114. mc k part 3 hbo

H.I.S.-tory

by Vince Ciotti

© 2013 by H.I.S. Professionals, LLC, all rights reserved.

Episode #114:

McKessonPart 2 = HBO

Another HBO Pioneer• Thanks once more to Dan Mowery at McKesson for

introducing me to HBO’s 14th employee on the right:“Vince,

You may not remember me but we have met a few times at different industry functions like HIMSS, etc. My first recollection of you goes back to SMS days when you taught the installation training classes I attended in King of Prussia. I was an Installation Director working for Fred Abel in Atlanta, shortly after the SMS acquisition of American Hospital Supply's ISD division, which included the HCC (Hospital Computer Center) out of Flint Michigan. That company was founded by Bob Gillow and David Wright who were well known competitors to Jim Macaleer and Harvey Wilson. I attended those classes with Lloyd Koenig and others. After training we returned to ATL and converted all of the old Georgia Hospital Association hospitals to the SMS system. In 1976, I left SMS and went with a little known start-up out of Peoria: HBO and Company. I believe I was the 14th employee. This was just before Larry Gerdes joined the company, but after Dennis Crean, John Lawless and Rae Bell.

- Dan La Benne”

First “Headquarters”• Dan sent me a treasure trove of pictures including those on the

first slide which are the original trailer Walt, Bruce & Dick worked out of in 1973, vs. HBO’s 1989 headquarters in ATL. Other gems:

Left = Walt’s first deskRight = Four Phase mini in

the other end of the trailer – no monster mainframe would fit!

Left = Hard at work on the Four Phase mini

Right = John Lawless, HBO’s first President under Walt Huff, Chairman.

HBO Is Born• Walt Huff continues his story of how HBO was originally a

partnership among he, Bruce and Dick, started with $30K in capital out of their own pockets. They agreed to work together for one year with no salary and see just how things would go...

• Bruce Barrington made great progress programming MEDPRO, and they soon gave a demo to their first prospect hospital:

• Galesburg Cottage Hospital - about an hour away from Peoria, who loved the demo and couldn’t wait to buy it. Walt came up with an ingenious sales plan: he leased the hardware & software to them for 7 years, rather than a sale.

• Sounds like IBM’s leasing-only policy prior to their 1960’s consent decree, and an excellent business model for a start-up firm as it guaranteed a steady cash flow during those tight early years…

Key to MEDPRO’s Success• A prime reason for MEDPRO’s popularity was in recovering the

≈3% of lost charges that most hospitals experienced in those days of paper charge tickets. Only large hospitals could afford inhouse mainframe clinical systems like TDS, NadaCom and DataCare that computerized the Order Entry process (aka data collection) and automatically posted charges to patients’ billing accounts.

• What would your hospital lose today if every patient test, procedure and medication had to be manually stamped with an addressograph plate with (hopefully) the correct patient’s number, priced (eventually) by some clerk in the ancillary department, and then keyed into the billing system in the Business office to the (possibly) correct patient’s account?

How Well Did MEDPRO Sell?• Small and mid-sized hospitals had turned to shared systems like

McAuto and SMS for their financial system needs, but sharing offered very in the mid-1970s for order entry (data collection) systems, so MEDPRO had a perfect “shared” target market!

• MEDPRO sold so well that SMS licensed it as ACTIon (episode 103 at hispros.com), and Walt also sold marketing rights to Source Data Systems (SDS) in Cedar Rapids, Iowa, that was eventually bought by Keane.

• To see how well MEDPRO sold, check out HBO’s market dominance in Sheldon Dorenfest’s 1982 Guide:

MEDPRO’s Market Share• In case you can’t read the small print on the preceding chart,

that’s a growth rate of 44.7% for HBO, from $19M in 1979 to $27.5M in 1980 – hot stuff! Below is another chart from Sheldon’s 1982 Guide that shows the number of hospitals on each vendor:

• SMS was almost all ACTIon 1100 (DEC PDP) and 1500 (DEC VAX) by now, as their deal with HBO ended c.1978

• IBM was mostly self-developed.

