Healthcare Business News

Athenahealth agrees to buy Epocrates for $293 million

By Joseph Conn and Melanie Evans
Posted: January 7, 2013 - 8:30 am ET

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UPDATE: 3 p.m. ET

Athenahealth, a Watertown, Mass.-based health information technology company, announced its second acquisition agreement since September with a $293 million cash deal for Epocrates, a mobile application developer. The deal would amount to $11.75 per share for San Mateo, Calif.-based Epocrates, which was named No. 1 last year in Modern Healthcare's first Most Important Mobile Healthcare Apps competition. The company was named to the top spot by the magazine's readers with help from the Association of Medical Directors of Information Systems and the College of Healthcare Information Management Executives.

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Epocrates is "the most trusted brand" in the clinical mobile applications space, Jonathan Bush, Athenahealth's president, chairman and CEO, said in a telephone interview. "They have a great clinical content team and wonderful mobile app developers," but the company's applications are now largely one-way communications channels, which can be combined and enhanced by access to Athenahealth's clinical applications and information, he said.

"What we'd like to do is push it to the next level," he said. "Not only can you read information, but (you can) execute on it."

Bush said he plans to expand Epocrates' boundaries to include search tools for diagnostics and procedures. "That creates demand for a whole new set of sponsors," he said. On the diagnostic side, those potential sponsors might include large reference labs, such as LabCorp or Quest Diagnostics. Also, Bush said, "You can go local. So, we'll connect into all of the local labs."

Athenahealth is expected to finance the deal with cash and an existing credit facility, the company said in a news release. The acquisition is subject to the approval of Epocrates' shareholders and customary closing conditions and is expected to close early in the second quarter of this year, according to the release.

Last fall, Athenahealth said it would acquire Healthcare Data Services, Boston, for undisclosed terms. The deal for HDS, a data analysis and population health management company, closed in October.

Athenahealth, which was co-founded by federal Chief Technology Officer Todd Park, ranked a respectable No. 8 among 356 vendors of complete, ambulatory-care electronic medical-record systems that had at least one client that had attested to having met Medicare's meaningful-use criteria, according to a Modern Healthcare analysis of federal data.

As of late December, 2,773 users of Athenahealth's Web-based ambulatory complete EHR had attested as Medicare meaningful users, giving the company roughly 2.6% of the ambulatory EHR meaningful-user market. It was well behind market leader Epic Systems, with 21.9% of the market, and No. 2 Allscripts, with 11.9%. Epic and Allscripts also offer EHR systems for hospitals.

Through November, 170,543 physicians and other "eligible professionals" had been paid under either the Medicare or Medicaid EHR incentive programs—just a third or so of the 531,600 providers that, according to the government, qualify for incentive payments. This would suggest that the ambulatory EHR market, Athenahealth's niche, is fairly open. But with the push toward accountable care organizations, patient-centered medical homes and outcomes-based reimbursement as well as the growing combination of physician groups with hospitals, the market for physician-only EHRs already may be circumscribed, according to some industry observers.

Even with nearly 48% of U.S. hospitals having already met Medicare meaningful-use requirements with their current inpatient EHR systems, it's not too late for Athenahealth to make headway in the hospital IT market, according to Bush, an evangelist for cloud-based, software-as-a-service delivery models over site-based legacy IT systems.

Bush said his company is in about 50 hospitals and in another 40 imaging and ambulatory surgery centers with Web-based offerings for patient pre-certification and registration. It plans to offer additional software services to hospitals "slice by slice," he said.

"All hospital systems are obsolete and will be shut down," Bush said. "If they don't die, they will be made illegal" by the government because they won't be able to achieve the level of interoperability needed for healthcare exchange and the new payment systems, he said. Those companies with traditional software could reconfigure their systems, but "you have negative grown margins for years and years before you start to make money," he said.

Christine LaFave Grace contributed to this story.

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