal has landed with the Paragon customer base.

In the end, Tate notes that Allscripts has purposely tried to be the vendor that ties things together, with offerings such as dbMotion and a focus on population health. The company has tried to facilitate what’s going on without having to be the monolithic solution. “That’s who they are openly trying to be,” he says. “So from that standpoint, this move creates energy and doubles its customer base.”

One more point Tate makes is that Allscripts is also an international EHR company and has traction in other countries, so this gives them another option since pricing is a bigger issue internationally than it is in the U.S. “Paragon might now be a viable option outside the U.S; it was never offered as one when it was with McKesson,” he says. 

This transaction is expected to close early in the fourth quarter of calendar 2017, subject to closing conditions, including the expiration or termination of the waiting period under U.S. antitrust laws.

In its second-quarter 2017 earnings statement, Allscripts posted revenue of $426 million, up 10 percent from last year.


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Allscripts Sells its Netsmart Stake to GI Partners, TA Associates

December 10, 2018
by Rajiv Leventhal, Managing Editor
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Just a few months after Allscripts said it would be selling its majority stake in Netsmart, the health IT company announced today that private equity firm GI Partners, along with TA Associates, will be acquiring the stake held in Netsmart.

In 2016 Allscripts acquired Kansas City-based Netsmart for $950 million in a joint venture with middle-market private equity firm GI Partners, with Allscripts controlling 51 percent of the company. With that deal, Allscripts contributed its homecare business to Netsmart, in exchange for the largest ownership stake in the company which has now become the largest technology company exclusively dedicated to behavioral health, human services and post-acute care, officials have noted.

Now, this transaction represents an additional investment for GI Partners over its initial stake acquired in April 2016, and results in majority ownership of Netsmart by GI Partners.

According to reports, it is expected that this sale transaction will yield Allscripts net after-tax proceeds of approximately $525 million or approximately $3 per fully diluted share.

Founded 50 years ago, Netsmart is a provider of software and technology solutions designed especially for the health and human services and post-acute sectors, enabling mission-critical clinical and business processes including electronic health records (EHRs), population health, billing, analytics and health information exchange, its officials say.

According to the company’s executives, “Since GI Partners' investment in 2016, Netsmart has experienced considerable growth through product innovation and multiple strategic acquisitions. During this time, Netsmart launched myUnity, [a] multi-tenant SaaS platform serving the entire post-acute care continuum, and successfully completed strategic acquisitions in human services and post-acute care technology. Over the same period, Netsmart has added 150,000 users and over 5,000 organizations to its platform.”

On the 2018 Healthcare Informatics 100, a list of the top 100 health IT vendors in the U.S. by revenue, Allscripts ranked 10th with a self-reported health IT revenue of $1.8 billion. Netsmart, meanwhile, ranked 44th with a self-reported revenue of $319 million.

According to reports, Allscripts plans to use the net after-tax proceeds to repay long-term debt, invest in other growing areas of its business, and to opportunistically repurchase its outstanding common stock.

The transaction is expected to be completed this month.

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Study Links Stress from Using EHRs to Physician Burnout

December 7, 2018
by Heather Landi, Associate Editor
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More than a third of primary care physicians reported all three measures of EHR-related stress
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Physician burnout continues to be a significant issue in the healthcare and healthcare IT industries, and at the same time, electronic health records (EHRs) are consistently cited as a top burnout factor for physicians.

A commonly referenced study published in the Annals of Internal Medicine in 2016 found that for every hour physicians provide direct clinical face time to patients, nearly two additional hours are spent on EHR and desk work within the clinic day.

Findings from a new study published this week in the Journal of the American Medical Informatics Association indicates that stress from using EHRs is associated with burnout, particularly for primary care doctors, such as pediatricians, family medicine physicians and general internists.

Common causes of EHR-related stress include too little time for documentation, time spent at home managing records and EHR user interfaces that are not intuitive to the physicians who use them, according to the study, based on responses from 4,200 practicing physicians.

“You don't want your doctor to be burned out or frustrated by the technology that stands between you and them,” Rebekah Gardner, M.D., an associate professor of medicine at Brown University's Warren Alpert Medical School, and lead author of the study, said in a statement. “In this paper, we show that EHR stress is associated with burnout, even after controlling for a lot of different demographic and practice characteristics. Quantitatively, physicians who have identified these stressors are more likely to be burned out than physicians who haven't."

The Rhode Island Department of Health surveys practicing physicians in Rhode Island every two years about how they use health information technology, as part of a legislative mandate to publicly report health care quality data. In 2017, the research team included questions about health information technology-related stress and specifically EHR-related stress.

Of the almost 4,200 practicing physicians in the state, 43 percent responded, and the respondents were representative of the overall population. Almost all of the doctors used EHRs (91 percent) and of these, 70 percent reported at least one measure of EHR-related stress.

Measures included agreeing that EHRs add to the frustration of their day, spending moderate to excessive amounts of time on EHRs while they were at home and reporting insufficient time for documentation while at work.

Many prior studies have looked into the factors that contribute to burnout in health care, Gardner said. Besides health information technology, these factors include chaotic work environments, productivity pressures, lack of autonomy and a misalignment between the doctors' values and the values they perceive the leaders of their organizations hold.

