2. 2017 Macro Vendors

Top 10 HIS Vendors by 2016 RevenuePart 2: High-end Vendors

© 2017 by H.I.S. Professionals, LLC, all rights reserved.

By Vince Ciotti & Elise AmesHIS Professionals, LLC

High-End Vendors• After the market overview last week, the next 3 episodes delve

into the details of the vendors by size & target market, first:– High-end = vendors with over $1.5B that primarily target

large hospitals of 300+ beds, AMCs and multi-IDNs.– Mid-Range = vendors with ≈$.5 to $1B in revenue, generally

targeting small to mid-size hospitals under 300 beds.– Low-end = vendors with annual revenue under ≈$250M also

targeting small to mid-size hospitals of under 300 beds.• Interesting how the size of vendors’ revenue

corresponds to bed size of their target market!• For each vendor, we’ll give details on their:

- Annual revenue and growth/decline- Product line and target markets- Recent developments & future prospects.

• It is amazing to visualize how much Cerner has grown since its humble beginnings in 1979 as LIS vendor “PGI,” the initials of its three founders: Neal Patterson, Paul Gorup, and Cliff Illig:

#1 =

• (PGI acronym – bet Neal’s glad Illig didn’t join before Gorup…)

• An 8% increase in revenue kept Cerner at the top for a third year in a row, ≈$5B passing all other vendors going back ≈4 decades:

3rd Year in a Row as #1!

• Sad to note how former leaders like McKesson, Siemens and GE had their revenue decline or disappear – more on them later…

Recent Developments• Several developments in 2016 have helped Cerner grow:– Return of founder Neal Patterson to full-time employment

this January, after successfully battling cancer last year.– Strong sales to Siemens clients such as: Universal Health

System (UHS), Missouri Delta, McLeod Health, Baptist… – In addition, Cerner sold a number of McKesson’s sunsetting

“Horizon” clients like Centra, Covenant and Boca Raton.• How does Cerner earn so much $s? Like many vendors, they

have diversified their products and services far beyond pure HIS:– Medical Devices, Patient Engagement, Physician Practices,

Pharmacy, Population Health, Workplace Health, etc.– “RevWorks” division outsources RCM, and Cerner outsources

IT shops, transferring millions of $s from hospital payrolls.– They also run most clients from 2 enormous data centers in

KC; remote hosting brings in about 17% of their revenue.

Next Year?• We are bullish on Cerner maintaining the #1 position for years:– Cerner has access to the C-suites of hundreds of Siemens’

clients on Soarian, Invision, Eagle & Medseries, which their superb sales teams should do very well converting.

– The DoD contract worth ≈$9B was a major coup in 2015, although most of that revenue will go to Leidos (SAIC).

• Downsides? Yes, like all vendors, Cerner faces challenges too:– Epic always does well with large AMCs and IDNS, and has

won several large Siemens clients like Main Line Health.– And also like Epic, Cerner has experienced a number of

troubled projects like Island Health and California Prisons…• So Cerner is now the new “normal” – after a 15

year run by HBOC/McKesson, and 15 by SMS/ Siemens. Will Cerner lead for the next 15 years?

• Moving into 2nd place is Judy Faulkner’s epic journey that has won the majority of large AMC & multi-IDNs for many years...

• Their revenue went up 23% from $2 to $2.5 billion last year, amazing considering almost every hospital by now has an EMR so the number of system selections has been relatively slim…

• They will probably win as much as Cerner from Siemens’ large hospital clients on Invision & Soarian, at least those who look.

– They also offer “Community Connect,” which allows large AMC/IDNs to host neighboring CAH & smaller hospitals.

– Their new “remote hosting” data center is fully operational, so future revenue prospects are as solid as WI’s frozen lakes.

• As SMS & Cerner have proven, remote hosting increases revenue enormously over inhouse processing; like Meditech, Epic never sold hardware, lowering past revenue substantially.

• Epic’s revenue growth is the easiest to graph of all vendors: UP!

