IDX Systems Corp. had the physician-practice and ambulatory side covered. Phamis was constructing a comprehensive continuum of software for inpatient operations.
Last week the two healthcare information systems companies concluded they needed each other to compete in a market that's moving toward relationships with single vendors offering the full menu of systems for developing health networks.
Burlington, Vt.-based IDX Systems agreed to acquire Seattle-based Phamis in a stock deal valued at about $150 million.
The companies had combined 1996 revenues of $207 million. That's still only a fourth of the volume pulled in by HBO & Co. and Shared Medical Systems, the market-share leaders in information systems.
But the merger wasn't a play for increased market share or a bigger installed base of customers, said Pamela Pure, IDX vice president of marketing.
Rather, the lack of an inpatient clinical information system was hurting its chances of competing for business with healthcare networks striving to integrate a continuum of acute-care, ambulatory and physician-oriented pieces, Pure said.
Meanwhile, Phamis was trying to branch into the physician practice and network integration areas to appeal to healthcare networks, said Gary Blodgett, the company's chief financial officer.
Six months ago the two companies began negotiating an alliance to sell each other's products to fill gaps in the lineup of products they offered prospective customers, Blodgett said. Somewhere in those talks, "the light bulb went on that maybe we should get into this a little deeper," he said.
"Once you start tying your products together, it has to be more of a strategic commitment," Pure said. Provider networks now are looking to evolve to a single-vendor relationship that can manage the incremental replacement of older information systems and supply whatever the network decides it needs to round out its integration effort over time, she said.
That's part of a trend toward standardizing software across facilities, said Jason Rosenbluth, M.D., an investor analyst with San Francisco-based Volpe Welty & Co.
Standardization simplifies the transfer of data, but providers are looking to a common software source as a way to save "cold, hard dollars," Rosenbluth said.
The construction of data networks from disparate collections of software from multiple vendors has staved off the need to replace existing systems but has ballooned the cost of supporting and maintaining a complex and varied infrastructure, he said.
The burden can be minimized by going through a vendor that provides the system-to-system integration and a singular "general contractor" responsibility, Rosenbluth said. As a result, "you've got a couple of big gorillas out there that are pre-wired to win a lot of business."
The merger is expected to be completed in July.