Prior research has shown that patients of burned-out physicians experience more errors and unnecessary tests, said Gardner, who also is a senior medical scientist at Healthcentric Advisors.

In this latest study, researchers found that doctors with insufficient time for documentation while at work had 2.8 times the odds of burnout symptoms compared to doctors without that pressure. The other two measures had roughly twice the odds of burnout symptoms.

The researchers also found that EHR-related stress is dependent on the physician's specialty.

More than a third of primary care physicians reported all three measures of EHR-related stress -- including general internists (39.5 percent), family medicine physicians (37 percent) and pediatricians (33.6 percent). Many dermatologists (36.4 percent) also reported all three measures of EHR-related stress.

On the other hand, less than 10 percent of anesthesiologists, radiologists and hospital medicine specialists reported all three measures of EHR-related stress.

While family medicine physicians (35.7 percent) and dermatologists (34.6 percent) reported the highest levels of burnout, in keeping with their high levels of EHR-related stress, hospital medicine specialists came in third at 30.8 percent. Gardner suspects that other factors, such as a chaotic work environment, contribute to their rates of burnout.

"To me, it's a signal to health care organizations that if they're going to 'fix' burnout, one solution is not going to work for all physicians in their organization," Gardner said. "They need to look at the physicians by specialty and make sure that if they are looking for a technology-related solution, then that's really the problem in their group."

However, for those doctors who do have a lot of EHR-related stress, health care administrators could work to streamline the documentation expectations or adopt policies where work-related email and EHR access is discouraged during vacation, Gardner said.

Making the user interface for EHRs more intuitive could address some stress, Gardner noted; however, when the research team analyzed the results by the three most common EHR systems in the state, none of them were associated with increased burnout.

Earlier research found that using medical scribes was associated with lower rates of burnout, but this study did not confirm that association. In the paper, the study authors suggest that perhaps medical scribes address the burden of documentation, but not other time-consuming EHR tasks such as inbox management.

 

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HHS Studying Modernization of Indian Health Services’ IT Platform

November 29, 2018
by David Raths, Contributing Editor
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Options include updating the Resource and Patient Management System technology stack or acquiring commercial solutions

With so much focus on the modernization of health IT systems at the Veteran’s Administration and Department of Defense, there has been less attention paid to decisions that have to be made about IT systems in the Indian Health Service. But now the HHS Office of the Chief Technology Officer has funded a one-year project to study IHS’ options.

The study will explore options for modernizing IHS’ solutions, either by updating the Resource and Patient Management System (RPMS) technology stack, acquiring commercial off-the-shelf (COTS) solutions, or a combination of the two. One of the people involved in the analysis is Theresa Cullen, M.D., M.S., associate director of global health informatics at the Regenstrief Institute. Perhaps no one has more experience or a better perspective on RPMS than Dr. Cullen, who served as the CIO for Indian Health Service and as the Chief Medical Information Officer for the Veterans Health Administration

During a webinar put on by the Open Source Electronic Health Record Alliance (OSEHERA), Dr. Cullen described the scope of the project. “The goal is to look at the current state of RPMS EHR and other components with an eye to modernization. Can it be modernized to meet the near term and future needs of communities served by IHS? We are engaged with tribally operated and urban sites. Whatever decisions or recommendations are made will include their voice.”

The size and complexity of the IHS highlights the importance of the technology decision. It provides direct and purchased care to American Indian and Alaska Native people (2.2 million lives) from 573 federally recognized tribes in 37 states. Its budget was $5.5 billion for fiscal 2018 appropriations, plus third-party collections of $1.02 billion at IHS sites in fiscal 2017. The IHS also faces considerable cost constraints, Dr. Cullen noted, adding that by comparison that the VA’s population is four times greater but its budget is 15 times greater.

RPMS, created in 1984, is in use at all of IHS’ federally operated facilities, as well as most tribally operated and urban Indian health programs. It has more than 100 components, including clinical, practice management and administrative applications.

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About 20 to 30 percent of RPMS code originates in the VA’s VistA. Many VA applications (Laboratory, Pharmacy) have been extensively modified to meet IHS requirements. But Dr. Cullen mentioned that IHS has developed numerous applications independently of VA to address IHS-specific mission and business needs (child health, public/population health, revenue cycle).

Because the VA announced in 2017 it would sundown VistA and transition to Cerner, the assessment team is working under the assumption that the IHS has only about 10 years to figure out what it will do about the parts of RPMS that still derive from VistA. And RPMS, like VistA, resides in an architecture that is growing outdated.

The committee is setting up a community of practice to allow stakeholders to share technology needs, best practices and ways forward. One question is how to define modernization and how IHS can get there. The idea is to assess the potential for the existing capabilities developed for the needs of Indian country over the past few decades to be brought into a modern technology architecture. The technology assessment limited to RPMS, Dr. Cullen noted. “We are not looking at COTS [commercial off the shelf] products or open source. We are assessing the potential for existing capabilities to be brought into “a modern technology architecture.”

Part of the webinar involved asking attendees for their ideas for what a modernized technology stack for RPMS would look like, what development and transitional challenges could be expected, and any comparable efforts that could inform the work of the technical assessment team.

 

 

 


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