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What's Happening at Allscripts?

May 10, 2012
by Gabriel Perna
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KLAS’ Coray Tate offers analysis on current developments at EHR vendor

After dealing with lower-than-expected first quarter earnings, a sharp decline in its stock price, and a board of directors shakeup, it’s fair to say that the past few weeks have been eventful for the folks at Allscripts Healthcare Solutions Inc., the Chicago-based EHR vendor. Additionally, the company recently adopted a stockholder rights plan, commonly known as a "poison pill," which, it says, aims to enable all stockholders to realize the long-term value of their investment in Allscripts and protect it “from unfair or coercive takeover attempts.”

While several of its key competitors, such as Cerner Corporation, (Kansas City) posted record-breaking revenues in the first quarter of 2012, Allscripts’ bookings (future contracts) were $194.6 million, down from $212.4 million. These results have caused some, like healthcare investment firm HealthCor Management, L.P., which has 9.2 million shares in Allscripts; to call for CEO Glen Tullman to resign. In the letter to Allscripts board members and Tullman himself, Joseph P. Healey and Arthur B. Cohen, portfolio managers at HealthCor, say the “problem is clearly one of execution and a fundamental problem with leadership.”

Several stock analysts, cited in Healey and Cohen’s letter, similarly questioned the current leadership. Sean Wieland, analyst at Piper Jaffray, said the recent actions left the company in a “state of crisis.” In a recent conference call, Tullman noted some of the issues for the company may date back to the $1.3 billion June 2010 acquisition of Eclipsys. All of the departing members of the Allscripts board of directors, including chairman Philip Pead, were former Eclipsys executives.

To put this situation in context, HCI Assistant Editor Gabriel Perna spoke with vice president of research at the Orem, Utah-based research and consulting firm, KLAS, Coray Tate, in an exclusive interview. Tate talked about what he thinks of the company’s current operating environment and how customers may react to the latest news. Below are excerpts from that interview.

Corey Tate

Quite simply, what is going on at Allscripts?

I think the data we are seeing maps closely to what Glen recently said; that it was really a failure to execute. There’s a market today pushing towards integration. Providers are thinking about facing accountable care, knowing payment reform is looming on the horizon, as they look at that.  Sharing data is going to be key.  That’s one of the big challenges they face. The overall delivery has been a key issue that has hurt them. They have a very good ambulatory product, Allscripts Enterprise. They are the kind of company that bought the various pieces. They bought Eclipsys for the inpatient. And as they’ve tried to put those pieces forward, they haven’t delivered in the way the customers expect. The code development and implementations of new technologies seemed to struggle out of the gate.

What does this have more to do with - what Allscripts isn’t doing, or what its competitors are doing?

I think it’s a combination of both. You have got a pretty good customer base that’s largely been very loyal. They bought Eclipsys because the clinical usability and functionality are great. So they’ve got good products, and Allscripts has been a leader on the ambulatory side for years. But on their end, it goes back to that end result, in which they haven’t delivered on the expectations of those customers.

They also have problems with focus: they bought Misys and Eclipsys, and it seems to be they are spread thin. That’s what we hear back [from customers]. Having the resources to do everything they need to do is an issue that they struggle with. At the same time, you have these pressures from the government that are really pushing towards the need to integrate. That’s been tough on all of the vendors that have gone out and bought solutions with the intent of putting them together. McKesson and GE have struggled in that category, and Allscripts is facing those same pressures. That is pushing folks towards the Epics and Cerners, because they have those [integrated] solutions.

How do you think former Eclipsys customers will react to this latest news [about the board shakeup]? Could Allscripts lose any customers?

That’s hard to say. It’s still pretty early. We’ve had some inquiries from the customer base, saying ‘What’s going on?’ We don’t have them saying ‘We’ve got to get out of there.’ I think it probably makes them nervous. I know when Allscripts purchased Eclipsys, Eclipsys’ customers saw it as a positive. Eclipsys’ ambulatory solution wasn’t great, and Allscripts’ is good. They thought if you marry those two things, it would be good. They knew it would take time, but the early attempts haven’t gone as well as they would have hoped. I would imagine they are nervous. Is everyone going to jump ship? I don’t think so. They have loyal customers, and some that have put their eggs in this basket and said, ‘This has got to work.’ It’s just another pressure on that customer base.

They’ve got to fix some things internally to answer the needs their customers are facing. If they can do that, they’ll be strong, because the standalone product has been pretty good. They need to clean up their processes and approach. At least that’s what the data we’ve looked says it comes down to.

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