Archive for the ‘HL 7’ Category

All too frequently I get the question:

When will we see the EHR market consolidate?

Not an unreasonable question considering just how many EHRs there are in the market today (north of 300) and all the buzz regarding growth in health IT adoption. There was even a recent post postulating that major EHR consolidation was “on the verge.” Even I have wondered at times why we have not seen any significant consolidation to date as there truly are far more vendors than this market can reasonably support.

But when we talk about EHR consolidation, let’s make sure we are all talking about the same thing. In the acute care market, significant consolidation has already occurred. Those companies that did not participate in consolidating this market (Cerner, Epic & Meditech) seem to have faired well. Those that pursued a roll-up, acquisition strategy (Allscripts, GE, McKesson) have had more mixed results.

It is the ambulatory sector where one finds a multitude of vendors all vying for a piece of the market and it is this market that has not seen any significant consolidation to date and likely will not see such for several years to come for two dominant reasons.

First, you need to be half crazy to do an acquisition. As nearly two-thirds of all acquisitions fail, the odds are stacked against you. Therefore, you need to be darn sure that this acquisition makes sound business sense before pulling the trigger.

Second, the ambulatory EHR market is simply not ripe for consolidation. The reason is simple. To remain viable in the market, EHR vendors must ensure that their products meet Meaningful Use (MU) requirements and meeting those requirements requires hefty investments.

Virtually all EHR vendors invested resources to get over the Stage One hurdle. In fact, the federal largesse of the HITECH Act attracted a number of new EHR entrants to market and likely kept a many EHR vendors afloat who would have otherwise gone under.

Stage Two’s certification hurdle has yet to be released but will assuredly require a continued and potentially significant investment in development resources by EHR vendors to comply. Same holds true for future Stage Three certification requirements.

At this juncture, it would be foolhardy to try and execute an EHR acquisition roll-up strategy. The technology has yet to stabilize, significant development investments are still required and most vendors do not have sufficient market penetration. Better to wait until the dust settles and clearer stratification of the market (who will remain viable, who will not) becomes apparent.

An Example from Manufacturing:
In my many years as an IT analyst I’ve seen few instances where acquisitions have actually worked out well for all parties concerned. When I led the manufacturing enterprise analyst group at a former employer I watched as two separate companies (Infor & SSA) executed roll-up acquisition strategies in the mature Enterprise Resource Planning (ERP) market.

Much like the ambulatory EHR market, these two companies targeted the low-end of the ERP market (small manufacturers). ERP companies acquired had two defining characteristics: stable platforms and reasonable penetration in their target markets.

Infor and SSA executed their strategies skillfully acquiring multiple companies; promising customers never to sunset a product; and meeting their investors’ goals by lowering operating costs (reduce duplicative administrative costs across acquired companies.

Post acquisition, Infor and SSA did not invest heavily in development, simply doing the minimum necessary to meet customers’ core requirements. Ultimately, Infor acquired SSA and Infor remains one of the dominant ERP companies in the market today.

A similar scenario will play-out in the ambulatory EHR market, it just will not be this year or next or even the one after that. Look to a couple of years post-Stage Three, for the long-awaited consolidation that so many have predicted to finally occur.

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This morning we announced the release of our latest report: 2012 HIE Market Report: Analysis and Trends of the Health information Exchange Market. As we found in last year’s report, the HIE Market and the vendors that serve it continues to be a very dynamic.

In little over a year we have seen several vendors exit the market, several others enter and the acquisitions of Carefx by Harris and MobileMD by Siemens. We also saw Microsoft pull completely out of the clinical market by turning over all its HIT assets (except HealthVault) to the new joint venture with GE, Caradigm.

Yet in spite of all this turmoil, the market continues to see spectacular growth in excess of 40% in 2011. The big news with all this growth is that only a small portion of it is coming via the HITECH Act and the various statewide HIE contracts that were awarded. No, the big market that literally all HIE vendors are now targeting is the private, “enterprise” market. Healthcare organizations (HCO) of all sizes are now looking to deploy HIE technology to not only meet Meaningful Use requirements, but respond to the pending changes in reimbursement, moving from a fee for service model to one that is based on outcomes.

To be successful under these new payment models, HCOs must better manage operations and the complete care cycle of a patient across care settings. In a community of heterogeneous EHRs, HCOs are adopting HIE technology at an accelerated rate to unlock the data silos of EHRs across the community to enable higher quality of care.

