So after the HealthVault launch everyone could be comfortable that Microsoft was serious about healthcare. In case you still were not convinced they just made another acquisition. Buying software that focuses on the developing world is extremely smart. Some countries have exploding middle classes that are going to want to consume healthcare. Don’t be surprised to see Microsoft entering the EMR market in a big way over the next few years.
Monthly Archives: October 2007
Here is a great example of a situation that is in need of all kinds of workflow engineering. Tim shows why having detailed operational data is crucial to making business decisions. If there is a deep understanding of a business then solutions like the one Tim discusses will be much easier to justify and can lead to a very high performance organization.
GE has bought Dynamic Imaging. Woah that’s big news. Props to Dalai who got this first. To me this is the clear admission that Centricity was a dead animal. The code base is not designed to operate in a true web environment. Centricity is a clunker with many more technologically advanced rivals, such as Dynamic Imaging.
What does this mean? First I think that M&A activity in healthcare is hot right now even with the private equity guys complaining about access to liquidity. Commissure was acquired by Nuance. Now GE buys Dynamic Imaging. GE is the second major company to buy another company that makes the same product that they do. Philips bought Stentor and replaced their existing PACS with it. I am sure that DIs technology will become front and center has GE’s PACS offering even if they rebrand it Centricity. They would be fools not to.
So I have said in the last few days that I do not see much room for small to mid sized PACS companies. There is another interesting exit strategy for them, selling to a large company to replace its PACS. Maybe it is time for Siemens to pony up and buy Emageon, Amicas, or one of the many privately held PACS companies.
An offhanded comment from one of my friends this evening had me researching Emageon (EMAG). I was looking for any signs that something was going on with the company. They have had a rough go of it recently as I think small and mid sized PACS companies have had recently and will continue to have. I did uncover a couple of interesting things.
I believe that it has been heavily bought by quantitative hedge funds. What makes me think that? Have a look at the owners with more than a 5% stake. See any big names? I do, D. E. Shaw. They are one of the top quantitative trading firms on Wall Street today. Together the owners 8 firms that own more than 5% of Emageon own 67.3% of the company. I admit that I am stretching a bit since I do not know the exact trading strategies of all these firms. I do know that D. E. Shaw uses statistical arbitrage as a major trading strategy. Read about statistical arbitrage if you are not familiar with it.
What does this mean? A large percentage of the company is owned by firms whose models probably don’t understand the dynamics of the radiology marketplace. Their models show a pricing discrepancy based on historical data and the relation to other stocks. I believe then Emageon may be overvalued in the long term. I think that should the quants have another blood bath like they did in August, or if one of them has liquidity issues the stock could decline rapidly. I don’t see upside with this company from an investment standpoint.
Workflow is one of those all encompassing topics that is thrown about. I think of it as human involved business processes. Pure technological processes can be optimized in a different way. Human processes are a source of a great deal of variance as far as a business is concerned. Variance can be bad since it means that a processes is not operating normally. Consider a cat scan(CT). If for any given type of study there is a great variance in the time it takes to complete a practice cannot determine with certainty how many studies can be completed in a day. If a business can reduce this variation it can limit the amount of time that the CT scanner is idle. As a very expensive piece of equipment its utilization should be approaching 100%. For the sake of discussion I am going to assume that if you can have more capacity that you will find a way to fill it. If your CT scanner could always be busy you would make a lot more money than you would otherwise.
used to scan patients and then bill for performing the study. This is direct revenue. For the 3D technology maybe it makes the radiologist more efficient. He can now read more complex studies faster and with fewer errors. This is indirect revenue. Remember that errors cost money such that the total cost of errors equals the sum of the probability of an error times the expected cost of an error or Cost = Sum( Pr(E) * C(E) ). Quantifiable reduction in errors does lead to decreased cost and decreased risk so that a piece of technology can be weighed as a risk reduction tool although I don’t think that you could justify it on a purely cost basis.
Questions like these need to be answered when buying a piece of equipment or technology. The questions related to variance, cost and revenue. The truth is that to answer these questions you need a deep understanding of your business. Most healthcare practices do not have this deep understanding of their business.
Dalai was the first that I saw to point out that Amicas (AMCS) is waving goodbye to Peter McClennen, its President and COO. I am actually not shocked about this. Amicas is a second tier PACS company that has struggled to find its way. The company is thought of as a growth company but it seems that a lot of time has been spent just to maintain its position in the market. The stock as also lagged since it dropped from $5 to trade now at around $3. Now this is not Vonage territory but something over there is not working.
I am not about to knock Peter. I have known him since I was 16 and he was working at Fuji. I knew him when he worked at GE. I talked to him a couple of times a year at Amicas. He is a stand up individual that has a lot to bring to the table for any company. He is also one of the most enthusiastic people I have ever met.
I think that Amicas is the first company (maybe not) that is showing signs of problems. There are a great many second tier PACS vendors that have struggled to differentiate themselves from the major players, GE, AGFA, Fuji, Philips, and McKesson. Those companies have a very significant market share leaving Amicas, Dynamic Imagaing, Emageon, and a plethora of other companies to pickup the rest.
Over the next few years numerous small PACS companies are going to die. There is simply not enough market share to go around. Those players that are able to differentiate themselves and find niche markets to serve will survive although probably not forever.
A major force in the industry will be the introduction of the native 3D PACS from TeraRecon. The deep integration of 3D is something that will significantly raise the technological bar for all PACS companies. once that happens the first real game changer that causes the core PACS technology to change in a long time, maybe since DICOM, will occur.
The other problem for smaller companies is the exit strategy. There are not a lot of companies in radiology that need a PACS as part of their offerings. So there are not a lot of potential acquirers left. Probably a couple of up and coming EMRs will want one but who can say. I think that for small PACS companies the future looks bleak.
If you believe that Hillary Care is inevitable how are you going to make money? Someone is going to make money off of it, and it may as well be you. The trade I think is long consulting and short big pharma.
There will be billions of dollars spent to implement Hillary Care and a large chuck of that will go to the large consulting companies that have established relationships with government entities. Take a look at IBM for instance. They will be well positioned to take advantage of lucrative contracts thanks in part to their cutting edge research partnership with Mayo.
As for shorting Pharma, they stand to lose a lot from restrictions on non generic drugs and the powerful bargaining position of the government in such a situation. Smaller pharma companies will undoubtedly suffer but there will still be upside thanks to the larger companies needing to buy them to secure access to new drugs. The valuations of those companies will go down though.