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Medicity and Novo Merge: Brilliant or Desparate Move?

by John Moore | January 14, 2009

merger2While a rumor was leaked about a week ago that Medicity and Novo Innovations would merge, the rumor became official this morning.  The merger of these two vendors in the nascent RHIO/HIE (Regional Health Information Organization/Health Information Exchange) market is brilliant move bringing together two companies with distinct, but complimentary solutions and clients.  This is truly one of those deals, unlike most, where there is real potential for 1+1=3.  But as with any merger/acquisition, devil is in the details, e.g., cultural mesh, go to market strategy, product rationalization/integration, etc.

Yesterday afternoon and this morning I had the opportunity to speak to representatives of both companies about this merger, what it means to them and more broadly the market.

Top Bullet Points:

  • Arguably creates the largest (most physicians served) 3rd party (EMR agnostic) HIT provider for interoperability and clinical data sharing.
  • This is a merger, no lay-offs, no consolidation/rationalization of employees.  Senior execs at Novo to be part of senior staff of combined entity.
  • New entity to adopt Medicity brand.
  • Novo Innovations offices will become the east coast hub for Medicity.
  • Structure of deal is mix of cash and stock.  Performance goals and triggers to keep everyone together to contribute to combined corporate growth.
  • Little technology overlap, very complimentary.  Will build API to bring two solutions together.  Claim it will not be difficult as connecting disparate systems is their raison d’etre.  We’ll have to wait and see, not always that easy.


Both Medicity and Novo Innovations target the market for clinical information sharing.  Both are doing extremely well in the market reporting strong growth in 2008 with Medicity reporting 81% growth in 2008 and Novo Innovations reporting better than 200% growth in 2008.  Novo is the younger and much smaller of the two, founded in 2003 with revenue about 1/10 of Medicity’s.


Medicity focuses on providing solutions that solve the challenging issue of aggregating consumer health data within a RHIO, HIE or IDN, and presenting it at the point of care.  What the solution does is combine a data repository (“DataStage”) with Master Patient Index (MPI), an interface engine (“Nexus”) to connect to multiple clinical apps aggregating all available clinical data within the network and provide a single point of access, via a portal, to a comprehensive patient record for the clinician.

Key customers for Medicity include: Adventist Health, CalRHIO, Delaware HIN (1st RHIO win in ‘06), and LabCorp.  In the call this morning, Brent Dover, President of Medicity, stated that roughly 60% of revenue comes direct from hospitals/IDNs (Integrated Delivery Networks) and the balance from RHIOs.

Novo Innovations

Novo Innovations offering is quite different from Medicity’s, but very complimentary.  Rather than aggregating clinical data into one central repository, Novo uses a model that combines a “Grid” (HL7-based messaging network) with “Nodes” (interfaces to clinical apps) and intelligent “Agents” (lightweight rules-based app) to promote Peer to Peer (P2P) sharing of clinical records. Physicians within an HIE subscribe, via the agent to what information they wish to see regarding their patients/customers.  The agent works in the background, on the Grid, tapping Nodes for updates based on pre-defined rules, and bringing information back to the physician.  Information can be delivered directly into the physician’s EMR, or provided as a Web-based view and even as a PDF/paper file.

Novo’s solution does not try to do everything, but what it does do it does very well and hospitals love it for three reasons:

  1. It helps them with physician retention (affiliated physicians get up to date info helping them deliver better care without having to ask for it).
  2. Encourages/promotes affiliated physicians to submit orders and referrals back to the hospital via the embedded order entry capabilities.
  3. Big cost savings here as well for hospitals spend literally millions of dollars a year just creating and sending out reports via snail mail.

Another advantage, Novo is a pretty tight, low cost solution that installs quickly and is hosted, thus not requiring a lot of overhead/support from a hospital’s IT group.

Novo, to date, has targeted only hospitals and now has some 350 hospitals on-board. Key customers include: Adventis, CHRISTUS Health (TX), Trinity, UPMC (PA).  As it is an SaaS, pricing/revenue at Novo is based on an inital install fee and follow-on subscription model. We estimate Novo’s 2008 revenue at slightly under $5M.

Why the Merger, Why Now?