Arguably, the 2012 HIE Market Report’s most significant finding is…

The healthcare sector is rapidly moving to the post-EHR era. The value of patient data is not in the data silos of EHRs but in the network that an HIE supports.

The report provides the most comprehensive overview of the market and what are the significant trends that are driving this market forward. The report also provides a deep dive review of 22 leading HIE vendors, including product capability assessment and market presence. This information, compiled through in-depth research and countless interviews, provides all HIE stakeholders with the most accurate view of the market today.

It is our sincere hope that the information contained in this report will contribute to furthering the success of HIE deployments in the future as we strongly believe that only through health information exchange (the verb) can we improve the quality of health delivered within a community and ultimately, the nation.

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In January, we released our HIE Market Report: Analysis & Trends which was extremely well-received. Sales have exceeded our rather optimistic projections – great for us. But what we are most proud of and honestly what keeps us going is that others are also gaining value from this report, especially those looking to purchase an HIE solution. As one large healthcare organization recently told us:

Your report has been invaluable in not only our vendor assessment process, but how our organization needs to think about our long-term HIE strategy.

We have also heard on numerous occasions the need to update the report as the market is changing so quickly and indeed it has. Several HIE vendors have been acquired, others have withdrawn from the market and there continues to be an influx of new entrants hoping to capitalize on what remains an immature market.

There are also a number of underlying trends that have disrupted the market to varying degrees. Thus, we have begun putting together our research plan for an update of the HIE report. As part of that process we have been contacting and interviewing those who purchased the first report to get their feedback on what they would like to see in the next edition. Several interviews have been conducted so far and we even had a briefing with one HIE vendor that we had given up for dead, but no, looks they are very much alive and may (emphasis on may) become a strong player in the future provided their new parent invests in them at the level required to build market share.

Following are a few snippets of what we have learned through these interviews so far:

Workflow, workflow, workflow: Embedding information exchange processes into the workflow of a clinician is becoming a very big issue. Now the question is: What are the top priority workflows that users wish to enable and what are the HIE vendors offering in this regard and how easy is it to configure workflows to meet specific needs?

Analytics & reporting: Everyone continues to talk about this issue, which has been a dominant issue for enterprise HIEs. What has changed though is that even public HIEs are now looking to enable analytics & reporting capabilities as one approach for creating a sustainable business model. HIE vendors are dedicating significant resources to address this need but there is very little understanding as to the actual maturity of these offerings.

Fragmentation in enterprise HIE market: In the last report we split the market into two large classifications, Public and Enterprise. Several we have interviewed suggested we ignore the public market and focus the next report solely on the enterprise market further breaking it down by the healthcare organization’s business strategy justification for deploying an HIE.

Dominant HIE business models: The HIE market continues to evolve rapidly and a key question posed to us is: How do we see this market evolving, where will it be in five years? Quite the loaded question but sure as hell fun to ponder. Currently, we see the market bifurcating into one group of companies that are providing solutions to facilitate care management and another group looking to provide solutions that facilitate operations management.

Clarify closed, EHR-driven HIE solutions versus standalone, open HIE solutions: Several EHR vendors are offering their own HIE solutions but these solutions do not readily connect to other EHRs thus mostly a closed system. Then we have the open HIEs, including some offered by EHR vendors that have the ability to connect to multitude of EHRs via interface engines. In the enterprise HIE market, there is considerable confusion among end users as to which path is optimal for their organization and this is a topic worthy of deeper discussion. (In our last report we simply ignored these closed systems as they were outside the scope of the report.)

Future impact of NHIN Direct: There has been a big push by those controlling the purse strings in Washington DC (election year coming up, need to show some successes with that $564M that went to States for HIEs) to drive adoption and use of NHIN Direct. Any vendor wishing to land a publicly funded project must now have the ability to enable NHIN Direct on their HIE platform. NHIN Direct, as we pointed out input last report, will commoditize basic messaging services of an HIE. Now the question is: How will NHIN Direct impact the broader healthcare sector and will it find its way into enterprise HIEs or remain an confined to public HIEs?

Plenty to chew on here and a lot of research will be required to tease out the answers to these questions. But that is exactly what analysts thrive upon and we are more than ready for the challenge, in fact we welcome it with open arms.

Now you may be wondering; who was that HIE vendor given up for dead? None other than the Boston-based firm Wellogic, a company that made a number of strategic, go-to-market blunders but has now been acquired by Alere. Alere, a seemingly successful and very acquisitive company, certainly has the resources to bring Wellogic back from the dead and make them a serious competitor going forward provided, as we stated earlier, they invest for the long-term as this market, though still relatively immature, is seeing ever larger players enter with deep pockets and far greater resources at their disposal.

