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Executives Talk Tech Trends

June 1, 1998
by Jeffrey Elliott
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HBOCJay Gilbertson

’97: $1.2 billion
’96: $950.9 million
Percent change: 27

’97: $200.7 million
’96: $124.5 million
Percent change: 61

’97: .96¢
’96: .61¢
Percent change: 57

Note: Figures restated to reflect the 1997 acquisitions of AMISYS Managed Care Systems, Inc., Enterprise Systems, Inc., HPR Inc., and National Health Enhancement Systems, Inc., accounted for as a pooling of interests.

What is HBOC’s business plan for 1998 and beyond?
We expect to grow internally 20 percent per year, and we would like to grow revenue another 10 percent through acquisitions this year alone. From a revenue standpoint, I think you’ll see a continuation of what we did in 1997, but it will have a different flavor. If you look at where we are today, in terms of the number of products we offer, we really don’t need to add additional products. Our concentration will be to grow our services revenue.

What does HBOC’s size do for the provider community?
Our size has helped us drive the standardization of systems. We probably have the most complete data model for integrating different systems from different areas of healthcare. Last year 50 percent of our R & D budget, or $60 million, went into integrating our applications. We’re spending a lot of money that our customers don’t have to spend on the integration of systems.

How have your competitors reacted to your aggressive growth strategy?
I don’t think they have reacted to HBOC as much as they have reacted to all of our customers’ needs. As healthcare goes through structural changes, providers are looking for applications that give them a return on investment. If you’re going to spend $10 million to $20 million, you need to make sure you’re going to have some return.

What’s HBOC’s position on the international marketplace?
Today we do about $100 million in revenue from 700 customers in the United Kingdom. Our feeling is that healthcare IT in the United States is five to eight years behind other industries. Foreign markets seem to be that far behind our healthcare market. Unless we can make an acquisition of a large customer base, it probably doesn’t make sense for HBOC to go in and take over a market when we’ve got a lot of growth opportunity in the United States. Right now were taking a ’wait-and-see’ approach--going for distributor relationships that provide us with sales people around the globe.

What will the healthcare IT industry look like early into the next century?
There is a good chance companies like Cerner or SMS will both be acquired by someone more sizable. As far as dominant players, HBOC will be a standalone three years from now. Hopefully we will be a $3 billion company at that point. However, I think you will continue to see plenty of good niche companies in the industry.

Marvin S. Cadwell

’97: $896.2 million
’96: $779.1 million
Percent change: 15

’97: $60.4 million
’96: $49 million
Percent change: 23

’97: $2.42
’96: $1.98
Percent change: 22

Note: Figures restated to reflect the 1997 acquisition of American Healthware Systems, Inc., accounted for as a pooling of interests.

What was 1997 like for SMS?
Nineteen-ninety seven was a record year with revenues just short of $900 million and sales in excess of 1.2 billion dollars on a consolidated basis. Our performance from domestic operations was strong, which can be attributed to our positioning in the market. Our European unit has experienced growth the past several years, with the exception of last year. However, we remain bullish on Europe because of our strong position there, which we will continue to maintain.

What segment of your business do you see growing the most over the next five years?
We will see a higher rate of growth in the emerging ambulatory market in which we have made investments internally and externally through partnerships. Network and network support will also be an area that will provide us opportunities for growth that is, perhaps, outside the average growth of our organization.

Why did SMS switch from the Nasdaq to New York Stock Exchange for trading of its stock?
We were seeing great volatility in the early part of 1997 with SMS share value, and therefore our market capitalization. The inflection in the value of our shares does not properly reflect the actual performance of the company. The NYSE will provide a more stable environment in which our stock is transacted. Also, the NYSE offers us a much broader market internationally. SMS was excluded from a lot of international money purely because we traded on the Nasdaq.

What is the largest barrier your
customers face building their IT departments?

I think one of the greatest barriers IT organizations face is the integration of disparate systems. As providers consolidate, executives must articulate the benefits they are pursuing through consolidation. They are assuming efficiencies through consolidation, yet efficiencies can only be achieved through integration of those disparate systems.


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