Posts Tagged ‘IBM’

Acquisition fever has set in and they’re dropping like flies, independent HIE vendors that is. Earlier today, Siemens announced its intent to acquire enterprise HIE vendor MobileMD. So in little over a year we have seen IBM snag Initiate, Axolotl fall into the hands of Ingenix/United Health Group (Ingenix is now known as OptumInsight), Medicity tie the knot with Aetna, Harris pick-up Dept of Defense clinician portal darling Carefx and Wellogic, a damsel in distress, being rescued by Alere. Elsevier also announce an intent to acquire dbMotion for a whooping $310M, but nothing came of that other than a substantiation of the rumor that dbMotion was being shopped.

That does not leave many small, independent HIE vendors that have some traction left in the market. Following is our list of such vendors and what might become of them:

4medica: A relative new comer to the HIE market, 4medica will be profiled for the first time in the upcoming HIE Market Trends Report which is scheduled for release in early 2012. 4medica is quite strong on lab information exchange. Future: 4medica still remains under the radar screen as it completes its platform to truly serve all HIE needs. Once that process is complete, the company is likely to gain increasing attention and will be acquired in 18-14 months.

Care Evolution: Privately owned and self-funded, founder has every intent to stay independent. As he has told us on more than one occasion, I’ve already made plenty of money and this is not about cashing out to the highest bidder. Future: Everyone has a price but this company may be one of the last to fall into the arms of another.

Certified Data Systems: Appliance (think small router with embedded HIE functionality) HIE vendor that has close, yet non-exclusive partnership with Cerner. Would not be surprised if they struck a similar deal with Epic as Epic struggles to connect to EHRs outside its system. Future: Fairly new to the HIE market but gaining traction. Will stay independent for next 12-18 months, after that, anyone’s guess.

dbMotion: One company already made a bid, but pulled back, thus pretty clear this company will be acquired, question is how much and we suspect it will be significantly less than what Elsevier was planning to pay. Future: If price is right, could be acquired at anytime.

HealthUnity: Small HIE vendor from the Pacific Northwest that made a big splash when with Microsoft (Amalga UIS) they won the big Chicago HIE contract. Future: With Microsoft cozying up close to Orion, HealthUnity will be looking hard for other partners and/or to be acquired. Will give them 12-18 months as an independent.

ICA: Another small HIE vendor that has had a few wins here and there but will come under increasing pressure from larger, better funded HIEs. Future: Likely to be acquired in next 6-12 months, maybe even earlier.

ICW: InterComponent Ware is a German HIT company and a sizable one at that with over 600 employees. To date, ICW has a very small presence in the US HIE market so an acquisition, if there were one, would have little impact.  Future: Their foreign ownership, size and interests in several health related markets make them an unlikely candidate for acquisition.

InterSystems: Arms dealer to all, InterSystems Cache and Ensemble are widely used in the market and the company has built upon these core technologies to get into HIE market. Future: Fiercely independent and senior team is basically the same since founding this company will remain independent.

Kryptiq: Having signed a strong partnership deal with Surescripts, Kryptiq is unlikely to be interested in any acquisitions talks. Future: Will remain independent for time being and if Surescripts’ Clinical Interoperability solution gains significant traction, Surescripts will likely acquire Kryptiq outright.

Orion Health: New Zealand-based, privately owned with good prospects in markets beyond America’s shores, this company will likely want to stay independent (future IPO) unless of course a very large software company (think IBM, Microsoft, Oracle etc.) gives them an offer they can’t refuse. Future: Will stay independent.

Getting back to the Siemens/MobileMD deal…

While we have not had an opportunity to talk with either Siemens or MobileMD (will provide follow-on update once we do) here are some quick take-aways:

Siemens has chosen to buy. This is unlike other EHR vendors who have either built their own HIE solution (athenahealth, eClinicalWorks, Epic, NextGen) or have partnered with others (Allscripts, Cerner, GE).

Existing partner doesn’t cut it. Siemens has an existing partnership with NextGen for ambulatory but NextGen’s HIE is a closed system. This prevented Siemens from being able to leverage this partnership to serve their client needs, which most often includes a multitude of EHRs in the ambulatory sector to interface with.

