BBI Contributing Writer

While it turned out to have little direct, adverse consequence, Y2K seems to have left behind a legacy of changed perceptions in the health care information technology (IT) marketplace. It definitely changed the fortunes of several major IT companies, ranging from larger ones like Cerner (Kansas City, Missouri) to smaller ones like Clinicomp International (San Diego, California). One firm, Azron, claimed Y2K drove it out of business. Even as compliance with the Healthcare Insurance Portability and Accountability Act (HIPAA) has emerged as this year's focus for health care IT, the legacy of the market changes brought by Y2K remains.

It is clear that more integrated is better. The "best of breed" rhetoric about interfacing the best vendors' solutions using interface engines and industry standards, proved to be both more difficult to achieve, expensive and difficult to upgrade (for issues like Y2K) than was anticipated. This affected the largest companies, including the HBOC arm (Alpharetta, Georgia) of McKessonHBOC (San Francisco, California) and Shared Medical Systems (SMS; Malvern, Pennsylvania, recently acquired by Siemens), which have a large number of stand-alone applications all developed by different vendors, and many application modules scattered across several major computer platforms, which offer varying degrees of interoperability.

The fact that McKessonHBOC is divesting itself of application pieces previously acquired by HBOC – and might divest itself of HBOC if it can find a taker – illustrates the failure of the proposition that revenues and profits could be generated on a large scale by acquisition and integration of legacy applications. Of course, there are related applications on current technologies based on standards like Corbamed and HL-7 that are more interoperable than the legacy applications that HBOC acquired. Such acquisitions may in fact make sense as a growth strategy for smaller players, as long as the markets are related and the systems are very similar to begin with, but this will not be the dominant pattern for successful health care IT companies.

Building systems that share a common core of functionality is emerging as the successful paradigm in health care IT. One company that has long been associated with this approach is Cerner. Cerner has grown and succeeded by doing this twice – first with its original health network architecture (HNA) and more recently by reinventing HNA into a more open, client-server-Internet framework in Millennium HNA (MHNA). In the process of this re-invention, Cerner integrated both clinical and cost accounting business capability into one product. The architecture supports a rules-based decision support operation, and the applications all use the same database, repository, MPI and decision support engine. This makes it possible in one rule to include both clinical and business content, a unique and powerful ability.

The full integration of business, accounting and clinical applications in one integrated software solution like MHNA is an ill wind for companies like SMS, HBOC, Meditech (Westwood, Massachusetts) and IDX (South Burlington, Vermont), all of which have these as separate applications. Computer accounting applications in hospitals alone represent an estimated $3 billion dollar segment. Cerner's MHNA integration results in a very advanced set of fully integrated applications, which has the potential to truly integrate a provider's health care IT across its entire enterprise. This is of great interest to mid-sized and smaller hospitals, to whom Cerner is rapidly rolling out such applications. Cerner took more than 1,800 leads from more than 600 health care organizations at the Healthcare Information and Management Systems Society (HIMSS; Chicago, Illinois) conference in Dallas, Texas, earlier this year and saw its Q100 revenues jump dramatically.

Using the power of the Internet to connect providers, content and consumers, nearly every medical application, including electronic patient records – or, as we refer to them, computer-based patient records (CPR) systems – at all points of care, was an emerging theme at the HIMSS conference; the Toward an Electronic Patient Record (TEPR) conference in San Francisco, California; and various investor conferences. Cerner is leading the way, SMS has always had a robust application service provider business, and companies like MedicaLogic (Hillsboro, Oregon), PersonalMD.com (Pleasanton, California), Micromed (Horsham, Pennsylvania), Wellmed (Portland, Oregon) and Picis (Arlington, Virginia) now are offering ASP CPR, Internet EMR and outcomes applications on-line. Indeed, e-health and PDAs are the rage, with dozens of new companies such as InfoCure (Atlanta, Georgia) entering this application space.

The goal is primarily physician workflow automation, the empowerment of physicians and the reduction of errors in health care. One interesting twist is a new CPR product that focuses on better image documentation of encounters. The system from cMore Solutions (Minneapolis, Minnesota) is intended for surgeons performing endoscopic procedures, and captures high-quality images, stores physician notes and manages correspondence with referring physicians and patients, including generating patient educational materials. But some companies are going beyond simply Internet-enabling their technologies. Some, Cerner among them, are envisioning the Internet as the core of a new health care concept in which patients are at the center

Cerner is working to wire entire communities together, including patients, their doctors and their hospital. Cerner envisions patients having access to community-wide health care management services, in which necessary health care exams, tests, referrals, etc. will be scheduled for them with the providers of their choice on a yearly basis. This will occur first in smaller communities with one or two hospitals and several hundreds to thousands of physicians. There are about 200 such communities in the U.S. market. This may explain Cerner's recent activity with Care Insite and the establishment of Cerner's IQ Health group. Through these efforts, Cerner is creating an electronic "virtual health care community." Such endeavors, when implemented, allow communities to better plan and manage health care expenditures and resources. They could dramatically improve safety, reduce errors, and reduce mortality and costs. Cerner is bringing pilots of this vision on-line this year.

