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Why We Won’t See EHR Consolidation Anytime Soon

by John Moore | August 10, 2012

All too frequently I get the question:

When will we see the EHR market consolidate?

Not an unreasonable question considering just how many EHRs there are in the market today (north of 300) and all the buzz regarding growth in health IT adoption. There was even a recent post postulating that major EHR consolidation was “on the verge.” Even I have wondered at times why we have not seen any significant consolidation to date as there truly are far more vendors than this market can reasonably support.

But when we talk about EHR consolidation, let’s make sure we are all talking about the same thing. In the acute care market, significant consolidation has already occurred. Those companies that did not participate in consolidating this market (Cerner, Epic & Meditech) seem to have faired well. Those that pursued a roll-up, acquisition strategy (Allscripts, GE, McKesson) have had more mixed results.

It is the ambulatory sector where one finds a multitude of vendors all vying for a piece of the market and it is this market that has not seen any significant consolidation to date and likely will not see such for several years to come for two dominant reasons.

First, you need to be half crazy to do an acquisition. As nearly two-thirds of all acquisitions fail, the odds are stacked against you. Therefore, you need to be darn sure that this acquisition makes sound business sense before pulling the trigger.

Second, the ambulatory EHR market is simply not ripe for consolidation. The reason is simple. To remain viable in the market, EHR vendors must ensure that their products meet Meaningful Use (MU) requirements and meeting those requirements requires hefty investments.

Virtually all EHR vendors invested resources to get over the Stage One hurdle. In fact, the federal largesse of the HITECH Act attracted a number of new EHR entrants to market and likely kept a many EHR vendors afloat who would have otherwise gone under.

Stage Two’s certification hurdle has yet to be released but will assuredly require a continued and potentially significant investment in development resources by EHR vendors to comply. Same holds true for future Stage Three certification requirements.

At this juncture, it would be foolhardy to try and execute an EHR acquisition roll-up strategy. The technology has yet to stabilize, significant development investments are still required and most vendors do not have sufficient market penetration. Better to wait until the dust settles and clearer stratification of the market (who will remain viable, who will not) becomes apparent.

An Example from Manufacturing:
In my many years as an IT analyst I’ve seen few instances where acquisitions have actually worked out well for all parties concerned. When I led the manufacturing enterprise analyst group at a former employer I watched as two separate companies (Infor & SSA) executed roll-up acquisition strategies in the mature Enterprise Resource Planning (ERP) market.

Much like the ambulatory EHR market, these two companies targeted the low-end of the ERP market (small manufacturers). ERP companies acquired had two defining characteristics: stable platforms and reasonable penetration in their target markets.

Infor and SSA executed their strategies skillfully acquiring multiple companies; promising customers never to sunset a product; and meeting their investors’ goals by lowering operating costs (reduce duplicative administrative costs across acquired companies.

Post acquisition, Infor and SSA did not invest heavily in development, simply doing the minimum necessary to meet customers’ core requirements. Ultimately, Infor acquired SSA and Infor remains one of the dominant ERP companies in the market today.

A similar scenario will play-out in the ambulatory EHR market, it just will not be this year or next or even the one after that. Look to a couple of years post-Stage Three, for the long-awaited consolidation that so many have predicted to finally occur.

7 responses to “Why We Won’t See EHR Consolidation Anytime Soon”

  1. Ritch Blasi says:

    Right on yet again John. There is a significant need to standardize a bunch of areas within heathcare to make things like mHealth a reality

  2. Excellent points John! Two factors to consider that might drive EHR consolidation to happen more quickly.
    -Rapid provider consolidation & THEIR need to integrate multiple EHRs or migrate to a single platform. Customers are experiencing major stress over post provider EHR integration costs. They are likely to push very hard for less/one EHR model to keep cost & complexity down.
    -HUGE cost upgrading EVERY EHR to meet MU standards & customer needs(Provider & Consumers). Consolidation might enable a more cost effective allocation of capital which would keep costs down for cost constrained customers.
    It is & will continue to be a wild ride!

    • John says:

      Paulo, do agree that the two factors you mention are at play but see them more as limiting sales for those on the fringe which ultimately, will not make very attractive acquisition candidates. I was focusing more on those ambulatory vendors that have sufficient traction to be attractive to one making a roll-up play in the market.

      Also, if it is one thing I have learned, it takes a lot to kill a company of the founder wants it to survive. Predict we’ll end up with a number of “zombie” EHR vendors – not quite dead, but certainly not thriving either.

  3. John Lynn says:

    I agree with you completely. We’re not going to see massive EHR consolidation. The post you link to was written by Katherine Rourke. Here’s one of my posts about why mass EHR consolidation won’t occur: http://www.emrandhipaa.com/emr-and-hipaa/2011/07/13/independent-thinking-of-doctors-limits-ehr-vendor-consolidation/

    I predict that MU stage 2 won’t knock out EHR companies either. Although, some that haven’t gotten traction already will go under just based on lack of sales.

    • John says:

      John, agree that Stage 2 is unlikely to knock out many vendors. Stage 3, however, may be another story, especially if it includes provisions to accept patient inputs & remote biometrics.

  4. The EHR Guy says:

    I doubt any MU stage will drive consolidation of EMRs. I doubt consolidation could ever occur in healthcare IT.

    MU will eventually have to drive EMRs towards excellence and specialization in order to be able to reach the intended “nirvana” of having quality certified data throughout the healthcare continuum.

    As a matter of fact, what I can predict will most likely occur is that EMRs will go further away from consolidation and into specialization.

    Before we, (a company I was a partner of in South America), ventured into the acute setting we were developing EMRs for three specialties: cardiologists, pulmonologists and obstetrician/gynecologists.

    Although we worked very hard on trying to create a common platform for all of these various EMRs so that we could leverage and reuse code as much as possible, it resulted very difficult to maintain a common denominator when the physicians started asking for specific functionalities related to their specialties. At the end and for business reasons we decided that we would support cardiology only and build specialized add-ins for other specialties. We grew in cardiology and dominated the market but we lost ground to the other specialties.

    Currently, EMRs are just managing the tip of the iceberg of the clinical data that is required for meaningful outcomes. As usage starts becoming ubiquitous evolution will trigger.

    Same effect will eventually occur in the acute setting. There will be highly specialized software for ERs, ORs and ICUs; just to name a few departments.

    Just take for example the radiology sub-domain; imaging is a very mature technology yet consolidation has never occurred here either. As radiology continues to evolve we see new players coming in with very specialized applications and devices.

    Just a few years ago CAD (Computer Aided Detection) was not very well-known. Today there are companies that specialize in a unique niches of CAD (e.g., mammography, lung diseases, mental disorders).

    I still believe that the big players will remain big and strong and likely to grow but I doubt there will be a dominant player like we find in the consumer industry.

    Michael Planchart

  5. […] in the next year.” However, John Moore, an analyst at Chilmark Research, wrote in an August 2012 blog post that consolidation may not occur in the near future. “The technology has yet to stabilize, […]

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