Allscripts' new CEO Paul Black faces a huge challenge. As hospitals and physician practices merge or coordinate care through seamless electronic health records, will he be able to knit Allscripts' disparate ambulatory and inpatient electronic health-records systems into a smooth, interoperable whole that can compete? Already disaffected Allscripts customers are leaking to its competitors, particularly red hot Epic Systems Corp. and aggressive Cerner Corp.
Allscripts former CEO Glen Tullman thought he had time after the company's 2010 acquisition of Atlanta-based Eclipsys in a $1.3 billion stock swap. The move pushed Allscripts, which traditionally focused on physician practices, to 5th among vendors of complete inpatient EHRs. Its 210 hospitals, or 8% market share (based on hospitals that have successfully met Stage 1 meaningful-use criteria under the Medicare EHR program), gave it a base to challenge Epic (24% of the market) and Cerner (19%).
But after losing out on major contracts—the company earlier this month went to court to challenge New York City Health and Hospital Corp.'s decision to go with Epic—the board decided last week that it couldn't wait any longer. “The execution part and delivering on the promises has been so difficult,” said Todd Cozzens, a health IT veteran and partner at Sequoia Capital, a Menlo Park, Calif.-based venture-capital firm. “That would have been okay had not the market developed so quickly with the number of hospitals moving to integrated delivery systems.”
Black now must assure existing customers that the company's IT offerings can meet the challenges of the coming era of coordinated care. “I don't think right now all of our clients are happy,” Black admitted in a Dec. 20 conference call with stock analysts.
The window of opportunity is closing for IT providers. About two-thirds of the nation's hospital systems have already chosen an IT partner and received incentive money, according to the CMS. The remaining quarter are mostly smaller community hospitals, a market led by several other EHR vendors, not Allscripts. The company is stronger in the physician and ambulatory care EHR market with a 12% market share. But even there, it trails Epic, which has 23,461 physicians and other EPs, a near 22% market share, according to federal EHR payment data.
The market opportunity for standalone ambulatory EHRs is shrinking through the rapid acquisition or affiliation of group practices with hospitals, Cozzens said. “There is only one game right now and that's consolidation,” he said. “Every hospital is buying up physician groups.”
Allscripts' ambulatory EHRs—it has offered multiple products based on systems it obtained through acquisitions of Misys (2008) and A4 Health Systems (2006) needed to be interfaced with the Eclipsys hospital EHR, which was “good with clinical workflow, but was still missing a lot of clinical pieces,” Cozzens said. “The company wasn't able to glue all that together at the speed with which they were promising customers.”
It remains unclear if there is room for a third major player in the market, which is now Black's challenge. Tullman, who had led the firm for 15 years, had been shopping the company, a move the board recently rescinded. The company wasn't sold “because they didn't have an offer at a price they wanted,” Cozzens said. After the stock plunge Dec. 20—Allscripts' shares fell 14% or $1.54 a share on the announcement and inched downward another two cents to close at $9.12 the following day—the possibility exists the company could be taken private. ”That will be the opportunity to really hunker down and come out on the other side leaner and meaner with the product they need to be competitive,” Cozzens said.