Lacked sufficient internal resources. By buying into the market, Siemens has signalled that it does not have the development resources to respond quickly enough to customer demand (not too surprising, Siemens has been struggling in the North American market for sometime). This also signals that they could not find the right partner outside of their NextGen relationship, which is a tad puzzling as we are quite sure they paid a premium for MobileMD.

Paid a premium. We estimated MobileMD sales in 2010 just shy of $8M in our 2011 HIE Market Report. HIE vendors are selling at a premium, even second tier ones such as MobileMD. Assuming industry average growth in 2011 (we peg it at 30%) that would give MobileMD sales of ~$10.5M for 2011. We put the final strike price for MobileMD at $95-110M.

Existing MobileMD customers relived. Unlike the acquisitions of Axolotl and Medicity, which both fell into the hands of payers, MobileMD is going to a fellow HIT vendor which must assuage the fears of more than a few MobileMD customers and prospects. Siemens intends to keep MobileMD whole, bringing on-board MobileMD’s president and founder, again contributing to continuity.

ADDENDUM: Please excuse our lack of posting on industry trends in a more frequent manner. Like many in the healthcare sector, Chilmark Research is struggling to keep up with demand and recruit top-notch resources. We seem to have hit our stride in this market, are receiving countless engagement inquiries and engaging in most of them. All good problems to have, but you dear reader are the one who ultimately suffers from our lack of posts. Thank you for your patience to date and know that we are doing our best to keep you informed with some of the best research and analysis of this critically important and meaningful market.

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Little over a month ago, IBM and WellPoint announced an agreement wherein WellPoint will deploy IBM’s latest and greatest super computer and artificial intelligence mega-mind Watson. Watson’s claim to fame was its ability to beat the human Jeopardy champions much like Big Blue beat reigning chess champion Garry Kasparov in 1997. Since that Jeopardy match, IBM has been quite vocal about its desire to apply Watson in the medical arena, we’ve been buried in press releases and briefings, but the WellPoint announcement is the first one of any real consequence. Having interviewed both IBM and WellPoint, following is our review and assessment.

Watson is a relatively new form of artificial intelligence, based to some extent on neural networks. What is unique about Watson is that it has been developed (trained) to understand the nuances of language. It is a question & answer system that uses among other techniques, natural language processing, to extract meaning out of unstructured data. In developing Watson for the Jeopardy challenge, one of the key design parameters was for Watson to answer a question in under three seconds – plenty fast enough in a diagnosis/treatment decision scenario. This is a key reason why Watson may have enormous utility in the healthcare sector where so much data is unstructured, the pace of change is so high and the ability to chose the optimum treatment patient plan for a given diagnosis is less than ideal today.

WellPoint is the largest payer in the US with some 34.2M members and 14 Blues across the country. Despite this impressive size (or maybe because of it), WellPoint has been far less aggressive than others in the HIT realm, especially for those systems used by providers. In signing this deal with IBM, WellPoint is signaling to the market, and likely those on Wall Street, that they intend not to be left behind. In asking WellPoint about their HIT strategy, WellPoint CIO Andrew J. Lang told Chilmark that WellPoint’s intent is not to create a new line of business (as is the case with UHG and Aetna) but to improve the quality of health delivered to their members by providing physicians the best tools possible. Certainly a noble goal, but only time will tell as to how closely they adhere to such a goal.

What it is:
While IBM is pursuing a number of potential vertical markets for Watson, including financial services, this is the first actual “Win” for IBM’s Watson. Money is changing hands with WellPoint paying an undisclosed amount to deploy Watson.

Watson will be deployed as a “cloud-based” service. Actual pricing for accessing this service has yet to be determined but as WellPoint put it to us, they do not want to create barriers to physician use. Thus, don’t be too surprised if it is offered virtually free to in-network providers, clinics and hospitals.

The Watson intelligence service will focus first on three oncology domains (breast, lung and colon cancer) that WellPoint’s internal clinical staff have determined most promising. These three were chosen for they are areas where WellPoint’s claims data shows high variability in treatment; there are significant, on-going advances in research and treatment; and a high likelihood for demonstrating the utility of a system such as Watson.

