M&A can be hazardous to health IT
Sayonara interoperability, hello 'Frankenstein'January 1, 2013From the January 2013 print issue
Mergers and acquisitions can be hazardous to a company's health, industry experts often warn. In the realm of health IT, this caveat has proved no exception.
Robert W. Holthausen, professor of accounting, finance and management at the University of Pennsylvania Wharton School, is one among many experts issuing the caveat. "Various studies have shown that mergers have failure rates of more than 50 percent," he wrote in a university piece. In fact, he added, one recent study found that a whopping 83 percent of mergers fail to actually create value.
Health IT professionals also have expressed concern over industry M&A activity. For example, Barry Blumenfeld, MD, chief information officer at MaineHealth, Maine's largest healthcare system, has cited poor electronic health record product integration resulting from M&A as one of the biggest reasons its hospitals will transition from Allscripts and MEDITECH — companies that have recently struggled due to M&A activity — to Epic.
With Allscripts, for instance, "We found we weren't getting the integration we needed," Blumenfeld said. Maine Medical Center, the system's largest hospital, has already replaced Allscripts Sunrise Clinical Manger with Epic systems, as SCM has fallen short in terms of integration with the ancillary and departmental side of things. Blumenfeld cited examples of trying to connect pharmacy, emergency room, decision support and ambulatory, which became very difficult with the previous systems. One of the reasons Epic's products are often preferred, he said, is because they haven't expanded by mergers and acquisitions. Consequently, all their products are essentially unified and compatible with one another.
"The workflows are all integrated, so you can move seamlessly between the different products," said Blumenfeld.
In June 2010, the Chicago-based Allscripts, which developed ambulatory EHRs, announced it would merge with hospital IT firm Eclipsys in a $1.3 billion deal. That merger, said to have united some 180,000 physicians and 1,500 hospitals nationwide, has had some high-profile consequences for Allscripts recently.
Chairman Phil Pead, who came to the company from Eclipsys, was fired this past April, and three additional board members followed him out in protest. Company shares plummeted nearly 40 percent, with Chief Executive Officer Glen Tullman citing "lower than expected sales" as a big reason for Allscripts' dismal numbers.
Insiders, however, pointed to the company's failure to integrate products and company cultures as the merger's biggest misstep.
"The question is can you make Company A work under Company B's structure," said Thomas Lys, professor of accounting information and management at Northwestern University's Kellogg School of Management to Chicagobusiness.com. "And the general answer is, probably not."
Other health systems have also joined MaineHealth in choosing Epic over others. The New York Times reported back in October that Allscripts lost its bid to replace the New York City public hospital network's outdated EHR system. Instead, the state's health system — one of the largest in the nation — selected Epic as the beneficiary of the $303 million contract.