In May 2008, another giant computermaker, Hewlett-Packard Co., Palo Alto, Calif., announced it would pay $13.9 billion for outsource IT service provider EDS, also from Plano, Texas, and also a big player in healthcare IT. Both Perot and EDS were founded by Texas entrepreneur and former presidential candidate H. Ross Perot.
Perot Systems reported revenue of nearly $2.8 billion in 2008 and a net income of $117 million. It closed the year with $234 million in cash and cash equivalents and $36 million in short-term assets, according to its annual SEC filing. Perot derived 47% of its revenue from its healthcare operations. And while it operates in 25 countries, its “nondomestic” revenue of $356 million for 2008 represented just 13% of its total revenue last year.
For its fiscal year ended Jan. 30, 2009, Dell reported $61.1 billion in revenue (48% coming from operations outside the U.S.) and a net income of just under $2.5 billion, according to its SEC filing. On that date, Dell reported having nearly $8.4 billion in cash and cash equivalents and another $740 million in short-term investments on its balance sheet. Dell claims about 15% of the global market for computer sales.
Dell's stock dropped 68 cents or 4% to $16.01 at the close of trading Monday, and opened at $15.75 on Tuesday.
In March, Perot won praise from Orem, Utah, healthcare IT market researcher KLAS Enterprises in a 500-page report, Maximizing Your Consulting Investment: A Report on Healthcare IT Consulting Services.
Perot ranked tops among 10 healthcare IT consultants in the survey for customer satisfaction in the KLAS survey of IT customers involving 190 system implementations. Most of its implementation work was with Meditech installations, according to the survey report, followed by implementations of Cerner Corp. systems, and also Epic Systems Corp. and Siemens.
“The common theme from providers is that while they may disagree with Perot Systems' methodology at times, the bottom line is that Perot Systems delivers results,” the report said. “Perot Systems' sweet spot is in handling program management, step-by-step implementations, and the nuts and bolts of hardware, networking and configuration. They show weakness in providing the valued-added consultant industry expertise and insight; some providers want more than just a configuration company.”
Mike Smith, general manager of financial and services research at KLAS, was the author of the survey report. The proposed Perot purchase indicates Dell is serious about being a healthcare IT player, particularly in IT outsourcing, where Perot dominates, he said.
“To me, this represents they're getting further invested in healthcare,” Smith said. “If you look at the outsourcing business in healthcare, Perot seems to own that market” with roughly half of the hospitals that outsource their IT being Perot clients, Smith said. “You have other players such as CSC, but no one can touch what Perot has,” Smith said, referring to Computer Services Corp.
One of the many unknowns about the deal at this point is its impact on the development of a market for open-source health IT.
“That's big news,” said fellow Texan Fred Trotter, of Houston, founder of Liberty Medical Software Foundation. He is currently developing an open-source billing management system to be interfaced to the VistA clinical IT system developed by the Veterans Affairs Department. Trotter also blogs about the use of open-source software in healthcare.
Versions of VistA are being used by a handful of companies of various sizes—including Perot—as the foundation for open-source development projects outside the VA. Perot has a contract on a pilot project by the country of Jordan to install VistA in two hospitals and a clinic in Amman. Perot announced Friday another open-source VistA contract with Max Health, a private, multihospital group based in Delhi, India.
“Dell is going to be inheriting one of the top three corporate pools of VistA knowledge in the country, DSS and Medsphere being the other two,” Trotter said. “The question is: Do they recognize what they've got, and do they plan to pursue an open-source strategy?”
Trotter said he has not thoroughly researched previous Dell pronouncements on its intentions in healthcare IT, but, “They've not indicated to me or anyone else I know of whether they have an open-source strategy or not.”
Continuing Perot's foray into open-source development could put Dell in “a precarious position,” Trotter said.
“As of yesterday, if I went and talked to the vendors on the HIMSS showroom floor and asked them what servers they are using, about half of them would say they are using Dell servers,” Trotter said. “I know that some of them are recommending Dell because I've worked with some vendors who are requiring Dell. What does it mean if they're no longer going to be just an infrastructure player, they're going to be a software player? It's either a genius move or it's suicide and it's too early to tell. I would say unless they pursue an open-source strategy, it's suicide. If they come in and say they're backing a project, not a product, they might be OK. If they are a direct competitor, that's going to be frowned upon greatly. ”
“Perot supports a lot more healthcare software than just VistA,” Trotter said. “They may feel the best thing to do with Perot's VistA business is to bury it.”
Joseph Dal Molin is a director and co-founder of WorldVistA, a not-for-profit organization founded in 2002 to promote the use of VistA outside the VA. WorldVistA serves as the coordinator of an open-source development of the VistA code. Dal Molin is a Toronto-based consultant to the Jordanian government on the VistA installation in Amman.
“Perot was just starting to get into VistA, so it will be interesting to see if Dell supports that strategy,” Dal Molin said. “I think there is a big opportunity for them. They announced something in India a few days ago. It looked like an outsourcing contract in which VistA was mentioned.”
In Jordan, Dal Molin said, “We're in the thick of the implementation in the two pilot hospitals. We're getting pretty close to being able to test at least the early configuration.”
Chuck Lyles, president of Perot Systems healthcare group, said in an interview Tuesday morning that his company runs more than 3,000 healthcare applications for its clients and that breadth of experience is one of the company's great strengths.
Both Perot and Dell have benefited from not aligning themselves with specific application vendors, an approach that won't change after the acqusition, Lyles said.
Providing VistA as an alternative to proprietary software is part of “a delicate environment” in which Perot operates, Lyles said, but “we've had a strong debate about that and what our clients say what they like about Perot Systems is you don't have a (favored) product.”
“I think we've been good about being independent,” Lyles said. “Dell has been agnostic. So, we're going to maintain relationships that will allow our clients to pick solutions. We allow our clients to pick what is the best platform for their environment.”
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