WellPoint does not intend to displace physician decision making, but augment it. WellPoint states that physicians will still be able to ultimately make their own decision as to the best course of action (treatment) for a given patient. As CIO Lang stated:

Watson is intended to be a doctor’s assistant, the doctor is still in the driver’s seat.

Watson is currently undergoing “training” with reams of data (research, claims data, etc.) in the three oncology domains being fed into it, questions being posed, answers evaluated against real clinical evidence to bring Watson up to a significant “confidence level.” The Watson service will be released in the first quarter of 2012.

Among the multitude of announcements that pass across our computer screen on a daily basis, this is one that really piques our interest. Like any exceedingly powerful technology, Watson has the potential for good and likewise the potential for harm. If WellPoint follows its stated intent of deploying Watson as a service, as an assistant to the practicing physician, facilitating the care process with more rapid and accurate first time diagnosis and suggesting a treatment plan that is most relevant to that specific patient, then Wow, this could be truly game changing and far in excess of what other payers have done to date in the HIT realm. If, however, WellPoint’s deployment of Watson becomes prescriptive wherein physicians are no longer in the driver’s seat, then “Houston, we have a problem.”

Having personally seen what can happen when someone is misdiagnosed, when appropriate treatment is delayed, particularly for an aggressive form of cancer, the anguish and subsequent anger is nearly unfathomable. If Watson can indeed short-circuit the diagnosis and guide physicians to the most appropriate treatment in an expeditious manner, well then hat’s off to IBM for developing Watson and WellPoint for taking the risk to be the first to deploy Watson in the healthcare sector.

Dr. Watson, do you accept house calls?

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Trash Talk vs. Reality

Spreading FUD (fear, uncertainty and doubt) is one of the most common sales tactics used against a competitor. I’m never surprised to hear some FUD being thrown around at a major trade show like HIMSS, but this year it seemed to be particularly virulent among the many vendors I spoke to, which did surprise me. In a market that seemingly has nearly unprecedented money flowing into it, why all the trash talk? The only rational I can come up with is that all that money flowing into healthcare IT is also attracting far more competition from ever bigger players with greater resources.

For example, a little over a year ago the HIE market was comprised of very small vendors, the majority with sales in the $15-25M range. Today we have IBM, who acquired Initiate, Ingenix, who acquired Axolotl, Aetna who acquired Medicity, GE who is partnered with ICW, Surescripts, who partnered with Kryptiq, Thomson Reuters who is partnered with Care Evolution, Microsoft with their Amalga platform, Emdeon, who rolled out their HIE solution at HIMSS’11, and Harris Corp. who announced they will acquire Carefx. This is clearly a white hot market and one that will only see more consolidation in the coming year.

Getting back to the point of this post…

One rumor I heard over and over again was that Medicity was seeing a major push-back by clients and prospects as a result of their acquisition by Aetna. Several vendors told me that the Pennsylvania HIE contract (PHIX) that was going to Medicity had been torn up due to Medicity’s new ownership structure. I was also told that several other Medicity contracts were also in jeopardy. (Note: heard nearly an equal amount of similar rumors for Axolotl, who’s parent is United Health Group.) Now this may all have some truth to it, but it is important that anyone listening to these rumors must consider the source and do their own background check.

It appears that Vermont has done just that for today they awarded the State HIE contract to Medicity. Vermont Information Technology Leaders Inc., (VITL) has been operating a pilot HIE in the State for nearly five years, using technology from GE Healthcare (it was a relatively simple document management solution) so it is with some surprise that the incumbent, GE, who has been investing heavily in updating their HIE solution suite did not get the win.  Another company that was likely bidding for this contract is Covisint, who recently won the contract for Vermont’s Blueprint for Health. Since there will be a direct link between VITL and Blueprint, again a bit of surprise that Covisint did not win this contract either.

So what does this tell us?

1) Despite all the rumors and trash talk not everyone is listening.

