An exclusive interview with Todd Cozzens, Picis President, CEO, and Vice Chairman

It's an embarrassment of riches at HIStalk. It was miraculous enough when MEDITECH's President and COO Howard Messing agreed to be interviewed by this anonymous, abrasive blogger. I threw down the gauntlet for other healthcare IT bigwigs to do the same, not really expecting anyone to bite. Lo and behold, I got this e-mail from Ann, a marketing exec at specialty vendor Picis: "I see that Picis made the latest HIStalk. Our CEO, Todd Cozzens, is a die-hard reader and would be willing to do an interview with you. Todd is a sharp guy and could give you some colorful quotes related to this and other buzz in the industry."

Ann was right. Todd is interesting and colorful, and I enjoyed interviewing him. Any CEO who would spend time yakking with an anonymous, cynical blogger is a pretty cool character. My sincere thanks to Ann and Todd.

Picis applications address high-revenue, high-cost areas of the hospital. Do you think hospitals recognize the importance of those areas and spend appropriately?

They're starting to realize it. I wouldn’t say there’s a general appreciation. In fact, the majority of hospital CEOs don’t know what their core business really is, because of community pressures and traditional hospital set-up. They’ve been expanding these services and moving more ancillary and lesser-acuity services out of the hospital, and one day they wake up and realize, “Hey, my OR is giving me more revenue than any department in the hospital.”

Do you have to sell that “hospital within a hospital” concept as well as your product?

For sure. We have to make executives aware of where their pain really is and show them that successful hospitals have figured these areas out. We talk about gains in many components of ROI, such as increased billings and throughput of patients. Nowhere is the return greater, whether you improve your processes without automating or you spend the money on systems.

The Ibex merger was framed around the concept of high-acuity, under-automated core hospital areas. How is the merger working and where do you see the synergy?

The synergy is because ED is another high-acuity area where the caregivers are stressed. They don’t like IT systems in general and have an aversion to anything that slows them down. Pen and paper is extremely fast, whether writing OR vital signs on your scrubs or jotting down wedge pressures on a napkin while the patient is in cardiac arrest. You must approach it from a usability point of view, including technology. For example, if you don’t have 100% of vital signs from all around the patient automatically flowing to the flowsheet and they still have to write one thing down, you’ve lost those users.

ED fits right into that. ED has the trauma beds and high acuity cases. They have some lower acuity patients, but it’s the high-acuity ones that encumber the caregivers. We believe that fits into our expertise of automating high-acuity, hard-to-automate areas of the hospital. The data flow from ED to the OR and ICU is important, too. In the future, doing analysis on combined business and clinical data makes good sense, especially for those areas with the sickest patients. Ninety percent of symptomatic data in the paper medical record, such as a patient’s crashing or going to a more acute state, is not the true data. Just by its nature, caregivers don’t have time to write it down until after the fact. That’s something we provide, but it’s difficult to design. We were the first company to automate between the OR and PACU. It’s a hell of a development effort to get it to work and work every time under every scenario.

Was Ibex as a company and product what you hoped it would be when you bought them?

Ibex was very well run for a small company. We were surprised that nobody else picked them up. I think we got lucky there. It was already cash flow positive and growing 50% a year. They had hit a wall in expanding certain areas of the company, such as sales and marketing.

We put financing together in a heartbeat. They didn’t have revenue recognition issues like small companies that aren’t paying attention to the new rules by the SEC and FASB accounting rules, which are unbelievably rigid. You promise something in a PowerPoint to a customer and, technically, you can’t recognize a penny of revenue until that component is delivered. That’s why so many companies are getting into trouble. We had no issues with Ibex. The people are really excited because they weren’t bought up by a big entity that would lose them. We weren’t far off from their size, and the story we put together made a lot of sense. We got lucky with the company, the technology, and the fact they weren’t being hotly pursued.

The product is the only true web product I’ve ever seen. There was all this hope and promise that everything was going toward Java applets, then they found you had to download these very thick components to the supposed thin client. It all fell apart and never worked. Then we had the .NET euphoria, and we all saw how that crashed and burned. These guys did this technology in PERL. We’re using PERL as the back-end to web services. The end result is that this is a 100% web application that’s the most feature-rich ED application on the market. We did our due diligence on that. It’s so easy to deploy and update. It’s absolutely the way you want to go, but until then, there wasn’t a way to deliver the promise of web technology for feature-rich applications. I think we’ve found the key to doing it while being able to add features to the product without hitting a performance wall.

