Pharmaceutical wholesale giant, medical-surgical supplier and healthcare information technology systems vendor McKesson Corp., San Francisco, has moved to expand its IT portfolio in a deal to buy Per-Se Technologies, Alpharetta, Ga., for $1.8 billion, McKesson announced Monday.
The purchase, expected to close in the first quarter of 2007 if it meets regulatory approval, extends McKesson's reach in the pharmacy software systems market. It also will give McKesson's claims-processing business a boost and greatly expand its presence in the small physician-office practice-management software space where Per-Se obtained a dominant position through its acquisition earlier of the physician, hospital and retail pharmacy business of Atlanta-based NDC Health for a reported $655 million.
Pe-Se is the third healthcare IT company snapped up by McKesson in the past six months.
In May, McKesson bought HealthCom Partners, Mount Prospect, Ill., which provides paper-based billing services and a Web-based portal where patients can check claim status and other insurance information.
In June, McKesson completed its purchase of RelayHealth Corp., Emeryville, Calif., the developer of a Web-based system that enables physicians and patients to communicate with each other online and allows physicians to document and bill for online patient visits.
Terms of the two purchases were not announced individually, but, according to McKesson's latest filing with the Securities and Exchange Commission, the acquisition of HealthCom Partners, RelayHealth and Sterling Medical Services, Moorestown, N.J., a distributor of disposable medical supplies targeting the homecare market, went for a combined price of $91 million.
"We think this is a further strategic acquisition for McKesson," said John Hammergren, the company chairman and chief executive officer in a telephone interview Monday. "It fits nicely with the things we already have inside McKesson."
For example, McKesson already was well-positioned as a provider of software systems for independent retail pharmacies, Hammergren said. "What Per-Se delivers with (its own) pharmacy information system is the ability to sell into larger pharmacy chains. Now we have a complete complement for pharmacy software for large retail and mail orders."
The purchase will better position McKesson for the future expansion of electronic prescribing, according to Hammergren. The newer pharmacy software systems developed by NDC Health/Per-Se come already equipped to handle e-prescribing, according to an NDC Health news release.
E-prescribing and the possibility of instant recognition by members of the pharmaceutical sales chain that a prescription has been written and for whom it was written represents a potential marketing bonanza for pharmacies, pharmaceutical wholesalers, pharmacy benefit managers and pharmaceutical manufacturers because, based on current estimates, upwards of 30% of prescriptions are not filled.
McKesson is one of the largest pharmaceutical wholesalers in the U.S., with revenue of nearly $22.4 billion in its fiscal year 2007 second quarter that ended Sept. 30, 2006, according to filings with the SEC.
Of the three operating units of McKesson, the pharmaceuticals solutions division, with its wholesale drug sales and services to customers in the U.S. and Canada, is by far its largest, with nearly $21.4 billion in second-quarter revenue, amounting to 95% of the company's total revenue. Pharmaceutical solutions yielded $650 million in gross profit, or 63% of McKesson's total gross profit, but the unit produced a relatively narrow gross profit margin, just over 3%, according to the SEC report.
In comparison, its provider technologies division, which accounts for its IT offerings to providers, is by far its most profitable, in terms of margin. The provider technology division contributed just 2% of McKesson's second-quarter revenue at $440 million, but 20% of its gross profit, at $208 million, with a gross profit margin of 47%.
The medical surgical solutions segment, with 3% of revenue at $580 million, posted 16% of McKesson's gross profits for the quarter at $166 million, with a gross margin of just under 29%.
Given those numbers, not surprisingly, Hammergren is bullish on IT.
"Today, we're the largest health information technology company," Hammergren said. "It's a growing business, growing more rapidly than other parts of our business. The president (Bush) is pushing it. Congress is pushing it. We've had a very strong foothold in hospital-based information technology. With the acquisition of RelayHealth, you're seeing us broadening our focus outside of the hospital."
When Per-Se purchased NDC Health, it acquired multiple brands of low-cost practice-management software systems sold to an estimated 100,000 physicians as well as software connecting 90% of U.S. pharmacies. Per-Se paid $655 million in cash and stock for its portion of NDC Health. Meanwhile, Netherlands-based Wolters Kluwer acquired for $382 million NDC Health's information-management business, a data-mining unit that sold prescription drug market data to pharmaceutical companies. As part of the deal, Per-Se agreed to sell data to Wolters Kluwer for various periods of time and not to compete against certain Wolters Kluwer business operations for five years, according to Per-Se's annual report filed with the SEC.
April Shrock is office manager of North Star Pediatrics, a four-physician specialty practice in Fishers, Ind., an Indianapolis suburb. Since 1999, the group has used an EMR linked to a Lytec practice management software system, a brand once owned by NDC Health, then sold to Per-Se and then to McKesson. Shrock said the practice bought the software through Easy Business Software, a value-added reseller. VARs had been a key sales channel for NDC Health for both its Lytec and Medisoft PMS systems.
Shrock took the news of the second Lytec change of ownership in 11 months with equanimity.
"The first one, we didn't have any problems," Shrock said. "Everything went easy, so we'll have to see how it goes, but at this time we don't see any problems."
Vinson Hudson, a healthcare IT consultant at Jewson Enterprises, said the Lytec and Medisoft small physician practice-management system software business probably had "very little to do" with McKesson buying Per-Se. Further, McKesson already has a practice-management software system, Practice Point Manager, for small physician practices that it, too, sells through value-added resellers, and not with overwhelming success, according to Hudson.
"Now they have Medisoft and Lytec that are normally sold to solo and two- and three-physician practices," Hudson said. "I don't know what they are going to do with them. McKesson is not a company that wants to or does well in the small end."
But Per-Se also has both a claims clearinghouse business and an outsource billing-services business targeting larger physician practices while McKesson owns a large claims clearinghouse located in Dubuque, Iowa, Hudson said. By buying Per-Se's, Hudson said, "They got bigger. That's where the money is. They were jumping at it for the market share; it adds to transaction growth."
More healthcare IT dealmaking is in the wind, according to Mark Anderson, principal of the AC Group, a San Antonio, Texas-based healthcare IT consultancy.
"I think we're going to see a lot more roll ups out there," Anderson said. "Per-Se is a pretty big company. You're probably not going to see a lot of big ones like that, but there are a lot of smaller ones," including, maybe one more acquisition by McKesson.
"Their (EHR) product today is really designed for the large clinics," Anderson said. "They still don't have an electronic health record for the ambulatory-care practice. They have the billing (for small practices), so I don't think they're done yet."
What do you think? Write us with your comments at [email protected]. Please include your name, title and hometown.