2) The fear that payer ownership of an HIE vendor will result in a sales slide for the HIE vendor may be misplaced.

3) Decent, proven technology (and likely very aggressive pricing) can overcome a lot of FUD.

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The first major distribution of HITECH Act funds occurred a couple of weeks ago when HHS awarded nearly $1 billion for HIT initiatives including $386 million to 40 states and territories to help establish public Health Information Exchanges (HIEs).  This represents the lion’s share of the original $564 million allocated for Statewide HIE development under ARRA.

Sixteen states did not receive funds including some of the largest states (by population) including Texas, Florida, and New Jersey.  Other states not receiving funding in this first round include: Alaska, Connecticut, Idaho, Indiana, Iowa, Louisiana, Maryland, Mississippi, Montana, Nebraska, North Dakota, South Carolina, and South Dakota.  These states will likely receive funding in the next round.  Additionally, there were a couple of awards that were bizarre including minor awards (~$700k) to some U.S. territories including Guam, American Samoa, and the Northern Marianas.  Almost kind of inevitable it seems when the federal government gets involved in handing out large amounts of cash.  Everybody wants to make sure to grab their respective piece of the pie however small it may be.

Funding Requirements (or how to get the $$$):

In its Funding Opportunity Announcement (FOA) last August 2009, the ONC identified 5 “Essential” Domains for HIE funding:

  • Governance
  • Finance
  • Technical Infrastructure
  • Business and Technical Operations
  • Legal/Policy

The ONC expectations were that states will define objectives, set goals, and measure progress within the context of these five domains.  This also includes the submission of a plan, approved by the Department of Human and Health Services, that describes the activities to facilitate and expand the electronic movement and use of HIE according to nationally recognized standards and implementation specifications.

To specifically get the funding, states had to submit an initial application by October 15th to the Department of Human and Health Services.  Additionally, states also have to submit a Strategic and Operational Plan.  The Strategic Plan contains the State’s vision, goals, objectives and strategies for statewide HIE including the plans to support provider adoption.  The Operational Plan contains a detailed explanation, targets, dates for execution of the Strategic Plan.  Basically, states applying for funding fell into 3 general groups:

  • States with no existing Strategic Plan – These states needed to provide a detailed description of activities to develop Strategic and Operational Plans by October 15th.  Subsequently, the state is expected to develop and submit their initial Strategic and Operational Plans within 6 –8 months of receiving their funding.  A limited number of states fell into this group including Arkansas, Illinois, Iowa, New Hamphsire, Nevada, North Dakota, Oklahoma, and South Carolina.
  • States with existing Strategic and/or Operational Plans that are not consistent with ONC criteria – These states submitted existing Plans with a detailed gap analysis compared to ONC’s criteria and a plan for revision by October 15th.  Subsequently, these states were to submit updated Strategic and Operational Plans in alignment with ONC criteria within 3 months of funding.  Almost all of the states fall into this category with about half needing to further align their Strategic/Operational Plans with ONC criteria required prior to the Implementation phase and the other half needing additional planning efforts required prior to the Implementation phase.
  • States with existing Strategic and/or Operational Plans that are consistent with ONC criteria – These states submitted their Plans for approval by ONC, including a description of health IT implementation to date and the plan for continued implementation. Only 4 states (Delaware, Idaho, New Mexico, Utah) submitted Operational Plans by October 15th.

Once the State’s Strategic and Operational Plans are approved, the State is free to begin to use the HIE funds for ‘Implementation purposes.’  From a Technical perspective, this means that the State can use these funds to select a vendor, sign a contract and begin actual development of the HIE infrastructure.

Impact on HIE Vendors

Several states, including Alaska, Maryland, and West Virginia, assumed future funding was in the bag and released RFPs in the later months of 2009.  Now that the awards are official, states across the country (and territories) will work with consultants to finalize their Strategic Plans and begin looking for an HIE vendor. In total, about 20-22 states are expected to issue RFPs for technical infrastructure over the next 6-12 months.

