Allscripts has reportedly received first-round bids from three equity firms, and Osberg says there will be more suitors. He believes certain assets may be deemed as non-core pieces of Allscripts, such as the claims clearinghouse and practice management/electronic health records software it got from Misys, as well as some inpatient hospital applications from the Eclipsys side of the business, will generate interest in the buyer’s arena. “Getting market share will be an important consideration to companies buying assets.”
There is another reason investors may be particularly interested in Allscripts: Osberg recalls that there was a huge flow of dollars to private equity firms in 2008, and much of that money has not been invested. “Often, private equities have an arrangement that five years after receiving the funds, if it’s not invested, they will be returned,” he explains. “This leaves many private equities with very high pressure to invest. I’m hearing many rumbles that several other private equities are finding ways to take a run at Allscripts. It will get done.”
But a smaller, privately held Allscripts still can be a major and successful player in the health information technology space, Osberg notes. He points to dominant payer software vendor TriZetto Group, which went private and emerged stronger, as a model to follow.
Allscripts’ wooing of private equity firms began before the company lost on a bid to provide ambulatory and inpatient information systems to the 11 public hospitals and more than 70 clinics of New York City Health and Hospitals Corp., according to Osberg. Bloomberg reports that Epic won the deal worth up to $302 million.
But Osberg fears that prices of that magnitude aren’t going to help the industry fend off attempts in Congress to halt or change the meaningful use program. Four powerful Republican committee leaders in the U.S. House recently asked HHS Secretary Kathleen Sebelius to stop the program until universal interoperability standards are set and program requirements are toughened.
The GOP move is a serious proposal being made during the awkward period between billions of dollars being spent on meaningful use and being able to definitely demonstrate benefits of the program, Osberg says. How serious the GOP proposal becomes will be influenced by the November elections and the “lame duck” session in Congress to negotiate a new debt ceiling and tax policies as the Bush tax cuts expire, with an expectation that significant federal budget cuts are coming soon to avoid a “fiscal cliff” that would significantly harm the economy. There have to be big cuts in health care, defense and other areas, Osberg contends.