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In a number of interviews with leading HIE vendors, it is becoming clear that the clinical standard, Continuity of Care Document (CCD) will be the dominant standard in the future.  The leading competing standard, Continuity of Care Record (CCR) appears to be fading with one vendor stating that virtually no client is asking for CCR today.  This HIE vendor did state that one client did ask for CCR, but only to enable data transfer to Google Health.

CCR was created by ASTM with major involvement by AAFP wih the objective to create a standard that would be far easier to deploy and use by smaller physician practices.  At the time of CCR formation, the dominant standard was HL7’s CDA, a beast of a standard that was structured to serve large hospitals and based on some fairly old technology and architectural constructs.  With competing CDA and CCR standards in the market, there was a need for some rationalization which led to the development of CCD, a standard that combined some of the best features of CCR and CDA.

Today, CCD is seen as a more flexible standard that is not nearly as prescriptive as CCR. This allows IT staff to structure and customize their internal HIT architecture and features therein for their users and not be confind to a strict architectural definition such as that found in CCR.  (Note: such strict definitions are not always a bad thing as they can greatly simplify deployment and use, but such simplicity comes at a price, flexibility.)

Unfortunately for Google Health, who has built its system on top of a modified version of CCR, this trend   likely lead to increasingly difficulty in convincing healthcare providers to provide patient health records in a CCR format.  Google would be wise to immediately begin the work necessary to bring CCD documents into their system as the writing on the wall is getting clearer by the day.  CCR is a standard that will fade away.

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As required by legislation in the American Reinvestment and Recovery Act (ARRA), HHS/CMS released rules for the meaningful use of certified EHRs before the end of 2009 (late the afternoon of Dec. 30th).  Others have already written plenty on what is actually stated in these rules, therefore, let’s take a look at the potential winners and losers of these new rules as well as those where it is still too early to tell.  This analysis will be laid out over the next few posts starting with Winners below.


Consultants: At 556 pages, very few physicians and hospitals will take the time to read the complete meaningful use rules, rather hiring consultants to guide them in mapping out a strategy to adopt and implement a certified EHR to meet these requirements in the tight time-frame allowed.  Hospitals and large private practices will have the resources to hire such consultants, small practices will not, instead relying on the yet to be formed statewide extension centers.

Payers: Demonstrating meaningful use will require electronic eligibility checking and claims submission for 80% of all patient visits.  This will greatly simplify payers cost burden for payers who must currently contend with eligibility checking by phone and mountains of paper claims submissions from providers.

Large, Established EHR/EMR Vendors: These vendors have the resources and political clout to insure their apps will meet certification requirements.  They will meet such requirements either through internal development or acquisitions.  In some cases, partnerships will also be used to meet smaller, niche requirements of meaningful use.  Big boys with an established presence include: AllScripts, Cerner, Eclipsys, Epic, GE, McKesson, NextGen, Siemens, etc.

Revenue Cycle Management (RCM) Vendors: Core to most RCM vendors solutions is the ability to perform electronic eligibility checking and e-claims submission.  As this is now a core requirement for incentive payment, these vendors will see a boom in business. Smaller, independent vendors such as MedAssets and SSI will likely be acquired.  Large vendors, such as Emdeon, may expand their offerings into core EMR functionality similar to what athenahealth has done with the introduction of athenaclinicals.  Companies such as RelayHealth should also see a bump up in business as providers look to address this requirement.

Medication Checking Reconciliation & eRx Apps: A significant amount of attention is being paid to addressing medication errors and e-Prescribing (eRx) in Stage 1 of the meaningful use rules.  The HITECH Act legislation specifically calls out eRx as part of meaningful use and CMS has been promoting/encouraging adoption as well so this is a no-brainer.  The big winner here is SureScripts.  Medication/formulary reconciliation is also called for in Stage 1, something that the Joint Commission has been advocating since 2005.  Several eRx and EMR apps have embedded this functionality in their solutions.  Lastly, physicians and hospitals will be required to do drug-drug, drug-allergy and drug-formulary checking.  Companies such as First Data and Thompson as well as Cerner’s Multum solution should do well in addressing this requirement.  There are also a plethora of smaller companies, such as enhancedMD, Epocrates, Medscape, etc. that may benefit, through partnerships with or acquisitions by larger HIT firms.

