Why McKesson may sell its health IT business

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As reports surfaced last week about McKesson considering the potential sale of its technology solutions unit, industry observers suggest that some factors might be aligning for the healthcare giant to reassess its stake in the healthcare IT business.

To a degree, such assessments are part of the normal course of business for companies in today’s financial world, says John Osberg, managing partner at Informed Partners, a consulting firm that offers strategic business development services for healthcare companies. It’s common for large companies to review their portfolios and make strategic decisions, he notes.

Some reports have suggested that McKesson may consider a sale now because of current investment requirements required to remain competitive in healthcare IT. Osberg, a mergers and acquisitions consultant, said he believes that McKesson for several years has not adequately funded research and development by the unit and may be realizing that it would have to increase R&D considerably to remain competitive.

“It has been a neglected asset to some degree for a while now, and that compounds things,” he contends. He likens the scenario to Siemens Healthcare selling its products in early 2015 to Cerner because upgrading would cost too much.

McKesson is not commenting on its plans or responding to comments from industry insiders; a spokesman late Friday said the company does not comment on rumors and speculation.

Earlier this year, McKesson agreed to sell its small physician practice electronic health record and practice management systems to e-MDs, acknowledging the purchaser could better service the customers. The acquired software included the Practice Choice, Medisoft, Medisoft Clinical, Lytec and Practice Partner product lines.

In the age of accountable care and value-based reimbursement, vendors are under the gun to boost investments and come out with new product features. In particular, McKesson’s competitors, such as Epic and Cerner, have been investing hundreds of millions of dollars into their products, says Ken Kleinberg, managing director of research and insights at the Advisory Board Company, a consultancy.

“With MACRA (the Medicare Access and CHIP Reauthorization Act that mandates expanded health IT functionality), quality reporting, risk payments and consumerism, it seems the investment you have to make just goes higher and higher,” Kleinberg says.

McKesson, a large healthcare company with a broad range of products, may have found managing and keeping products updated to be problematic, particularly with having hospital market share in healthcare IT trailing its top competitors, Kleinberg adds. “A lot of new success has gone to Epic and Cerner, and Meditech is still doing well.”

It is interesting, Kleinberg notes, that McKesson is one of three major pharmaceutical distribution vendors in the healthcare market—along with AmerisourceBergen and Cardinal Health—that used to have health IT product lines, and it’s possible that all three will be out of the market.

If McKesson decides to sell its HIT assets, they could be sold in a package or via separate deals; if sold together, it would be difficult for any one acquiring company to handle, Kleinberg says. That said, it can’t be ruled out that a large technology company already operating in the healthcare sector, such as IBM or Dell as examples, might jump deeper in a big way, he adds.

In Osberg’s mind, McKesson’s deliberations now make sense. “Epic and Cerner have enterprisewide information systems bringing doctors, surgical centers and hospitals together on a shared platform. The McKesson system does not do that; it needs to be overhauled.”

Still, McKesson’s assets have significant value, Osberg believes. “There are buyers that will be able to realize significant value from a sale, and this is a significant business opportunity for McKesson.”

Osberg suggests the McKesson assets might make sense to a company who can offer them through a platform and provide a secure cloud infrastructure solution at a much lower cost than other major hospital vendors currently offer. If McKesson doesn’t sell the assets, it will be because there was no buyer, and the company will start cutting costs, he predicts.

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