2. 2016 macro vendors

1. 2016 HIS Vendor Review
Part 2: High-end Vendors
© 2016 by H.I.S. Professionals, LLC, all rights reserved.
By Vince Ciotti & Susan Pouzar
HIS Professionals, LLC

2. High-End Vendors
• After summing up the market last week, the next 3 episodes
delve into the details of the vendors by size & target market:
– High-end = large hospitals of 300+ beds, AMCs and IDNs
– Mid-Range = community hospitals of 100-300 beds in size
– Low-end = hospitals of under 100 beds, including CAH
• Interesting how the size of most of these vendors’ annual
revenue corresponds to the bed size of their target market…
• For each vendors, we’ll delve into their:
- Annual revenue in 2015, growth/decline
over 2013, and $ HIS-tory over 20+ years
- Product line and target markets for each
- Key statistics: # of employees, offices, etc.
- Candid assessment of future prospects

3. • It’s staggering to visualize below how much this HIS giant has
grown since its humble beginnings in 1979 as “PGI,” the initials
of its three founders: Neal Patterson, Paul Gorup, and Cliff Illig:
#1 =

4. • Equally impressive is to see how they passed every other HIS
vendor in annual revenue over the past 35 years to become #1
the past 2 years, a position they’ll likely keep for some time:
2nd Year in a Row as #1!

5. Recent Cerner Developments
• Some other developments in 2015 have helped Cerner grow:
– Increase in annual revenue from 2014 of 30%, due mainly to
Siemens’ $1.2B in revenue that closed in February, 2015.
– 17K FTEs worldwide were asked to sign agreements limiting
rights to sue the company in return for annual increases.
• How do they make so much? Like most high-end vendors, they
are diversifying their products and services far beyond pure HIS:
– Medical Devices, Patient Engagement, Physician Practices,
Pharmacies, Population Health, Workplace Health…
– Like Evident (CPSI) & Medhost, their “RevWorks” division
outsources RCM, and Cerner outsources entire IT shops, a
huge boost to revenue transferring millions of Payroll $s...
– They learned the $ value of “remote hosting” from SMS many
years ago, and now run all their clients from 2 giant data
centers in KC. Remote hosting brings in far more revenue!

6. Next Year?
• We are bullish on Cerner maintaining the #1 position for years:
– Cerner’s acquisition of Siemens gives them access to the C-
suites of hundreds of hospitals on aging systems like Invision
& Medseries, many of which will drink the KC Kool-Aid...
– Cerner’s huge win of the DoD contract worth ≈$10B was a
major coup in 2015, although most of that revenue will go to
their “consulting” firm partners Leidos and Accenture.
(can anyone remember when “consultants” were independent experts
who gave advice and then left, leaving the work for HIS vendors?)
– Cerner also scored many other wins last year, such as the
Great Plains Health Alliance in their home state of Kansas.
• So here’s the new “normal” – after 15 years of
annual revenue being dominated by McKesson
(which ended a 15 run by SMS), Cerner is now
king of the hill, just as its stock is on Wall St!

7. • Slipping to 2nd place again is pharmaceutical giant McKesson
whose total revenue in FY 2015 was $179 Billion, up 30% from
2015, but their Technology division dropped 8% to ≈$3B.
– Like Cerner, McKesson Technology Solutions offers many
products and services beyond traditional HIS systems, eg:
Relay Health, InterQual, Business Intelligence, Imaging, etc.
– To add to the complexity, their fiscal year end is March,
whereas most other vendors are calendar year-end, which is
why we have to wait until April to run this revenue report.
• Other bad news in 2015 for McKesson:
- Rumors about their entire technology
division possibly being up for sale…
- Retirement of VP Jim Pesce who saved
Paragon from sunset circa Y2K.

8. McKesson Revenue History
• Here’s McKesson’s revenue history since the days of HBO back
in the 80s. A bit of a roller coaster ride around Y2K when
McKesson bought HBOC, found they had cooked the books,
and then slowly built things up through many acquisitions:

9. • Like Cerner, McK has a huge numbers of clients, FTEs, offices,
countries, etc., but hard to tell what’s from pharmacy versus IT.
Unlike Cerner, however, McKesson has four diverse HIS products:
– “Legacy” = Series (IBAX 4000, DCC…) & Star (HBOC) in a few
hundred small and mid-sized hospitals of up to 300 beds.
– Horizon’s suite of systems which is being sunset, with the
handful who tried to convert to Paragon failing miserably...
– Paragon = their “go forward” product implemented in about
300 small to mid-sized hospitals is their one bright spot.
• McKesson did deliver an integrated Paragon
MD practice management system (reg, sched
& BL/AR), that replaced the interfaced Practice
Partners (sold to eMDs), but their promised
integrated EMR module has now been
deferred again, thus time to mid-year 2017…
McKesson Product Prognosis

10. • In 3rd place is Judy Faulkner’s incredible machine that has sold
almost every large AMC & IDN for the past 5 years (e.g.: Mayo).
• Their revenue went up 14% from $1.7 to $2 Billion in 2015,
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 have an interesting contract clause called Epic Connect
that lets their clients process small neighboring hospitals.
– Their new “remote hosting” data center surprised everyone,
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 has not sold
hardware, lowering past revenue substantially.

11. • Epic’s revenue growth is the easiest to graph of all vendors: UP!
Epic Revenue HIS-tory

12. • In 4th by revenue is Allscripts with $1.3B, a slight increase from
2014; they are far stronger in the MD niche where they placed
2nd place in MD attestations, per these recent 2015 ONC figures:
• 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 Allscripts’ future prospects are fairly strong.

13. • Hard to remember how long the HIS-tory of this firm is, going
from Lockheed to TDS to Alltel to 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 added
their enormous
physician practice
revenue
Allscripts Revenue HIS-tory
(Y2K)
Allscripts
Eclipsys
TDS
Alltel

14. • We dropped GE from our Top HIS Vendor list this 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.
• Like other high-end vendors, they have a wide array of non-IT
products in their $20B+ Healthcare division, and we estimated
their HIS revenue to be “only” around $800M last year, mostly
from physicians and ancillary department systems like OB
monitors. We will feature them prominently in our review of
physician systems, which will follow this HIS vendor review.
Dropped:

15. Next 2 Weeks
• We’ll delve into the details of the remaining HIS vendors’
performance over then next episodes of this review, covering the
two smaller market segments (in terms of beds and revenue):
– Mid-Size – vendors whose target market includes mainly mid-
size hospitals of 100 to 300 beds in size, including Meditech
(all 3 product lines), NTT Data (Keane) and QuadraMed.
– Small – vendors whose client base consists of mostly under
100 bed facilities, including CAH (Critical Access Hospitals) of
under 25 beds: CPSI, Medhost, and the 2 latest new entrants
into the hospital market: eClinicalWorks and athenahealth..
• With a subject area so wide and deep, we’re sure we got a few
things wrong or missed some points, so feedback is welcome at:
vciotti@hispros.com spouzar@hispros.com
505.466.4958 407.321.1110