The pullout of a unit of Hughes Aircraft Co. from the healthcare information systems market is one of the first signs that billion-dollar defense contractors have a fight on their hands for market share against smaller but dug-in competitors.
A raft of defense, aerospace and communications companies see a hot healthcare market and are adapting their goods to the task of building secure data-transfer systems with split-second response time-hallmarks of their technology.
For the past year and a half, Hughes Healthcare Systems had been pursuing the business potential of integrated delivery systems and community health information networks, said Alan Pelegrini, marketing director for the Fullerton, Calif.-based division of Hughes.
But earlier this month, at a Hughes planning meeting, executives "took a good, hard look at the position we had established" in the healthcare market against established information systems companies, Pelegrini said. And they decided the battle wasn't worth it (July 17, p. 16).
"By the time we got our products and services to market in a reasonable way, our competition would likely have been able to build off their business base" and grab a substantial market share, he said. The remaining share "would not have been attractive to Hughes."
Only weeks before, the healthcare division's top echelon was on the road with new promotion materials touting the expertise of Hughes in areas such as information security, large-scale integration of computer systems and other sophisticated communications capabilities.
As its most distinguishing feature, Hughes emphasized what it called a "virtual computerized patient record," an invention that retrieves and manages clinical information throughout a healthcare network without the need for a central database.
But healthcare software vendors such as Shared Medical Systems and HBO & Co. also have been moving into the larger systems integration market, and that presented an obstacle to market entry for Hughes, Pelegrini said.
"Anytime you attempt to enter a domain like healthcare, where you don't have a large base of accounts, the difficulties are enormous," he said.
Success depends on getting a foothold with high-visibility customers that can be held up as "references" for a company's ability to deliver. "It's hard to sell smoke and mirrors," Pelegrini said. "You have to have reference accounts. And you have to get something up and running within the window of opportunity."
Hughes isn't the only corporate prospector to walk away from healthcare or expose its ambitions to a reality check.
Westinghouse Electric Corp., a defense and communications giant with $8.8 billion in 1994 revenues, started looking three years ago at providing a comprehensive capability in healthcare information systems, said Barbara Wallace, market director of healthcare systems for the Westinghouse Communications division based in Pittsburgh.
The corporation planned to leverage the engineering expertise of its defense division, Baltimore-based Westinghouse Electronics Systems, with the electronic-network experience of its communications unit to build a full package of healthcare software, systems integration and electronic communications, Wallace said.
But recently the parent company re-evaluated its strategy and pulled its defense engineers out of the non-defense business, leaving the communications unit on its own to pursue healthcare and other industries in need of data-transfer networks, she said.
The communications unit, a division of New York-based Group W Broadcasting, decided to limit its efforts to what it knew best, the electronic communications portion. That decision consigns Westinghouse to a smaller revenue potential, she said.
But in the other healthcare sectors, it was hard to displace established vendors. "That's why the broader idea Westinghouse originally had didn't work," said Wallace.
Another billion-dollar corporate fixture, AMR Corp., the parent company of American Airlines, went so far as to build healthcare-specific prototypes for network integration using its SABRE airline reservation network for the electronic message routing, said Ralph Wakerly, a Chicago-based consultant with First Consulting Group.
The healthcare information systems management and consulting firm counseled AMR last year on a possible entry into healthcare. "Technically they were never in it," said Wakerly, adding that the toe-dipping was done quietly and unofficially.
A spokeswoman for The SABRE Group, a division of Fort Worth, Texas-based AMR, said it wasn't corporate policy "to speculate on any kind of work that we're doing or business transactions that may or may not take place."
Wakerly said the group installed a prototype at one hospital, and it considered but never entered the bidding for a role in building the Metropolitan Chicago Community Health Information Network, which First Consulting had a hand in organizing last year.
The fits and starts among defense and aerospace companies aren't necessarily indications that they're heading into the wrong business. "They should be able to apply their technology within healthcare," said Richard Helppie, president of Superior Consultant Co., a Farmington Hills, Mich.-based healthcare information management company. "There's clearly a need for that technology."
But although every prospective customer has the same basic set of requirements, the model for selling to the healthcare market is complex. Each component of technology-from message routing to data repositories to voice-recognition systems-requires substantial engineering of existing expertise to a specific purpose, each one an investment gamble, he said.
"Even when you're firing a missile, you have a fixed reference point,"
Helppie said. "That doesn't happen in healthcare."
A company may decide to invest in the best voice-recognition product around, for example, only to find that health networks have it low on their list, behind clinical data capture and database development, he said.
Said Wakerly: "The skill sets are transferable (from defense to healthcare). Making money is another thing. Getting a market share is another thing."
Several other corporations said they are still in the market to stay, though the trend appears to be toward avoiding the clinical-systems turf of entrenched healthcare competitors and focusing on systems integration, the route Westinghouse has taken.
Harris Corp. said it has assembled a staff of about 20 people to work full time on application of technology to healthcare information systems, which now represents only "a couple million dollars" worth of the company's $3.3 billion in revenues posted in fiscal 1995 ended June 30, said Charlie Snell, director of healthcare systems for Harris' electronic systems sector.
The Melbourne, Fla.-based corporation is targeting systems integration, telemedicine and new ways to identify patients and system users, such as electronic fingerprint technology it's adapting from a project completed for the Federal Bureau of Investigation, Snell said.
"We're going to stick with healthcare for the very reason that the defense industry is shrinking," he said. But the company will not tread into clinical and diagnostic applications, he said.
Harris also owns Lanier Worldwide, an established business that markets voice-activated digital dictation, medical transcription and medical records management.
Lockheed Martin, the union of recently merged defense giants Lockheed
Corp. and Martin Marietta Corp., moved nine