With McKesson looking to divest its health information technology product line, and Allscripts eyeing the small hospital market, Allscripts’ acquisition of McKesson’s HIT business for $185 million was a logical step, says John Osberg, a mergers and acquisition specialist at Informed Partners, an industry consulting firm.
Through the deal, Allscripts picks up the Paragon electronic health records system and the STAR software suite that includes patient accounting, financial, clinical, radiology, pharmacy and laboratory applications.
Allscripts already had a client base of about 200 hospitals, many of them larger facilities; with the deal, it now adds another 200 generally smaller hospitals from McKesson, which is sun-setting its Horizon EHR for larger hospitals.
The announcement of the deal immediately brought another benefit to Allscripts as trading on its stock was down 18 percent before the announcement in after-hours trading, then improved 16 percent after the deal was announced, Osberg adds. “The combination of earnings and this deal erase a year of poor stock performance by Allscripts,” he contends.
This past March, McKesson completed a merger agreement that combined the majority of McKesson Technology Solutions with revenue cycle vendor Change Healthcare’s business—the new entity took on the Change Healthcare name. The Technology Solutions product line included medical imaging, workflow, business performance services, analytics and the Relay Health connectivity unit.
The Change Healthcare deal gave McKesson a continuing revenue stream while it turned its focus on its pharmaceutical business, says Coray Tate, vice president of clinical research at KLAS Enterprises, which researches HIT vendors and industry trends. “McKesson has to be fully committed to focus on their core—most revenue comes from pharma, and health IT was ancillary,”
For Allscripts, several new challenges emerge, Tate adds. The client base for McKesson’s Paragon electronic health records system is fragile, he contends; primarily, that’s because the future of Paragon was in question because McKesson was looking to sell its HIT unit.
“Performance over the next two years for Allscripts will be critical, and its biggest challenge is to gain the trust of Paragon clients,” Tate says.
At the same time, Tate expects Allscripts will reinvest in Sunrise, its primary electronic health records system over the past several years, and it still has the TouchWorks EHR for large clinics and the Professional EHR for smaller physician sites.
While Tate questions whether Paragon will survive at Allscripts—a worry that customers would have as well—an Allscripts spokeswoman notes that the company’s statement announcing the McKesson unit acquisition emphasized that it will invest in and continue to offer Paragon as an integrated EHR and revenue cycle solution for small hospitals.
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