As our Senior Contributing Editor David Raths and our Managing Editor Rajiv Leventhal reported on Thursday, the news that the Chicago-based Allscripts announced that it had agreed to pay about $185 million in cash to acquire the Enterprise Information Solutions (hospital and health system IT business) division of the Alpharetta, Ga.-based McKesson Corporation, came as no shock to healthcare IT leaders in the United States; McKesson executives had let it be known for some time that they were looking to sell off that segment of their overall company.
Executives of both companies expressed satisfaction with the deal. For their part, Allscripts executives noted 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.”
And 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.”
Given how everything had played out over many months, industry observers were less than surprised by the deal. Ben Rooks, founder of strategic and financial advisory firm ST Advisors, referred to the transaction as the “finishing off of the Change Healthcare transaction.” He told Healthcare Informatics 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,” he added. Meanwhile, Jamie Stockton, a senior analyst at Wells Fargo, also noted that Allscripts bought McKesson’s hospital software business “on the cheap.”
In any case, it is clear that Allscripts executives have been looking at their company’s near-term prospects with an eye on the steamroller success of the two largest EHR (electronic health record) vendors, the Verona, Wis.-based Epic Systems Corporation and the Kansas City-based Cerner Corporation. Epic and Cerner have been sweeping new contract bids, and moving towards making the EHR vendor bid process nearly a two-vendor race in many cases. Will Allscripts be able to catch up? The jury is out on that question, but this transaction certainly affirms the direction of the ongoing consolidation of the EHR vendor market.
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.”
And 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, Tate told Healthcare Informatics last week, 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.
Two major questions arise at moments like this: first, are we headed towards a level of consolidation at which literally only a handful of “big-box” EHR and clinical IT vendors remain, and come to control the entire EHR market? And second, does a potential policy issue arise, if we do get down to just a handful of EHR vendors nationwide? Or is that a false worry?
There are actually numerous lenses through which one could look at all of this. For one thing, because of the long history of closed, proprietary development in the clinical IT space, the reality is that none of the commercially available EHRs are truly “open,” and the very few “open-source” EHRs in existence have had very few takers indeed. Yet at the same time, the implementation and optimization of EHRs have become essential to the functioning of virtually all patient care organizations, with more and more solutions being placed “on top of” those EHRs, especially including data analytics solutions for accountable care, population health, and care management purposes.
So one could see this situation as one of opportunity or one of potential challenge. In other words, either the accelerating EHR vendor consolidation could lead to enhanced interoperability, or, potentially, the opposite, if the couple/few remaining EHR vendors feel less pressure to “play well with others.”
There is of course also the question of the extent to which any of these vendors will support the development of FHIR-compliant assemblages of clinical apps, and the extent to which consolidation favors that type of support, or, paradoxically, inhibits it.
With regard to the broader question of whether a handful of vendors will dominate the EHR market, if one looks at the two main sub-markets—hospital and physician practice—that is essentially already true. On the hospital side, Epic, Cerner, Allscripts, Meditech, and to a lesser extent, GE Healthcare, already hold dominant positions in the hospital EHR market, with Epic and Cerner grabbing the lion’s share of new contract battles. Meanwhile, on the physician practice side, Epic, athenahealth, NextGen, Greenway, eClinicalWorks, and a few other companies, have become increasingly dominant on that side of the fence. What’s more, the way in which the meaningful use process played out under the HITECH (Health Information Technology for Economic and Clinical Health) Act only intensified both consolidation and accelerated market dominance among the handful of larger EHR vendors in both the hospital and physician markets, as providers found that they could ill afford to go with vendors that might not be in business in a few years from the time of inking contracts.
The other question, though, is a prickly one, and probably one without any clear answer. Could the ongoing consolidation of the two EHR markets mean on the one hand that the EHR vendors left standing would have less and less reason to collaborate to improve interoperability—and also that the remaining EHR vendors might end up being so powerful that they could essentially dictate federal healthcare IT policy? When I met with Judy Faulkner and Carl Dvorak at Epic’s headquarters this spring, as I was preparing our “Most Interesting Vendors” portion of our May/June Healthcare Informatics 100 cover story package, they vehemently denied that either outcome would emerge. Judy in particular appeared shocked that I would even suggest either possibility. The Epic viewpoint is that the marketplace is still quite well-populated with vendors, and that there is no dominant vendor on either side of the hospital-physician EHR divide.
And yet others see things differently. “The answer to that question”—whether Epic in particular has become so big and so powerful that its size and dominance could reshape the landscape around interoperability and policy—“really depends on what hat you wear,” Julia Adler-Milstein, Ph.D., told me this spring. Adler-Milstein, who was then an assistant professor in the School of Information and in the School of Public Health at the University of Michigan (Ann Arbor), but who has since transitioned to a new position as associate professor in the Division of Hospital Medicine in the Department of Medicine at the University of California-San Francisco, told me that “There are some people who are saying that interoperability is proving to be such a challenge that maybe we are better off with a few dominant vendors. In markets that Epic dominates, people with Epic are thrilled with CareEverywhere,” Epic’s proprietary, Epic-customers-only HIE service. “On the other hand, others oppose market dominance, because they believe that it hinders interoperability and innovation. It really cuts both ways,” Adler-Milstein adds. “The bigger Epic gets, the more interoperability there is only within the Epic sphere, but the less there is outside it.”
Meanwhile, on the federal healthcare IT policy level, if we end up with literally just a few market-dominant EHR vendors, to what extent might those members be able to strong-arm the federal government around issues like interoperability? I wonder this particularly in light of the fact that the new administration has a Health and Human Services Secretary who, as a member of Congress, spoke out quite vehemently against over-regulation, and who has made statements indicating that he wants to lessen the regulatory burdens on physicians in practice in particular.
Yet at the same time, various federal healthcare IT policy leaders, including Donald Rucker, M.D., the new National Coordinator for Health IT, have spoken out in favor of accelerating interoperability in healthcare. Indeed, just a couple of weeks ago, the Office of the National Coordinator for Health Information Technology (ONC) kicked off the first of three meetings and webinars to inform the public about the department’s work related to the implementation of the 21st Century Cures Act trusted exchange framework and common agreement provisions. Charged with supporting nationwide interoperability under the Cures Act, section 4003 of the law directs ONC to establish a trusted exchange framework for policies and practices as well as a common agreement for exchange between health information networks. ONC officials have indicated that the common agreement should be out for the public later this year or early in 2018.
And in that context, Dr. Rucker said in that July 21 meeting that he was glad to move forward to work with members of Congress, as they push the administration to come up with more explicit definitions of interoperability and open APIs, and to prohibit information-blocking.
So the Allscripts acquisition of the McKesson EHR segment is coming at a time of accelerating change on a number of fronts in U.S. healthcare and healthcare IT. Considering the broader industry and policy context, it will be fascinating to see how all this plays out, both with regard to how the EHR vendor market evolves forward, and the implications of all this business activity for federal healthcare IT policy and thus, for the leaders of patient care organizations. Only time will tell; but I have no doubt that we’ll look back on this moment in the evolution of U.S. healthcare IT as a significant one.