M&A Firms and Small, Innovative Software Companies:: Stage 1 is asking for a lot of functionality that simply does not exist in many EHR/EMR solutions.  Larger, more established EHR/EMR companies will not have enough time to build out all the functionality required and will either seek partnerships or acquire smaller, niche vendors such as those mentioned previously (our bet is we’ll see more acquisitions than partnerships).  Due to the strong demand for niche applications to fill gaps in their solution portfolios to meet Stage 1 requirements, these EHR/EMR vendors will likely pay premium dollars for the best-in-class apps.  Small, innovative software vendors and the M&A firms that represent them will do well over the next few years.

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Just came across this document that you’ll find on Scrib, which is a bit over my head, but quite sure some of the visitors to Chilmark Research will find it useful.  A team comprised of UK NHS reps and others from the US put together the guide with the expressed intention of:

…provide guidance for the use of SNOMED CT in the HL7 V3 Clinical Statement model.

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merger2While a rumor was leaked about a week ago that Medicity and Novo Innovations would merge, the rumor became official this morning.  The merger of these two vendors in the nascent RHIO/HIE (Regional Health Information Organization/Health Information Exchange) market is brilliant move bringing together two companies with distinct, but complimentary solutions and clients.  This is truly one of those deals, unlike most, where there is real potential for 1+1=3.  But as with any merger/acquisition, devil is in the details, e.g., cultural mesh, go to market strategy, product rationalization/integration, etc.

Yesterday afternoon and this morning I had the opportunity to speak to representatives of both companies about this merger, what it means to them and more broadly the market.

Top Bullet Points:

  • Arguably creates the largest (most physicians served) 3rd party (EMR agnostic) HIT provider for interoperability and clinical data sharing.
  • This is a merger, no lay-offs, no consolidation/rationalization of employees.  Senior execs at Novo to be part of senior staff of combined entity.
  • New entity to adopt Medicity brand.
  • Novo Innovations offices will become the east coast hub for Medicity.
  • Structure of deal is mix of cash and stock.  Performance goals and triggers to keep everyone together to contribute to combined corporate growth.
  • Little technology overlap, very complimentary.  Will build API to bring two solutions together.  Claim it will not be difficult as connecting disparate systems is their raison d’etre.  We’ll have to wait and see, not always that easy.


Both Medicity and Novo Innovations target the market for clinical information sharing.  Both are doing extremely well in the market reporting strong growth in 2008 with Medicity reporting 81% growth in 2008 and Novo Innovations reporting better than 200% growth in 2008.  Novo is the younger and much smaller of the two, founded in 2003 with revenue about 1/10 of Medicity’s.


Medicity focuses on providing solutions that solve the challenging issue of aggregating consumer health data within a RHIO, HIE or IDN, and presenting it at the point of care.  What the solution does is combine a data repository (“DataStage”) with Master Patient Index (MPI), an interface engine (“Nexus”) to connect to multiple clinical apps aggregating all available clinical data within the network and provide a single point of access, via a portal, to a comprehensive patient record for the clinician.

Key customers for Medicity include: Adventist Health, CalRHIO, Delaware HIN (1st RHIO win in ‘06), and LabCorp.  In the call this morning, Brent Dover, President of Medicity, stated that roughly 60% of revenue comes direct from hospitals/IDNs (Integrated Delivery Networks) and the balance from RHIOs.

Novo Innovations

Novo Innovations offering is quite different from Medicity’s, but very complimentary.  Rather than aggregating clinical data into one central repository, Novo uses a model that combines a “Grid” (HL7-based messaging network) with “Nodes” (interfaces to clinical apps) and intelligent “Agents” (lightweight rules-based app) to promote Peer to Peer (P2P) sharing of clinical records. Physicians within an HIE subscribe, via the agent to what information they wish to see regarding their patients/customers.  The agent works in the background, on the Grid, tapping Nodes for updates based on pre-defined rules, and bringing information back to the physician.  Information can be delivered directly into the physician’s EMR, or provided as a Web-based view and even as a PDF/paper file.

Novo’s solution does not try to do everything, but what it does do it does very well and hospitals love it for three reasons:

  1. It helps them with physician retention (affiliated physicians get up to date info helping them deliver better care without having to ask for it).
  2. Encourages/promotes affiliated physicians to submit orders and referrals back to the hospital via the embedded order entry capabilities.
  3. Big cost savings here as well for hospitals spend literally millions of dollars a year just creating and sending out reports via snail mail.

