Community Health Computing Corp., a Houston-based healthcare information systems vendor, last week pulled out of the market for financial and administrative software amid mounting losses in that part of its business.
The company will concentrate on marketing a new generation of clinical system technology in an attempt to regain profitability, said Greg Smith, vice president and chief financial officer.
In a price-competitive but expanding computerization marketplace, CHC has lost money during the past two years, and the pace has been accelerating. In the latest three-month period ended Aug. 31, the company's net loss of $1.3 million equaled its loss for the first nine months of 1993.
For the nine months of 1994 ended Aug. 31, CHC's losses nearly tripled to $3.5 million on revenues of $28.7 million, compared with a $1.3 million loss in 1993 on $29 million in revenues.
The company bought the financial and administrative systems in 1990 from Houston-based Infostat, which had about $3 million a year in sales to smaller hospitals, Mr. Smith said. Sales doubled to $6.5 million in 1991, jumped to $10 million in 1992, but then dropped to about $5.5 million in 1993, he said.
During that same period, CHC withdrew from the laboratory information systems market its original product line established in 1973, which lost market share in the 1980s to newer computer technologies, Mr. Smith said.
From 1991 to 1993, the company sank $32 million into research and development of a new lab system based on faster computing technology and on industry standards for easy integration with other software and hardware.
That new system, called LabStat, made what Mr. Smith called "a very significant re-entry to the marketplace" in 1994 with two contracts worth $5.1 million.
With that product established and clinical computing looming as a growth area, CHC decided to employ its resources "to get more significant payoff" and drop the Infostat lines so CHC is "not left saddled and burdened with a business component that clearly was the largest component of our loss in 1993," Mr. Smith said.
The company had sales of about $3.6 million for the now-jettisoned lines through the first nine months of fiscal 1994, and only one contract was signed in the third quarter, he said.
CHC's losses were partly the result of "spending a lot of money finishing second and third" to competing vendors, said Tom LeBourgeois, an executive systems consultant with Superior Consultant Co. (June 6, p. 38).
He said the company took itself out of an administrative software market where smaller hospitals may stand pat for a while and commit investment to clinical systems instead.
"Spend the money where you've got a chance to win," Mr. LeBourgeois said about vendor strategy. "Offset your seconds (in bidding results) with some firsts."
Mr. Smith said CHC's cutting-edge technology will position it to compete for new lab-system business and also convert its existing base of lab clients. As of 1993, the company had a base of 171 installed lab systems, according to figures kept by R.L. Johnson and Associates (April 4, p. 76). That keeps CHC even with or ahead of the lab-system totals of such competitors as HBO & Co., First Data Corp. and Shared Medical Systems, according to the Johnson survey.
CHC also plans a push into radiology information systems with a new-generation software package developed two years ago called RadStat. In July, the company completed the acquisition of DuPont's radiology systems unit as a potential client-conversion base for the RadStat system (July 25, p. 20; June 6, p. 8).
Mr. Smith said CHC would continue to sell the financial and administrative systems in the United Kingdom, and it would maintain and support existing U.S. installations.
The publicly traded company anticipates recording a charge of $4 million to $4.5 million related to the discontinued U.S. sales, including asset write-downs and the capital cost of developing software that won't be recouped through sales, Mr. Smith said. The charge will be taken in the fourth quarter ending Nov. 30.
Along with other cost-control measures, the restructuring is expected to save about $6 million a year beginning in the first quarter of fiscal 1995, the company said.