All “Scripts” From The Past?• We all read much about Allscript’s stock collapse this past week, starting with Mr. HIS-talk’s commentary on Jim Cramer’s show.• I happened to catch the actual TV segment while flipping cable channels when he panned AllScripts, after pumping it for years, lambasting them for “not being able to predict their numbers.” – Instead, he started pushing Cerner, whose financial/stock performance has been astounding since the Millennium (sic)• This week, I thought it might be interesting to see what HIS-tory might tell us about similar stock collapses in the past, and their impact on the company and its product line.• So, if you’re a Sunrise site, before you issue an RFP and pray that Judy might consider you worthy of a response, let’s take a look at what happened to some other HIS vendors after their stock price collapsed just like:
Taking Stock in the Numbers• My personal experience with HIS vendor stocks goes back to the early days of SMS when as a young ID in 1969, I received several hundred shares of their paper from their very generous execs.• Seems Jim Macaleer & Harvey Wilson believed in incenting their employees with a piece of the action so they would be just as motivated as they were to raise revenue & lower costs, the magic formula for “earnings per share,” the Wall Street mantra. • When I asked my early boss/mentor, Mike Mulhall, just what the shares were worth, he shocked me with the answer: ≈1¢ per! • Gee: 200 shares at 1¢ each = 2 bucks!? • But Mike quickly added: hold on to them, and told me they might be worth many dollars each some day… I trusted Mike, and so stuck them away in my desk drawer.
A Wall Street Winner!• If you remember our early episode on SMS, the company almost died circa 1971 when the $5M seed money Jim & Harvey got from their Wall St. investors was just about used up – scary times! • Mike had kindly warned me to get my resume ready just in case…• However, Harvey’s super selling and Jim’s tough expense management saved the day, and SMS grew nicely over the next few years, going public in 1975 for somewhere around $15 per share. • So my $2 had become $3,000 – not bad!• As a shared system, SMS’ revenue was extremely predictable, with 7-10 year contracts and reliable cash flow, so our earnings always came in as predicted and if Jim Cramer’s TV show was around back then, SMS would easily have made his “recommended” list!
What Goes Up…• It isn’t always peaches & cream on Wall St, however, as we all know from 2008! SMS had its ups & downs too, generally following the roller coaster as the bulls & bears fought it out.• I’ll never forget one fateful day in the early 80s when I was selling my last chunk of SMS stock to buy our new home. I called my broker, told him to sell, and got the bad news: not today! – Seems the stock (& entire market) had tanked that very day: my stocks worth $”X” in the morning were now worth ¾”X”!• So just what does a stock’s performance tell you about the company and its products?• Well, after making and losing sizeable sums in HIS vendor stocks from the four firms I worked for (SMS, McAuto, HIS Inc. and Micro HealthSystems), I’ll give you the lesson I learned on the following page: read it well!
The Relationship Between a Stock Price and the Vendor’s Products: (this page left blank intentionally)
It’s Actually Backwards!• It actually goes the other way: a good product that sells well will bring in lots of revenue; add good management of the vendor’s expenses and you get profit, and that drives the stock up. Periodic fluctuations on Wall Street are just that: periodic fluctuations...• Let’s look at a few of the not-so-successful HIS vendor stock IPOs:• Remember the sad story of Sentry Data, Inc., the Tandem-based turnkey mini that tanked when a Wall St. crash in the mid-80s (similar to the 2008 bear) made prospects stop buying. That lowered earnings, and the stock dropped even more… • The deadly spiral literally killed off this fine firm and its promising product. Shelly Dorenfest & I sold it to CDC, so the product lived on for many more years, but that $20 a share stock dropped to a few cents in Chapter XI!
Biggest HIS Stock Crash of All!• Who can forget the HBOC debacle in 1999, right after they were bought by McKesson. HBOC had been the darling of Wall Street for decades as their model of selling complete turnkey systems let them book the entire sale in the first year, while SMS and McAuto could only book their recurring revenue a little bit each year... • The urge to post high numbers led HBO execs to beat Enron & AA to the punch. - So who keeps saying Healthcare lags behind other industries? Maybe in IT, but not in “creative” accounting!• McKesson’s stock dropped $9 Billion dollars in one day when their shares hit the fan! And what was the relationship to their Paragon, Star, Series and (then) Pathways product lines?• Zilch! Hundreds of hospitals are still running each of them today, well over 10 years later, and probably will be 10 years from now.
So Is That All the Script?• The sad collapse of AllScripts’ stock due to missing earnings projections tells more about their executive’s mis-management than about the fine suite of products they acquired from Eclipsys: – Sunrise is still a premier “high-end” system with clinical functionality rivaling Cerner & Epic, and their “SDK” revenue cycle system has few peers in the large-hospital & IDN market.• So just what does a vendor’s finances tell you about them? Well, if you’re buying a stock for your pension fund, plenty! Look at: – Annual revenue, stock price history, earnings per share, etc.• But if you’re buying an HIS system, then spend your time on: – Features & functionality, client references, user documentation, implementation work plan, contract terms & conditions, etc.• After all, what good will it do you to tell an RN struggling with “too many clicks” or an MD who’s searching through too many screens: – “But have you seen their stock price lately? It’s up 20%!!”