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?