Epic Revenue HIS-tory

Epic is likely to continue violating Newton’s law of gravity due to:

Epic Re-packaging

• All Terrain– For large facilities over ≈400 beds

• Full suite of EpicCare applications, modules & features• 2 FTEs per app for implementation, both for the hospital & Epic

– The full EpicCare run either inhouse or remotely– Primarily for large complex hospitals, AMCs & multi-IDNs

• Sonnet– For small hospitals <200 beds

• Minus many more apps & features that small hospitals don’t need

– Only 1 FTE per application/dept., lowering Implementation & travel costs– Remote hosted from Verona

AT HIMSS this year, Epic announced a new packaging of their “EpicCare” HIS for three different tiers of hospitals by bed size:

• Utility– For mid-sized hospitals of ≈200-400 beds– Minus some apps & modules that mid-size hospitals rarely use, e.g.:

• “Kaleidoscope” for Ophthalmology– Only 1 FTE per app/dept. for implementation, lowering fees & travel costs– Remote hosted from Verona

• In 3rd place by revenue is Allscripts Allscripts with $1.5B, a 12% increase from 2015; they are major players in physician practices (large = TouchWorks/Professional, small = Enterprise) where they placed 2nd in the number of EHR attestations per ONC as of 6/2016:

• Their “Sunrise” suite of integrated MD/HIS apps should sell to some Siemens & Horizon hospitals who actually go to market...

• Paul Black was one of the driving forces at Cerner during their past growth, so AllscriptsAllscripts’ future prospects are fairly strong.

• Hard to remember how long the HIS-tory of this firm is, going way back to Lockheed, TDS, Alltel & Eclipsys… Here’s the $tory:

• Alltel had a small revenue jump with the Y2k run-up,

• Eclipsys built up revenue with a series of product acquisitions,

• Then a huge jump in 2011 when Allscripts Allscripts added their enormous physician practice revenue:

Allscripts Revenue HIS-tory

(Y2K)

Allscripts

Eclipsys

TDSAlltel

• Slipping to 4th place place is pharma giant McKesson whose total drug revenue in FY 2016 is in the gazillions, but our estimate is their IT division “EIS” dropped 50% to ≈$1.5B:– We had to estimate $s since their fiscal year end is March,

whereas most other vendors are calendar year-end…– The reasons we estimated the IT decline by 50% are:

• Sale of MD practice systems (≈10% revenue) to eMDs:– Practice Choice, Medisoft, Lytec, and Practice

Partners.• Sale of 3 core systems (≈40% revenue) to Change Health:

– Relay Health, PACS and physician practice collections.• The remaining ½ of EIS is still up for sale:- Paragon, Horizon, Star, HealthQuest, Series- Rumors are a potential buyer is an Indian

consultancy; as the Brits say, Ta-ta for now…

McKesson Revenue History• Here’s McKesson’s revenue history since the days of HBO

back in the 70s. A bit of a roller coaster ride around Y2K when McKesson learned HBOC had cooked the books, and then slowly built things up through many acquisitions (eg: Per Se):

• Will probably be gone next year when EIS sells, an interesting lesson from HIStory regarding all leading vendors over time…

(PerSe)

(HBOC)

(Change& eMDs)

• We dropped GE from our Top HIS Vendor list last year due to their shrunken number of “Centricity” hospital clients - only 11 attestations per the ONC list. GE had acquired it from IDX as “CareCast,” re-named from “LastWord” and “PHAMIS”...

• GE remains a very strong player in the MD practice market (ranked #5 on ONC’s list of attestations), but they have lost so many hospitals to leaders like Epic & Cerner over the past 5 years that they’re hardly an HIS player.

• Other vendors have also disappeared from previous Top 10 lists:- NextGen – HIS products acquired by Harris Healthcare- Healthland – CAH leader acquired by CPSI (Evident)

The fate of both will be covered in subsequent episodes, along with several new vendor names that are “up & comers…”

Dropped:

Next 2 Weeks• We’ll delve into the details of the remaining Top 10 HIS vendors

over the next episodes, who are more in the small and mid-size market segment (both in terms of bed size and annual revenue):– Mid-Size – vendors whose revenue falls between $.5B and

$1B, and who target mainly small to mid-size hospitals: Meditech (all 3 products) and two physician practice vendors new to the HIS market - eClinicalWorks eClinicalWorks and athenahealth

– Small – vendors whose annual revenue is below ≈$250M and client base consists of small to mid-sized hospitals: CPSI, NTT Data (Keane), Harris (QuadraMed), and Medhost, (HMS).

• With a subject area so wide and deep, it’s hard to cover it all in a few slides so feel free to contact us with questions or comments:

[email protected] [email protected]

505.466.4958 413.329.6925