This is creating a giant land grab as vendors vie for position to tap this windfall of State HIE funding.  Some of the RFPs, such as the one from West Virginia in late November, elicited interest from dozens of various Health IT vendors.Officials from the West Virginia Health Information Network stated they received a ‘significant number’  of responses to their RFP although they refused to cite the exact number.

Confusion Abounds

All of this activity is creating a great deal of confusion in the market for those looking for an HIE solution.  HIT vendors of all strips are now claiming to be HIE vendors to tap into this new found source of funding.  One could even argue that IBM’s recent acquisition of Initiate was to some extent prompted by all this activity in the HIE market.  While numerous  HIT vendors  claim they have an HIE solution, only a handful have a solution that meets current and immediate future needs of the statewide HIEs.  Most others have specific HIE functionality elements, but not necessarily the full solution package.  Our forth-coming HIE Market Report (hope to have it on the streets by end of March) will seek to provide clarity by providing a market classification schema.

Vendors are also facing several challenges responding to these RFPs, primary among them, little commonality from one state to the next.  The most obvious one is that each state has their own unique approach to their technical architecture. They range from Idaho with its desire for a single statewide network (Idaho Health Data Exchange) to Indiana with multiple, independent, local HIEs, and no statewide architecture. Additionally, most states are issuing RFPs that include a number of use cases that go beyond just basic data exchange functions.  While the statewide HIEs obviously need to plan for the future, it is creating uncertainty among vendors in how they respond and price their solutions given that some of the use cases outlined in an RFP may never be implemented.

While being rewarded with a statewide HIE contract represents a significant win for a vendor, especially for smaller vendors, the real value (i.e., money to be made) is not from the initial contract of simply ‘connecting the pipes.’  The long-term value will come from deploying higher-value add applications and services such as analytics, quality reporting, transactional services which typically are 5x-7x more lucrative than basic data exchange services.  Data exchange is but the «tip of the iceberg» to far more lucrative opportunities and is why vendors are competing so hard for these contracts.

No Clear Leader

Our research has not identified any clear leader in the state HIE market today. Part of the reason for this is that few states have begun the process selecting an HIE vendor, let alone go live with a solution. If pressured, we would give the leadership crown to Axolotl who has had almost a singular focus on such public exchanges and now supports 4 statewide HIEs. Axolotl’s leadership, however is a tenuous one as there are several other vendors with at least one statewide HIE client including Medicity, Intersystems, and GE Healthcare. This market is clearly one that is wide open and we foresee significant activity in the coming 9-12 months.  Let the Great Land Grab of 2010 commence!

Note to Readers: In giving credit to where credit is due, Matt Guldin, who is leading Chilmark Research’s HIE research for our forthcoming report, authored this post.  Thank you Matt for a very informative post.

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This morning, IBM announced that it will acquire leading healthcare Master Data Management (MDM) vendor, Initiate for an undisclosed sum.  The healthcare IT (HIT) sector is white hot right now so it is likely IBM paid a pretty penny for Initiate, the clear healthcare market leader in Master Patient Index (MPI) technology.  Combining Initiate sales for 2009 at around $90-95M, a hot sector (say 3.5-4x revenue evaluation)  and one concludes that IBM put down nearly $400M for this healthcare darling.  This acquisition confirms one of our 2010 predictions – a significant increase in HIT acquisitions, including the entry (or increased presence, as in this case) of large IT vendors.

So What Did IBM Get?

With tens of billions of ARRA stimulus funding being poured into the healthcare sector under the HITECH Act, IBM has picked up one of the real jewels in the industry who is ideally positioned to capitalize on a significant portion of that federal largess.

As we have written previously, core to HITECH legislation is that funding be used to promote “information exchange for care coordination.” Such coordination of care hinges on a clinician’s ability to pull up the right records, for the right patient, at the right time. Tapping such patient information tucked within an EHR, an HIE, a public health database, etc. at the click of a mouse is done via MPI, but this is no trivial task. Most software vendors offer an MPI solution within their product based on deterministic algorithms.  But these algorithms, that rely on such things as name, address, maybe a social security number, are often not robust enough for large data sets.  More advanced, albeit more complex, MPI solutions rely on probabilistic algorithms, which is Initiate’s core competency.