Is Picis like Ibex in that regard, a profitable company with great technology that may have hit a wall that requires either getting bigger or getting acquired?

We’re in an interesting position. Middle management in a lot of the big companies have convinced senior management to build instead of acquire, like “Don’t spend $150 millon on a Picis, give me the money and I’ll do wonders with it.” What they don’t realize is that, even if they had $500 million, you don’t build software this complex. We've got 1200 man-years in these three products, and it isn’t just putting 1200 people to work for a year. Much of the technology has to be built, such as engines and core integration components. You can’t get there from here in a reasonable time. The big companies think they can compete in these areas just by throwing money at it, the “not invented here” syndrome. I think that puts us in a place where we can just keep doing what we’re doing. I think we’re too expensive in their eyes, which will keep us off their radar. We’re pouring every penny that we make into R&D. So, I don’t think we have to worry about that right now.

What are your strategic goals for Picis?

We’ve got plenty of room for growth. These care areas make up over 50% of a hospital’s revenue and expense, and only 7% of ICUs are automated so far. We’ve proven that we have the technology and usability levels for users to spend money to make money in these areas. We’re past the early adoption phase. Most of our OR revenue comes from replacing antiquated scheduling systems, but only 7-10% have automated anesthesia and PACU, so that’s an add-on at the same price as the scheduling system. ED is only 10% automated and a hot area for investment. So, there’s plenty of growth for this company in the next five years, continuing to do what we do extremely well.

Beyond that, I’m not smart enough to figure out more than two years’ ahead of what we should be doing. Sometimes I even get that wrong. A lot of companies, especially in healthcare IT, get trapped into trying to figure out what they should be expanding into, rather than doing more of what they do right. Our strategy sessions are usually about what we’re not going to do, not what we’re going to do.

You compete against soup-to-nuts companies like Cerner and McKesson that offer customers a breadth of solutions that can block Picis from the table.

We’ve all been saying that for 20 years. Take Cerner. As much as we all like to bash them, you can’t argue with their position in the marketplace. We all like to take potshots at Neal, but he’s a brilliant guy. He doesn’t always say things right, but they’re on the extreme of “let’s build everything ourselves under one integrated platform.” Actually that’s not quite true – their lab and pharmacy systems don’t quite communicate. But, they’ve slowly improved their product over time. Cerner’s got a problem in that it took them ten years to build this all on one platform, ten years, and they’re realizing that platform is cumbersome and obsolete and are thinking about rewriting it, even though it isn’t quite complete.

Then you’ve got the McKesson side, which was “let’s buy 25 companies and glue them together,” like after the Soviet Union fell apart and you had the Commonwealth of Independent States. Obviously that strategy failed, because they’re not getting any new business.

There are 140 vertical applications in hospitals. Everything we do involves human touch, meaning that software must be extremely user friendly, focused on the user's environment, and customized to it. This isn’t like SAP, where you can adapt it to any business. That’s why it’s such a fragmented market and you can go to HIMSS and see 10,000 companies and wonder what they all do. ERP is five times as large an industry, but their trade shows have just five big companies and lots of smaller ones that support them. There’s not enough ROI in each of those 140 areas and not enough critical mass gained by combining those development groups. Those companies will always be in a “develop vs. acquire” mindset. Will hospitals tolerate having to deal with 25 vendors? No. You’ll have some areas of hospitals covered by certain expert vendors that keep your total vendor count down, and if they overlap a little bit, no problem. That keeps them honest and competing for business.

For example, you might have Lawson for materials, although I’ve never seen a company have so much market share with so many usability issues. Still, that shows how difficult it is to do a healthcare system. You might have GE for radiology and cardiology and Cerner for the backbone clinicals. But, I just don’t think those companies can put the R&D and focus that we have. Even if they start now, we’re still growing and we’ll stay ahead.

There are some lazy CIOs who think that having a Cerner or somebody like that come in and do everything is the panacea, but they soon find out that products are as little integrated among themselves as buying from separate vendors. You look under the hood at the “proprietary integration engine” and find out they’re using HL7 to integrate their own products. So, I think as the market becomes more aware of this failure of one-stop shopping, they’ll realize there’s just too much to do for these companies. To be on top of their game in every area is a compromise, and we see it happening quite often. We’re lucky because these are difficult areas to automate and you don’t want to be left with a half-baked system.