In speaking with Bill Sims VP of Marketing at Novo Innovations I asked him why did they decide to merge with Medicity when they were on such a high trajectory.  Reason was quite simple. Novo was considering a number of options to scale the company to the next level.  Though they increase staff by some 70% in 2008, they realized that they would have to scale faster than that to fully capitalize on the market opportunity (an opportunity that may only get bigger with the forthcoming HIT Stimulus package of the new administration).  Medicity approached them and made them an offer that Novo couldn’t refuse.  By combining forces, the new entity would have the technology breadth, resources and scale to become the clear market leader.

Bill also stressed that the two companies had very similar cultures with very flat organizational structures, a minimum amount of bureaucracy and strong focus on delivering cool technologies to the market.

Brent of Medicity took a similar view with regards to the complimentary strengths of the two companies and clearly recognized the unique value that Novo was bringing to the HIE market.  For Medicity, they see Novo Innovations’ solution as, to use a metaphor, the basic cable network and Medicity solutions being te premium channels.  In merging wih Novo, Medicity has a much stronger story to tell prospects wherein they can offer an easy, low cost, low overhead on-ramp to connectivity within an IDN.  As the IDN moves up the adoption ramp of connectivity, they can start subscribing to the premium channels that Medicity offers.

Our hunch is that Novo Innovations was seeking additional financing for that next stage of growth in a market that has become extremely conservative with little capital liquidity.  For Medicity, the story is slightly different.  Medicity did not have a low cost, door opening solution for the HIE/hospital market.  With shrinking/collapsing budgets there, Medicity was finding it increasingly difficult to get an audience with a prospect.  Also, Medicity is reliant on nearly half of its revenue from RHIOs, which have had a notoriously difficult time creating a sustainable business model.  While Medicity likes to hold up the CalRHIO as a prime example, this RHIO is unlikely to go anywhere in a state that is currently looking at a $12B shortfall and considering drastic measures to reign in expenses.  Supporting/funding a RHIO in California is about as likely as seeing Karl Rove take a position in the Obama administration.  In merging with Novo Innovations, Medicity now has a much stronger story to take to the HIE/hospital market, where we predict stronger growth going forward.

Looking Forward:

As has been written EVERYWHERE, the HIT market is a buzz as to what the Obama Administration’s HIT stimulus bill will look like.  Hard to get a clear picture as to the actual size of that stimulus package, but reasonable estimates are hovering around $25B for HIT.  That can buy a lot of software and services, and there in lies the $25B question:

Where exactly will all that money go (EMRs, other clinical apps, interoperability, etc.)?  And how will the money be distributed (grants, tax breaks, incentives, P4P, etc.)?

As the recent report from Booz Allen Hamilton pointed out, the best bang for the buck may lie in those efforts that support physician to physician sharing of medical records, (interoperability) the sweet spot for this new, combined entity.

Impact on Consumer-facing Healthcare

Solutions such as those offered by Medicity and Novo Innovations will play an absolutely critical role in aggregating a consumer’s health records, that can then, at the consumer’s request, be exported into one of the Health Clouds (e.g., Dossia, GHealth, or HealthVault).  Once this rich data set is there, the consumer can populate their PHR or other app service with pertinient clinical data.  As clinical data  is truly the gold standard (as compared to claims/PBM data), an ability for a consumer to perform this function is quite powerful.

Medicity and several of its customers recognize this and Medicity is now working with these customers to connect them to GHealth or HealthVault.

Bottom Line:

This is not a move of desperation by either company, but each needs the other to take their business to the next level.  This is a very young and dynamic market with rapidly changing players and equally rapid changes in technology.  Right now, combined, these two companies serve roughly 10% of the 6,000+ hosptials in the US today. How the new Medicity capitalizes on the potential in the market remains to be seen but if they execute well, they’ll be the one to beat and certainly bear close watching.

6 responses to “Medicity and Novo Merge: Brilliant or Desparate Move?”

  1. Alex Burgess says:

    Red Herring…

    HIEs/RHIOs/Next-acronym have no business sustainability on their own. Web services- based interoperability amongst HIT applications will obviate the need for these products. Additionally, technical interoperability is one thing, but SEMANTIC interoperability is quite another…

    The market is changing so fast and consolidation will be the rule of the day amongst the HIE/EMR/PM space. It is exciting being a part of the leap towards the next wave of HIT adoption. Thanks for your great updates.


  2. The Alchemist says:

    Medicity | Novo is brilliant synergism providing the ecatheter for the “patient cloud.”

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