Initiate currently serves some 2,400 healthcare facilities and lays claim to being used at 40 or so health information exchanges (HIEs).  Currently, Chilmark Research is conducting a study on the HIE market (hope to have draft ready by HIMSS) and in our discussions with many in this sector, Initiate is seen as the clear market leader and partner to provide HIE clients with an MPI that will meet their complex information sharing needs.

In somewhat of a surprising move, Initiate jumped directly into the HIE market by acquiring the small HIE start-up, Accenx in October 2009.  It will be of some interest to see how aggressively IBM leverages both Initiate and the Accenx solution going forward.  Our bet is that IBM will partner for RHIOs (e.g. Axolotl, Carefx, Medicity, etc.) but go directly after the private HIEs within large Integrated Delivery Networks (IDNs) competing against the likes of large EMR companies Cerner and Epic as well as HIE pure plays Medicity, RelayHealth, etc.

Final Assessment:

Excellent move by IBM and an acquisition that they will be able to leverage in other markets such as their significant presence in supply chain management.

Installing Initiate requires a significant amount of services, IBM will be able to capitalize upon this as well.  Also, IBM has a not so insignificant hardware (large database servers) and software businesses  that can be combined with Initiate to provide healthcare with a larger, more complete solutions suite.

This acquisition will put increasing pressure on Oracle to make a bigger move in the healthcare sector.  (Note that Sun Microsystems, a recent Oracle acquisition, does have an MPI – being used in NHIN’s CONNECT platform – but reports from the field do not rate this solution highly).

Acquisition also puts some pressure on Microsoft’s Health Solutions Group, who yesterday closed on their acquisition of Sentillion.  Microsoft is making a modest play in the HIE market with Amalga UIS, Sentillion will also play a role here, but there is, at least to our knowledge, no MPI solution within Microsoft’s portfolio that can compete with Initiate. How Microsoft responds will be interesting to follow.

There is some danger, however, that Initiate may languish under the IBM umbrella becoming buried within a multitude of applications that IBM currently offers.  Hopefully, IBM recognizes the jewel they have acquired and will not let this market darling succumb to internal forces that may wish to simply drop Initiate into the large IBM application hopper.

For another perspective, Ray Wang of Software Insiders has a good analysis of this acquisition in the context of the MDM market space.

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Today, IBM announced that it has signed-on eHealth Initiative (eHI) CEO, Janet Marchibroda as their new chief healthcare officer.  A somewhat odd title as she is not a doctor, but that is ibm-in-second-lifereally not the issue here.

To date, IBM has been somewhat missing from action in all the HIT buzz with most of the limelight being showered upon traditional EMR vendors and of course the big, yet still nascent initiatives of Google Health and Microsoft’s HealthVault.  With the appointment of Marchibroda, is IBM signalling a renewed interest in HIT?

Our guess is yes and IBM will be targeting its efforts in one sector of the market that has no major competitor, the “Exchange” (HIE & RHIO) markets.

Why “Exchanges”?

  1. Leverages IBM’s core technology strengths in middleware.
  2. Plenty of services revenue in the Exchange market for IBM to tap into.
  3. No competition of note as market is dominated by vendors with less than $30M in annual sales.  IBM may make a play for one of these vendors to gain added expertise and credibility that goes beyond their acquisition of Healthlink in 2005, which was a services play.
  4. Initial HITECH Act funding of $300M with certainly more to follow.

What does Marchibroda bring to the table?

  1. Knows the political landscape on the Hill quite well.
  2. Intimately familiar with the Exchange market through leading eHI and knows both where the skeletons are hidden and where the money will flow.

Note that IBM has played a small, exploratory role in Exchanges in the past, particularly with the North Carolina RHIO, (NCHICA) and Taconic RHIO (THINC), but given their size, nothing really of significance – maybe they decided the market just was not mature enough.  With significant HITECH $$$ now flowing in though, IBM may be getting ready to re-enter the market.

Keep an eye on IBM, as more is likely forthcoming in the next few months as they set themselves up to capitalize on the HITECH Act.

