News 01/31/06

From Anonymous: "I've heard from several competitor health system CIO's in Minneapolis that Epic is in deep doo-doo at Allina and was wondering if anyone would corroborate ... I've heard astronomical figures about how over-budget they are at Allina (like $50M over their $100M budget) due to Epic being tapped out and totally failing at multi-hospital capability. One rumor I heard is that they promised one server for the whole system and now they basically have 8 separate, unconnected installations going on." Feel free to chime in here. It's been brought up here before, but denied by those who should know.

From Cageybee: "MEDITECH now the largest vendor? 94 new customers in 2005. MEDITECH now has 24% of the market share in the U.S. This means MEDITECH is the largest vendor in the U.S. Client Server 55%, MAGIC 45% of new sales. 2005 replacements: Cerner 18, McKesson 17, CPSI 16. Sales revenue: $215 Million."

Well, let's talk about MEDITECH, since you brought it up and since their 2005 Annual Report was released today. They company isn't publicly traded, but they have to file because of SEC requirements. Their 2005 revenue was $305 million, up 8.5% from last year. The company cranked out a 26% profit margin, or $78 million (the same dollar profit as Cerner on 1/3 the sales volume.) They're up to nearly 2,000 hospital sites. Also interesting: they've settled the complaint of former director Jerome Grossman without paying anything. 

Another MEDITECH item: how much is the company worth? Cerner's market cap is 3.14 times sales, which would MEDITECH's value at $958 million at that multiple. MEDITECH and Cerner have identical annual profits, so you could argue that they should be valued the same ($3.44 billion with Cerner's current PE of 43.) MEDITECH's small-hospital competitor CPSI is at 4.3x revenue or 35x profits, valuing MEDITECH at $1.3 or $2.7 billion, respectively. So, let's swag MEDITECH's value at $1.5 billion, or $43 per share. That means Neil Pappalardo's 37% of the company is worth around $560 million (even at the company's low internal share price of $29, he's got $378 million worth in real dollars right now) dwarfing Neal Patterson's $130 million worth of Cerner stock. Does anyone doubt that Neil Pappalardo (and 3-4 of his fellow directors) are the richest people in healthcare IT? Their most junior director or officer has been with the company for 20 years, they've been in business since 1969, they've got 30+ years' worth of 98% customer retention, and they didn't sell their souls toVCs. They are healthcare IT's Wal-Mart, providing unsurpassed value to customers who need it desperately. If you compete with them, you've learned this already.

Here's an interesting quote from the MEDITECH report: "The rest of the staff is developing a set of replacement products utilizing a new technology. Approximately every ten years, MEDITECH introduces the next generation of products based on the new technology and gradually updates existing customers."

Want to know what else makes MEDITECH smart? How about this statement? "Marketing activities and promotion are low key because hospitals are easily identified, finite in number and generally send a request for proposal to vendors when they contemplate the purchase of a hospital information system." If you want free trips, free lunches, and expensive trinkets, the usual big vendors will oblige. MEDITECH won't, but try to get Cerner or McKesson to sign a support contract worth just 12% of your purchase price annually. All of us are paying for those not-really-free lunches and high marketing costs. The Wal-Mart analogy is obvious enough that I won't mention it again.

McKesson wouldn't comment on an article listing the company as one of several that has abandoned retirement plans for all employees except those in the executive suite. Gotta pay for the Hammer's golf jet.

MercuryMD signs a mobile information system deal with Catholic Healthcare West.

Idiotic hospital lawsuit of the week: a woman trips on a rug in lobby of the family medicine building of West Virginia's Charleston Area Medical Center. Two years later, she's suing the hospital, claiming she broke her hip in the fall and, later, broke her finger in another fall caused by complications of the first one. In addition to lost wages, medical expenses, and pre- and post-judgment interest, she's also demanding compensation for "humiliation, embarrassment and anguish ... because of the permanent nature of the injuries ... [and] a reduction in her capacity to earn money and to enjoy life."

A Florida newspaper profiles Larry English and his semi-retirement and consulting business. Guess he's not exactly eating dog food: "The company plane is what his wife misses most about him not working for corporate America, English said. 'Now we have to charter planes.'"

Who knew that President Bush's 36-year-old cousin is CEO and co-founder of practice management software company athenahealth? I should have known that Bush offspring aren't burger flippers, no different than any other rich and connected families whose young 'uns learn caste rank by effortlessly gaining admission to prestigious Ivy League schools (he's a Harvard man, too) purely on academic merit, you understand. Oh, the stories I could write about the privileged and the athletic if I had an inside source at the SATs. Think Marcus Vick will be going for his doctorate at Virginia Tech?

In the UK, iSoft's shares plummet 45% after delays in the NHS Connecting for Health project are announced, expected to erase an expected $80 million in profits for the year.

The US Senate's investigation of Medicare fraud at New Jersey's UMDNJ, the largest public health university in the US, gets underway. The university could have been shut down last week, but agreed instead to turn control over to a federal monitor.

Your comments are welcome. E-mail me or use the Rumor Report to your right.