Another advantage, Novo is a pretty tight, low cost solution that installs quickly and is hosted, thus not requiring a lot of overhead/support from a hospital’s IT group.

Novo, to date, has targeted only hospitals and now has some 350 hospitals on-board. Key customers include: Adventis, CHRISTUS Health (TX), Trinity, UPMC (PA).  As it is an SaaS, pricing/revenue at Novo is based on an inital install fee and follow-on subscription model. We estimate Novo’s 2008 revenue at slightly under $5M.

Why the Merger, Why Now?

In speaking with Bill Sims VP of Marketing at Novo Innovations I asked him why did they decide to merge with Medicity when they were on such a high trajectory.  Reason was quite simple. Novo was considering a number of options to scale the company to the next level.  Though they increase staff by some 70% in 2008, they realized that they would have to scale faster than that to fully capitalize on the market opportunity (an opportunity that may only get bigger with the forthcoming HIT Stimulus package of the new administration).  Medicity approached them and made them an offer that Novo couldn’t refuse.  By combining forces, the new entity would have the technology breadth, resources and scale to become the clear market leader.

Bill also stressed that the two companies had very similar cultures with very flat organizational structures, a minimum amount of bureaucracy and strong focus on delivering cool technologies to the market.

Brent of Medicity took a similar view with regards to the complimentary strengths of the two companies and clearly recognized the unique value that Novo was bringing to the HIE market.  For Medicity, they see Novo Innovations’ solution as, to use a metaphor, the basic cable network and Medicity solutions being te premium channels.  In merging wih Novo, Medicity has a much stronger story to tell prospects wherein they can offer an easy, low cost, low overhead on-ramp to connectivity within an IDN.  As the IDN moves up the adoption ramp of connectivity, they can start subscribing to the premium channels that Medicity offers.

Our hunch is that Novo Innovations was seeking additional financing for that next stage of growth in a market that has become extremely conservative with little capital liquidity.  For Medicity, the story is slightly different.  Medicity did not have a low cost, door opening solution for the HIE/hospital market.  With shrinking/collapsing budgets there, Medicity was finding it increasingly difficult to get an audience with a prospect.  Also, Medicity is reliant on nearly half of its revenue from RHIOs, which have had a notoriously difficult time creating a sustainable business model.  While Medicity likes to hold up the CalRHIO as a prime example, this RHIO is unlikely to go anywhere in a state that is currently looking at a $12B shortfall and considering drastic measures to reign in expenses.  Supporting/funding a RHIO in California is about as likely as seeing Karl Rove take a position in the Obama administration.  In merging with Novo Innovations, Medicity now has a much stronger story to take to the HIE/hospital market, where we predict stronger growth going forward.

Looking Forward:

As has been written EVERYWHERE, the HIT market is a buzz as to what the Obama Administration’s HIT stimulus bill will look like.  Hard to get a clear picture as to the actual size of that stimulus package, but reasonable estimates are hovering around $25B for HIT.  That can buy a lot of software and services, and there in lies the $25B question:

Where exactly will all that money go (EMRs, other clinical apps, interoperability, etc.)?  And how will the money be distributed (grants, tax breaks, incentives, P4P, etc.)?

As the recent report from Booz Allen Hamilton pointed out, the best bang for the buck may lie in those efforts that support physician to physician sharing of medical records, (interoperability) the sweet spot for this new, combined entity.

Impact on Consumer-facing Healthcare

Solutions such as those offered by Medicity and Novo Innovations will play an absolutely critical role in aggregating a consumer’s health records, that can then, at the consumer’s request, be exported into one of the Health Clouds (e.g., Dossia, GHealth, or HealthVault).  Once this rich data set is there, the consumer can populate their PHR or other app service with pertinient clinical data.  As clinical data  is truly the gold standard (as compared to claims/PBM data), an ability for a consumer to perform this function is quite powerful.

Medicity and several of its customers recognize this and Medicity is now working with these customers to connect them to GHealth or HealthVault.

Bottom Line:

This is not a move of desperation by either company, but each needs the other to take their business to the next level.  This is a very young and dynamic market with rapidly changing players and equally rapid changes in technology.  Right now, combined, these two companies serve roughly 10% of the 6,000+ hosptials in the US today. How the new Medicity capitalizes on the potential in the market remains to be seen but if they execute well, they’ll be the one to beat and certainly bear close watching.

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