EMR Market Analysis: Allscripts to acquire McKesson’s Enterprise Information Solutions business

EMR Market Analysis: Allscripts to acquire McKesson’s Enterprise Information Solutions business


Last week, Allscripts announced its acquisition of McKesson’s Enterprise Information Solutions health IT business for $185 million in cash. Products acquired in the deal include the Paragon EHR, Star, Series, Healthquest, Lab Analytics and Blood Bank, and OneContent. As a result, Allscripts’ US and Canadian EMR market share for hospitals has now grown from 4% to 10% (Source: HIMSS Analytics).

Market share before acquisition:

Allscripts_EMR_Market_Share_Pre_McKesson_EIS_Acquisition

Market share after acquisition:

Allscripts_EMR_Market_Share_Post_McKesson_EIS_Acquisition

In a statement, Allscripts CEO Paul Black noted:

Adding these assets to our Allscripts existing portfolio enables us to better serve our clients, increase our scale and further drive our investment in innovation. This transaction is expected to directly benefit our existing clients and our shareholders, as well as the Enterprise Information Solutions clients and team members we’ll welcome to our family. … Today’s announcement is a proactive and strategic measure to maintain Allscripts’ long-term leadership and position Allscripts for continued growth.

John Hammergren, chairman and CEO of McKesson, also offered his thoughts on the deal:

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.

The sale by McKesson is unsurprising as it faced an uphill battle in its attempts to convert Horizon customers to Paragon.

Allscripts says it will continue to offer Paragon to small hospitals while continuing to sell Allscripts Sunrise to larger health systems. In a recent earnings call, Allscripts CEO Paul Black mentioned that executives have been talking about the need to grow the company’s inpatient market share, which the McKesson EIS acquisition effectively addresses by adding hundreds of new inpatient clients, that present cross-selling opportunities for EHR, post-acute, population health management and precision medicine.

In response to an analyst’s question about why the company would take on the risk of buying McKesson EIS, Allscripts President Richard Poulton said:

This is an industry that is going to continue to transition. You can go around the horn for both inpatient and outpatient competitors and you’d find several of them are either for sale actively, have been recently for sale, or will be for sale most likely in the not too distant future … as the market matures, consolidation is a natural occurrence and it’s inevitable.

In this deal, Allscripts doubles down with its historical strategy of footprint growth through acquisition as a competitive model to that of market-dominant Epic and Cerner, with their one-database, integrated platforms. One could argue that Allscripts hand was forced to undertake this approach, but it certainly creates technical debt in rationalizing and continuing to advance a burgeoning portfolio of applications. This transaction also supports Allscripts vision of building open, connected communities of health.

To solve for interoperability, Allscripts must not only nurture and cultivate its “Open” model, but also integrate within its own portfolio. This would be a welcome alternative to the approach taken by Epic and Cerner with proprietary health information exchange models, which can hinder interoperability and innovation. With a long history of closed, proprietary database and development paradigms, the reality is that none of the commercially available EHRs are truly “open.” This would seem to offer great possibility for Allscripts to lead and differentiate through a truly “open” platform and enhanced interoperability.

Steven Halper, Senior Vice President at FBR Capital Markets & Co. offered this assessment from 2015:

The history of Allscripts is really about a combination of different acquisitions over the years. However, the problem is that these acquisitions were not well integrated. It’s really hard to get synergy in software because there is no synergy from the development standpoint unless you rewrite the whole thing. So when the company grew over time, it … [turned into] acquisitions in order to expand, but the flip side is that it is very difficult to integrate them.

Allscripts_Acquisitions

During the earnings call, Allscripts also announced it will write down $145 million of its $200 million investment in NantHealth, whose shares have dropped 77 percent since the investment. Allscripts says it will exchange its NantHealth ownership stake for “certain technology assets and client relationships” of NantHealth as well as a commitment that NantHealth will buy Allscripts software and services.

This announcement falls consistent with a Chilmark Research PHM Domain Monitor assessment of Allscripts last August by John Moore, Founder & Managing Director:

And while innovation is to be applauded, it should not necessarily come at the expense of what is most critical to the market today. Allscripts is an early vanguard in the latest hype-cycle of precision medicine. It has made a number of announcements, including a strategic partnership and investment in NantHealth. Precision medicine, however, is not readily mainstream in any sector of the healthcare industry today. One has to wonder if these precision medicine investments would have been better spent developing and taking to market a truly compelling and competitive suite of solutions to enable a healthcare organization’s PHM strategy. Only time will tell if their early leadership and investments in precision medicine outweighs their seemingly slow move to provide a compelling PHM solution suite to market.

Will the Allscripts McKesson acquisition serve as a bellwether for further increased consolidation in which literally only a handful of “big-box” EHR and clinical IT vendors remain, and come to control the entire EHR market? Will troubled eClinicalworks be next? The timing of the announcement coincides with reports of non-traditional players entering the market: Amazon’s secret 1492 group is reportedly working on a new EHR product. The healthcare information technology market could get really interesting soon.

We leave with closing thoughts from John Moore’s conclusion in the Chilmark Research Domain Monitor, “Allscripts in Transition.”

Allscripts leadership had a monumental task upon taking over the reins of the company after the forced exit of its previous leadership. The right moves have been made to stabilize their core EHR solutions. But this has come at the expense of investing in where the market is now rapidly heading, value-based care. This has left the company behind many of its leading competitors in the broad realm of PHM and the company will likely struggle to keep-up, let alone catch-up to best of breed vendors and some of its leading EHR competitors.

That being said, the company has done a very admirable job of building a host of capabilities to support care management processes across the care continuum. Their PHM branding strategy, CareInMotion, is quite appropriate – it is what they are doing quite well in PHM. If they are able to further tie-in the behavioral health capabilities of its recent investment in Netsmart, the company will be a leader in this important aspect of PHM.

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