• McAuto was their Four Phase/DEC combo of HDC.

HBO Product Growth• Dan La Benne points out that MEDPRO was relatively thin by

today’s standards, comprised of ADT, Census and Order Entry. Dan personally headed up the addition of nursing modules to assuage the needs of early progressive clients like Providence in Portland OR, Concord in NH, and United in Minn. Dan was very proud of the ADL (Activities for Daily Living) reports for nursing diagnosis.

• And the very same Dan Mowery, who introduced me to La Benne, added RX functionality, being a former Pharmacy Technician.

• HBO’s biggest gap was financial systems, which most minicomputer HIS competitors offered by the mid-70s, like Dynamic Control, Saint, JS Data, etc. This would be a huge project, requiring mucho dinero!

• As well as a move to Atlanta that Walt & Co. were contemplating in the Peoria winters…

Financial Challenges• Adding new products, expanding the staff and moving that trailer

down to Hot-lanta cost so much money that Walt & Co. had to turn to banks to get funding for all this growth. HBO’s local bank in Peoria had a 22-year old financial analyst who was tasked with researching this nearby start-up company asking for a $1M loan. HBO had a number of MEDPRO clients at the time, and he called several and got such glowing reports that he convinced the bank to approve the loan. And who was this young banker?

• Larry Gerdes, who was so impressed by the start-up that he left the bank in 1977 to join Walt as HBO’s CFO. Larry grew up on a farm in nearby Walnut, IL, and earned his MBA at the U. of Illinois. He subsequently helped HBO get additional loans from banks in Chicago & NY, and led their IPO in 1981.

HBO’s Biggest Competitor?• An old friend from SMS named Charlie Covin once told me an

hysterical story of when he worked for HBO’s NJ office in those early days and received a call from an irate customer complaining that their screens only worked on their first floor, not the 2nd. Charlie had her turn screens on & off, etc., only to eventually figure out she was talking about Home Box Office!! He adds:

“IDX had a similar problem; originally named Interpretive Data Systems (IDS), they were confused with American Express' Investors Diversified Services. They lost because Amex had more lawyers and deeper pockets.”

• Larry Gerdes adds how his HBO actually called Ma Bell’s directory assistance line to correct the error for both companies, who were receiving many of each others’ calls. They even negotiated an $800K price tag with a senior VP at the “other” HBO for rights to the acronym, but the offer later got rescinded. So, “our” HBO became known as “HBOC” to try to end the name confusion…

Next Week…• So there it is, right from the horses’ mouths: the earliest days of

HBO. Next week we’ll pick up the inside story from Walt, Larry & Dan about how they grew HBO’s product line to include a mini-based financial system and more from their photo collections.

• But first, more feedback from HIS-Talk readers about Bill Childs picture portrait puzzle – starting with another HBO veteran:– “Vince, I just checked out Episode #112 on McKesson. I worked there for

23 years, from MediFlex Systems to HBO & Company to HBOC to McKessonHBOC to McKesson. The person in picture E is John Kerr. He was the President of MediFlex Systems when they were acquired by HBO & Company. Also in Walt’s feedback on the C-Suite Timeline, he stated that in 1990 Robert Murrie was named President of MEDILEX. It was actually MediFlex and in addition to Facilities Management, the division was also responsible for the mainframe Patient Accounting System called MediPac. The division changed their name to HealthQuest shortly thereafter. Great stories, keep them coming!”

– Gary B Gerber, CPA, Logicalis, Inc. (no relation to Urban…) 847-748-2521 [email protected]

Updated Portraits

• So here’s how things stand identifying these faces in Bill Childs’ challenge from an article in his Computers in Healthcare magazine from the late 1980s.

• Surely someone in our industry today recognizes these few remaining un-named faces? We might still get Bill to cough up that $250 Savings Bond…

Mark Gross Rosenletter

Art Randall Frank Russo Steve Macaleer

Peter Marsh Ford Phillips Shirley Hughes Mark Fidler

John Kerr Steve Huseing