Picis is a growing supplier of point-of-care patient record systems (CareSuite) for the ICU and the perioperative setting. Like Cerner, Picis uses one code base for its applications in all 11 languages it offers. The company has been riding a market desire to embrace Windows NT-based systems, receiving several large orders from clients like the Mayo Clinic (Rochester, Minnesota) that have de-installed older Agilent Technologies Carevue systems to install Picis workstations and software. Picis reports up to 50% reductions in the cost of charting in accounts where its systems are installed, benefits that hospitals looking to reduce expenses without compromising quality are anxious to achieve.

The acquisition of SMS by Siemens (Danvers, Massachusetts) continues to be a topic of conversation at health care IT conferences such as the TEPR gathering. As a former Agilent partner, and a target also of Eclipsys, SMS was a catch for Siemens. However, it could also turn out to present problems. While SMS has a robust application service provider business and some European presence, it has a multi-tier hardware platform and diverse applications, none of which are integrated. Therefore it may represent the same sort of challenge to Siemens that McKesson faced when it acquired HBOC – how to integrate all of the pieces.

Meanwhile, this acquisition bodes well for Picis, which already had a relationship with Siemens and a nonexclusive relationship with SMS competitor IDX (which itself owns a small share of Picis). The current nonexclusive arrangement with IDX leaves Picis free to expand its relationship with the new SMS division of Siemens, particularly in Europe. However, this is not the only interesting scenario for Picis, whose largest client is the Mayo Clinic. Cerner also is a major supplier at Mayo, so the notion that Cerner might acquire Picis is not much of a stretch.

The Siemens/SMS merger also sets the stage for a competitive acquisition by GE Marquette, with Cerner as a possible target. Cerner already is a GE partner. Second, it has the best architecture and level of integrated applications of any major IT vendor. Third, it is innovative and cutting-edge. Even if an outright acquisition does not happen, an expanded collaboration is quite likely.

Meditech and IDX as the next two health care IT vendors without monitoring partners, and Spacelabs (Redmond, Washington) and Agilent are the two largest monitoring companies without significant IT partners. This may be a time of new IT engagements, which would set the bar a bit higher for smaller patient record/IT companies like Eclipsys (Delray Beach, Florida), A4 Health Systems (Cary, North Carolina) and others who will have to push to bundle enough applications together to present the level of integration needed to remain competitive with the larger IT players.

Spawned by HIPAA compliance, interest in enhanced security has become a major theme, and many new companies, small and large, are jumping into the product pool. Industry leader Microsoft (Redmond, Washington) reported that Microsoft Windows 2000 will support biometric ID. There are many smaller companies in this application space. Integrated Systems (Washington) offers SureID software that associates patients' fingerprints with their entries in the provider's Master Patient Index upon first admission (or presumably after the fact via the medical records department). Then whenever or wherever a patient again is seen, a simple scan of the fingerprints can be used to rapidly locate all of the patient's previous charts and medical encounter data. This can be particularly helpful, even life-saving if the patient presents in an emergency, is unconscious or otherwise unable to speak, mentally impaired or unable to identify himself to a medical provider. It also can help prevent intentional fraud or deception. The SureID technology is embedded in applications from Integrated Systems' alliance partner, Cyber+Plus (Dallas, Texas). Cyber+Plus offers several applications, include its Cyber+View, a new, graphical technology that integrates data from a variety of legacy or otherwise incompatible sources into a common medical record repository, and presents such information to providers at the point-of-care to enhance medical decision-making.

Others offering hand-held device access to drug, lab and other point-of-care data include iScribe (San Mateo, California), Virtmed (Cambridge, Massachusetts), ePhysician (Mountain View, California) and ePocrates (San Carlos, California). Each offers slight variations of services for physicians delivered by PDAs. The opportunity exists because more than 95% of the 800 million doctor/patient encounter charges in physician offices still are captured manually (and many are miscaptured or missed altogether). Selected companies in this segment are shown in Table 1. As the table shows, there is a lot of competition for a little application space, and the early winners are likely to capture the largest market shares, assuming they survive and are not too narrowly focused.