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ibm_cloud_copyJust stumbled across this article, during the course of research for upcoming Health Cloud report.  IBM is sponsoring research at a number of universities around the globe all looking at specific Cloud Computing applications in specific industry sectors.

What we found of particular interest in the article is the research in health cloud computing that IBM is sponsoring at the Univ. of Pretoria in South Africa. The ultimate goal of this research is to expand the health cloud across the seven universities that comprise the HEALTH Alliance in East Africa to provide a “Center of Excellence” for medical services in sub-Saharan Africa.

When one thinks of coupling this health cloud with mHealth (mobile health apps), there are all sorts interesting service models that can be created to finally deliver much needed and better care in this corner of the world.

Well done IBM.

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This morning’s Wall Street Journal has an article, first page – Section B, highlighting the growing impact of the financial crisis on the IT industry. The enterprise software powerhouse, SAP, shocked investors earlier this week when it warned that it would not meet its 3rd Qtr target, citing slowness in the mid-market. Another tech company, RightNow Technologies (provides an SaaS CRM solution) also announced that they are seeing delays on invoice payments. And getting back to the WSJ article, VC firms are having a tough time raising capital and are have begun telling start-ups to batten-down-the-hatches for a long slow period. Some have even gone on to say to their start-ups that if you have a bank credit line, draw it down now as it may not be there tomorrow.

Impact on Healthcare IT (HIT) Spending

Adding to the tight money situation for businesses of all sizes, regardless of market sector, decreasing consumer spending and the increasing burden of healthcare costs shouldered by consumers will directly impact healthcare. Small to mid-size physician practices will be particularly hard hit as consumers forgo visits. This will, in-turn, slow technology adoption for the foreseeable future and result in drastic consolidation among HIT vendors.

And for those of you holding out for one of the presidential candidates to drop a boat-load of money into HIT, don’t hold your breath. During a debate last week at Harvard, two noted healthcare economists each representing one of the candidates (they were both senior advisors to teh candidates) were quite clear in stating that any promises of large investments in HIT will have to wait while other priorities take precedent.

Despite all the doom and gloom, occasionally one sees a glimmer of brightness. IBM this week pre-announced earnings (to quell market concerns) that were positive. And this morning, I received a similar announcement from WebMD, wherein they state that advertising revenue for the third quarter is up substantially, year over year. Like IBM, clearly WebMD wants to get out in front with positive news to quell investor fears rather than wait till their scheduled 3rd Qtr conference call on Oct. 30th.

Quick Assessment:

  • Mid-market HIT vendors targeting physician practices will suffer. Expect consolidation, bankruptcy filings and even shuttered doors. Vendors targeting large practices and hospitals will rely heavily on maintenance and service revenues as customers look to control spend by canceling or delaying large projects.
  • There are far to many integration platform vendors targeting the RHIO/HIE market. Most of these will fail. Those that succeed will have a strong, existing client-base (not heavily reliant on RHIOs) with a clear annuity stream to carry them through what will be a tight market for the next 2-4 years. Those with a clear technological advantage will likely be acquired.
  • The consumer-facing HIT vendors will have little success going directly to the end consumer. Thus, their go to market strategy must migrate to a B2B2C (business>business>consumer) model. In pursuing such a strategy, they must show clear and demonstrable savings to the business sponsor. Creative financing and cost sharing approaches will increase to fund such deployments.
  • Internet-based, consumer-facing health solutions, particularly anyone claiming to be “Health 2.0” company must go beyond the hype and focus on delivering some real value that they can monetize. PatientsLikeMe appears to be on the road to success, far too many others to list do not. A real shake-out will occur here as these start-ups struggle to raise cash.
  • Whether one likes it or not, clearly, there is money in advertising but tapping that source will require a company to show that they have the visitors and are growing in number of impressions. That growth should exceed overall growth in health-related search. WebMD is one clear example, Waterfront Media another and eMarketer lists a few more.

Quick Note:  Just found this article over on CNET that takes  hard look at Web 2.0 companies with the potential to blow-up.  Hmmm, if one were to make a similar one for the Health 2.0 apps sector, who would You put on the list?

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