Two health care information technology vendor acquisitions announced within a week of each other signal a strategic shift for both buyers.
Atlanta-based Eclipsys Corp. closed a major product gap by announcing it would acquire ambulatory software vendor MediNotes Corp., West Des Moines, Iowa, for $45 million in cash and stock. Likewise, Dairyland Healthcare Solutions of Glenwood, Minn., got geographic market share and cross-selling opportunities by purchasing Advanced Professional Software Inc., known as APS, for an undisclosed price. Dairyland also changed its name to Healthland to more appropriately reflect its business.
The concurrent deals reflect ongoing consolidation in the health care information technology industry, rather than a new trend emerging among hospital software vendors, says Christopher McCord, vice president at Healthcare Growth Partners LLC, a consulting firm specializing in strategic advisory services such as mergers and acquisitions. "The market will continue to consolidate, but these deals were distinct," he adds.
Eclipsys' traditional market is hospitals and delivery systems. The company markets standalone ambulatory clinical and financial software to affiliated outpatient facilities. MediNotes sells Web-based, integrated ambulatory practice management and electronic health records software. By acquiring MediNotes, Eclipsys will have technology more suitable for hospitals that wish to subsidize I.T. adoption by independent community physicians. A hospital or Eclipsys can remotely host the software. MediNotes serves more than 5,000 practices. Many of Eclipsys' competitors in the mid-size and large hospital markets already offer products for independent physicians, McCord notes. "It made sense for Eclipsys to follow that path."
Eclipsys has a history of acquisitions to grow its business and that strategy has worked well, says Vince Ciotti, a principal at the consulting firm HIS Professionals Inc., Santa Fe, N.M. Buying MediNotes was a good move, he adds. But it will take two or three years for Eclipsys' clients to see the benefits of the MediNotes buy. It will take that long to build adequate integration between the hospital and ambulatory systems, he contends.
Acquisitions are a poor way to build an integrated information system, Ciotti says. "For Eclipsys to acquire a fine product does little good for their clients who will find it difficult to integrate. They'll write an interface quickly and like all interfaces, it'll have bugs."
Healthland's Deal
Waco, Texas-based APS sells financial/administrative systems to community hospitals. The vendor also resold a third-party clinical system. APS has 140 clients and serves the same market as Healthland.
Healthland's clients are concentrated in the Midwest. The acquisition gives it new market share-particularly in Arkansas, Louisiana, Oklahoma, Texas and Virginia-and additional expertise, says James Burgess, CEO. Healthland will support APS systems already being used, but will market its clinical systems to APS' clients, he adds.
Prior to the acquisition, Healthland served about 350 hospitals in 41 states. Now, it is the largest vendor of community hospital information systems, with 23% market share, Burgess contends.
But the name change also is a major move, Burgess says. Healthland made the change because, "frankly, there were some distractions" with the Dairyland moniker, he notes. Outside Middle America, the name "did not bring visions of health I.T. technology and software," he adds. "It really was limiting our ability to market outside the Midwest. We had market research that [showed that] customers in California and New Jersey would cross the name off their list."
The old name also was hindering the company's efforts to market in other industry segments such as specialty hospitals, ambulatory surgery centers, mental health centers and correctional medical facilities, Burgess says.
With the acquisition, APS users now have the opportunity to get more modern information systems from Healthland, says consultant Ciotti. Healthland's big challenge now will be to win the hearts, minds and wallets of those customers before rival vendors swoop in "trying to beat Healthland to the punch," he adds.
APS users will get attractive offers from such companies as Computer Programs and Systems Inc., Healthcare Management Systems Inc. and Medical Information Technology Inc., Ciotti predicts. "It's almost going to be a race." But he also thinks Healthland will retain a majority of its newly acquired clients.
Overall, the health I.T. market remains pretty strong even in tough economic times, McCord says. But he's starting to see buyers focusing more on the profitability of potential acquisitions than they previously did. "Revenue growth won't cut it anymore."
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