Are there applications in that same high-acuity, low user acceptance cluster that Picis should be in?

The perinatal market is a big area of the hospital that people often forget about. Applications involve both capturing data from monitors and workflow, which we do well. Those areas are also understaffed and could benefit.

Do you think the Oracle acquisition of PeopleSoft means anything beyond the obvious?

PeopleSoft was starting to encroach onto Lawson and McKesson was getting their act together in those areas, actually starting to get orders outside their installed base, mostly on price, I think. PeopleSoft was starting to get traction and by partnering with companies that didn’t have a partnership with Lawson, and even though their software was horrible at first for hospitals, it was getting better and better. The question is how smart is Larry Ellison and his team to figure out how focused they should get in these smaller vertical markets. Oracle has gotten into and out of healthcare about three times. One time they brought in a bunch of people, put them in an enormous building, and within six months Larry Ellison got back from one of his sailing trips and realized they were bleeding, so he just shut down the whole thing. There’s a big opportunity in making a product work better on the ERP side of the hospital. Hospitals are really crying out for workable, usable functionality in that area.

Picis OR Manager is ranked fourth in the KLAS surgery system rankings. Does that bother you?

KLAS rankings are what they are. It’s a very subjective ranking. In the end, good products make it to the top and bad products make it to the bottom, but in the middle, there’s a lot of subjectivity and you get penalized for having a big installed base. USA has been the #1 ranked product the last two times and I’ve never seen them in the marketplace, never seen them in anyone’s final two. We also have our MEDITECH Magic product, which is uglier than DOS but, as you’ve pointed out, they’re the most successful company in healthcare IT, so you can’t knock them on that. Still, the user friendliness of our Magic product isn’t that great and sometimes we get pinged for that. We’ve got 200 installs with that technology.

Also, the difference between the rankings has been 5, 6, or 7 percentage points in the past few years. Until USA got into the rankings, it was Picis, iPath, and SIS trading off the #1 spot. You’d almost think KLAS did that so we’d all keep paying them the fee (laughs.) I’m not sure you can really draw conclusions, but that doesn’t make me complacent about customer service and we’re putting resources into that. We’re starting to use another company that does a deeper analysis to see where we can improve. I've never seen anyone analyze the KLAS methodology or had KLAS or a statistician say this is a valid way of analyzing their data.

What is the MEDITECH connection with Picis?

MSM started 25 years ago as a guy in Boston who was asked to do a few MEDITECH installs. Customers liked him, so they would ask for something that MEDITECH didn't offer. He was a smart guy and would tell them “You fund it, I’ll hire the people, and I’ll own the intellectual property when it’s done.” He did that with about ten hospitals in the Boston area and that’s how he got into OR scheduling, credentialing, and other products ancillary to MEDITECH. We know that technology inside and out. We’ve got the keys to the very proprietary MEDITECH platform and still develop on it even today. Magic is still the predominant MEDITECH operating system because it’s simple and you can’t get fired for putting in this proven product. We get a substantial portion of our revenue from that marketplace.

People don’t realize that MEDITECH has 1700 hospitals, a third to half of the possible hospital IT buyers in the country. When we go into the OR, we’ve got no competition. Those customers are buying our anesthesia product, our PACU product, and our ED, where we integrate with their order entry. In fact, we have one product that connects to all 43 MEDITECH modules and gets data out. Arkansas Children’s uses it to feed data to their physician’s portal. This will never be a huge business for us, since the average maintenance fee is something like $20,000, but it’s good business that adds up.

What do you think Microsoft wants to do in healthcare?

What do they want to do in general? The stock has done nothing and they’re resigned to the fact that, at least for the cooling-off period, the government’s not going to let them buy anything big, so they’re giving cash back to investors as huge dividends. I hear rumors of partnerships with Eclipsys, but then I hear about sites like Swedish where the partnership is off, it’s a sham, it’s just a marketing ploy. I think they struggle every day with encroaching upon their biggest buyers and users, companies like us. On the other hand, that’s the only space they have left. They aren’t going to go out and buy $10 billion companies. To increase earnings per share, they’ll have to grow and get more vertical.

