Dairyland grew rapidly under the leadership of Steve Klick and Mark Middendorf by offering very competitive pricing that undercut established vendors and through a series of acquisitions of other healthcare IT companies. In the late 1980s, Dairyland's pricing for a hospital information system was significantly lower than its three main competitors at the time. Dairyland grew from serving 3 clients in 1 state with 5 employees and under $1 million in revenue in 1981 to serving 400 clients across 38 states with 250 employees and $33 million in revenue by 2005 through this aggressive growth strategy of pricing and acquisitions.

1. “H.I.S.-tory” by
Vince Ciotti
© 2011 H.I.S. Professionals, LLC, all rights reserved
Episode # 57:
Dairyland
Part 2

2. Dairyland’s Rapid
Growth
• We left off last week with
Steve Klick running the firm,
and Mark Middendorf making
the amazing transition from
programming to VP of Sales!
• By all accounts, Steve & Mark
created an amazing corporate
culture of listening to clients.
– Just how many CIOs can
pick up the phone today &
reach their vendor’s CEO?
– And how many VPs of
Sales tell the absolute
truth, no matter what,
even if it costs them the

3. So How Big Did Dairyland Grow?
• Check out the table below to see how well Steve & Mark led
Dairyland’s sales surge into the small (<100 bed) hospital market:
# of
Clients
# of States # of
employees
Annual
Revenue
1981 3 1 5 <$1M
1985 52 4 30 $3M
1995 250 24 100 $15M
1999 350 30 170 $25M
2005 400 38 250 $33M
• How did they do it? The same way Walt Huff led HBO’s charge:
1. Very competitive pricing, undercutting the established vendors
2. Acquisition after acquisition after acquisition after acquisition…
• Check out the following slides for all the gory details on each:

4. 1. Pricing - Histor(hyster?)ical Comparo
• Our firm first started doing system selections back in the late 80s
when Dairyland was making its run, and here are some amazing
figures about just how affordable an HIS system was back then.
• The hospital that made the mistake of hiring us for
our unique “Non-RFP” selection process was:
- Central Medical Center ≈100 beds in one of
the poorest sections of St. Louis, MO (right in
the heart of Dairyland’s Midwest turf)
- CFO was Steve Berger, a dear friend who has
since gone on to form his own HIS firm:
Healthcare Insights, with a stunning EIS &
dashboard system – check them out at:
- www.hcillc.com
- We wrote an article about it for HFMA Journal:

5. So How Did I Meet Steve Berger?
• Glad you asked, it’s a HIS-tory episode all in itself! We started our
firm in New Joisey in 1987, and as a frustrated English major (why
else would I be writing all these d____ PowerPoint slides?), I
searched around for publication I could write articles for.
• Back in 1987, HIMSS had very little local presence, and since
Controllers usually had IT reporting to them, I turned to the local
HFMA chapter where, it turned out Steve was the editor of their
“ECHO” newsmagazine. So I called him and learned to my shock:
• He was the only other healthcare pro in NJ using a
Mac back in 1987! We became fast friends, and I
wrote a series of articles for ECHO, one of which Mr.
HIS-talk ran a while back when poor Jobs departed.
• So what did Steve B decide to call my series of MIS
articles, which is what “IT” was called back then?
MIS-Information!

6. 1. Pricing - the actual $s from 1988
• We solicited bids from Dairyland and 3 of their prime competitors
in the under 100 bed market: Spectrum (JS Data), HMDS (Frank
Poggio’s early PC system) and Amex (SAI – the old “Saint”).
• I realize you moderns may not believe these figures, but try to tell
you kids just how cheap gas was when you first started driving!
• First, here are the one-time (capital) costs from those 4 vendors:
CAPITAL Dairyland Spectrum HMDS Amex
Hardware $98,625 $101,784 $103,681 $57,511
Software $109,500 $102,546 $123,800 $15,000
Miscellaneous $48,750 $85,000 $54,860 $24,000
Total $256,875 $289,330 $282,341 $96,511
• As you might have guessed, Amex bid a “remote” system (no
“clouds” or SaaS back then – boy were we a bunch of old farts…)
• “Miscellaneous” = file conversions, interfaces, travel, which no CIO
today ever overlooks today, right!!??!!!!??????!!!!!!!!!????????

7. 1. Pricing - the actual $s, cont’d
• Here are the annual (operating) costs from the same 4 vendors:
OPERATING Dairyland Spectrum HMDS Amex
Hardware Mtn $14,515 $16,080 $18,060 $129,600
Software Mtn $10,855 $3,684 $1,660 $7,051
Total $25, 370 $19,764 $19,720 $136,651
• Now, before you all start writing emails to Mr. HIS-talk, these were
for primarily financial systems, as the term was defined back then,
with modern terms in italics/parentheses for more recent CIOs:
• ADT (Access), Billing & AR (Revenue Cycle), Medical Records
(HIM), and general financials: AP, GL, PR, HR, Materials (ERP)
• We calculated a 5-year TCO (total cost of ownership) that added
the capital plus operating costs, with an allowance for annual CPI:
Dairyland Spectrum HMDS Amex
5-Year TCO: $383,725 $388,150 $388,941 $803,940

8. 1. Pricing – compare 1988 to 2012
• Just for kicks, here’s the figures we recently received from three
leading mid-size hospital vendors today, whose names in the
columns below have been changed to protect the innocent.
• Granted, these figures are for a 250-bed hospital (twice as big as
Central Medical), but for revenue cycle applications only (no
ERP), so they are almost an apples to watermelons (?)
comparison:
• Sort of Moore’s law in reverse, no? While hardware gets twice as
fast for same dough every 18 months, software (and especially
implementation) seems to get more expensive every few minutes!
Vendor A Vendor B Vendor C
Capital $5,200,000 $2,000,000 $2,500,000
Operating $650,000 $350,000 $375,000
5-Year TCO $8,500,000 $3,800,000 $4,400,000

9. So Who Won at CMC?
• Steve Klick used a great phrase to
describe Frank Poggio when the two
went head-to-head before a hospital’s
Board in a tough sales situation: “Frank
the Hammer!” Yes, Frank’s HMDS won
the battle at CMC, not on costs, which
were amazingly even, but on his red-hot
technology: using PCs rather than minis
to build his equally upstart HIS system.
• So next week, we continue the saga of Dairyland into the 2nd
reason why they grew so rapidly: acquisitions. I sure need help
from anyone who knew these AS/400 system vendors’ founders:
• LeBlanc, Schexnayder & Associates from Abbeville, Louisiana
• Henderman Management Systems, from Louisville, KY
• Integrated Health Systems, from La Jolla, California

10. So Who Won at CMC?
• Steve Klick used a great phrase to
describe Frank Poggio when the two
went head-to-head before a hospital’s
Board in a tough sales situation: “Frank
the Hammer!” Yes, Frank’s HMDS won
the battle at CMC, not on costs, which
were amazingly even, but on his red-hot
technology: using PCs rather than minis
to build his equally upstart HIS system.
• So next week, we continue the saga of Dairyland into the 2nd
reason why they grew so rapidly: acquisitions. I sure need help
from anyone who knew these AS/400 system vendors’ founders:
• LeBlanc, Schexnayder & Associates from Abbeville, Louisiana
• Henderman Management Systems, from Louisville, KY
• Integrated Health Systems, from La Jolla, California