I don’t see any evidence of a decision to get more focused when I talk to Microsoft executives. This is not a market that plays well to megacompanies. The bigger you get, the farther away you get from focusing on users and the more likely you are to alienate them. If they came in and got Eclipsys, I would see that as a plus, since Eclipsys would get that much more de-focused, just as we’ve seen with just about all these big companies that have bought smaller companies.

Did that happen with GE?

You buy technology, a customer base, or rarely, both. We have both and that’s why we’re viewed as extremely expensive. GE has gone in and bought the technology, but stayed away from the customer base. They were looking at MSM when we were and offered to buy the technology, but didn’t want the MEDITECH stuff. We said no, we absolutely want the MEDITECH stuff – it’s half of US healthcare. They’ve bought a lot of companies, but you can’t knock having tied-in customers. The customer base has kept both McKesson and Eclipsys alive. Eclipsys’s sales of their new and upgrade products must be 80 or 90% to old TDS customers. They’re not getting much business outside that installed based. McKesson’s the same. The value of buying a customer base can’t be lost. In our space, iPath has gone down in the KLAS rankings from #1 to #8 after GE bought them.

I think they’ll definitely make a move at some point for a big player – that’s a given. The question is who, and what they do with it. It’s easy to knock these big companies, but I think it’s a tough environment to do blanket deals and expect customers to come flocking to you. There’s a huge amount of skepticism about GE from CIOs, particularly old-school CIOs, who just don’t trust them in the healthcare IT space. On the other hand, they trust too much those same guys they’ve been dealing with for 25 years.

Where do you think the government’s involvement in healthcare IT will go?

It came up as a campaign issue. The focus on IT by hospital CEOs has increased substantially, and they’re finally saying something has to be done. But, a lot of their answers are to outsource IT or commit to doing CPOE without understanding what that means. Like PT Barnum said, any news is good news. If Brailer doesn’t get funded again and put some meat behind it, it’s going to fizzle out to the point people will say it was a fad and go back to building specialty hospitals.

David Brailer was the perfect guy for the job, he’s got experience, he’s well respected by a lot of people, including Tommy Thompson. I’ve talked to Tommy myself and he's not happy with the progress. Interoperability is the key to this, and I thought it would be neat to get together small companies like us who are more interested in interoperability than big companies. I’ve talked to other companies and we might want to pursue this. The big companies are sitting in the catbird’s seat, since lack of interoperability keeps them alive.

In Washington, lobbying works. You have to get in people’s faces and play the game. Our industry isn’t doing that. Where’s the lobbying arm of HIMSS, if they’re the right organization? Who’s camping on Congressmen’s doorsteps every day pushing this through?

Who do you admire in the industry?

I’m not a naysayer about Neal Patterson. You would think someone like me would say he’s a big jerk, but I think he’s extremely smart. He needs a PR muzzle around him, probably 24 hours a day, but he’s put his smarts into execution and I admire that. Definitely the MEDITECH guys – Neil, Howard, and those guys – I respect the hell out of them for just saying no to everybody, including customers. How can you argue with a company that’s probably the most profitable in the business?

You’ve got to respect Judy Faulkner and Epic with what they’ve done, by staying private. I just don’t know where that company goes after her, or God forbid, if something happens to her, and I don’t see how they can scale that model continuously to meet the capital requirements to keep up. There’s two times when you’re need capital: when you’re not doing well and when you’re doing too well. You need working capital to keep growing and investing.

I’m a supporter of David Brailer and what he’s doing and Tommy Thompson and what he did to at least get this ball rolling. I admire the HCA people, who’ve done a good job in turning that tough situation around.

What did you get for Christmas?

A pair of remote headphones so I won’t bother my family when listening to music.

Why do you read HIStalk?

The first couple of times I read it, I was like, “it’s interesting, what’s happening, and what are the juicy rumors.” I don’t know what your businesss background is, but you take things that you hear and see and put interpretation on them that I think in many, many cases, if not spot-on, is an extremely interesting viewpoint. I think that’s what attracts me, the perceptiveness of some the things I’ve seen there. I've known some things first hand that you didn’t know, and you hit it. So, I've got to say that, whatever your business background, you’ve clearly got the CIO background, and putting those two together is what intrigues me with useful and interesting information. Definitely an interesting read that brings me back the next time. I can’t say that about some of the other healthcare stuff , because all the magazines are there just to provide blither for advertising. The others don’t quite have the perceptiveness.