April 28, 2008

1. Tick, Stock: Cerner Beats Estimates

Facts and Background

Cerner Corp. announced surprisingly strong Q1 earnings after the bell on Tuesday, beating analyst expectations of 44 cents per share. The company earned $39.1 million, or 47 cents per share, on a 5% increase in revenue.

Opinion

Cerner's performance is not only surprising, it's encouraging to the entire healthcare IT sector. The company is a nearly pure play in healthcare IT and has the most exposure to changes in purchasing patterns of big-ticket systems and services, especially clinical ones.

Musings

• Cerner fell slightly short on revenue, but that was due to reduced sales of low-margin hardware.
• The company said it expects next quarter's earnings to fall slightly short of expectations, but that FY2008 numbers will exceed forecasts.
• CERN shares are still up 17.2% since the announcement.
• Doubters might point out that any impact from credit concerns or systems slowdowns may still be forthcoming.
• The company also announced a $45 million stock buyback program.
• Imagine how good the numbers would have been without Epic taking a huge chunk of Cerner's business.
• Value of Neal Patterson's shares: $262 million.
• Where does the growth come from going forward?

2.  California Dreamin' About Interoperability

Facts and Background

The California Public Employees Retirement System (CalPERS) announced on Wednesday that it will support the CalRHIO statewide healthcare information exchange. CalPERS directed its health plans to negotiate contracts with CalRHIO.

Opinion

CalRHIO needed the financial boost to get its program going, so if it can deliver value to CalPERS, it can fund itself both upfront and ongoing.

Musings

• ED interoperability is the first step, targeting lab results from the national lab companies and prescription information from benefit providers.
• California's biggest EDs will go first.
• CalRHIO mentioned a fee of $25 for each set of ED records delivered, presumably to be paid by CalPERS since it was not mentioned that hospitals would be billed directly.
• Initial discussions were held on November 14 when CalRHIO president and CEO Don Holmquest presented the CalRHIO vision to the Health Benefits Committee of CalPERS.
• CalRHIO said in November that it needed $30 million immediately to begin building the backbone of the $300 million project, expecting to work with an unnamed privaty equity firm for what it called "high-risk capital".
• The first wave of RHIOs is nearing an end, with the financially naive biting the dust. It will be interesting to see how the second wave does, especially since one the size of CalRHIO could provide valuable lessons for building the Nationwide Health Information Network.

3. Healthcare Notable Jerome Grossman Dies

Facts and Background

Jerome Grossman, a noted physician, educator, hospital administrator, and one of five co-founders of the first hospital information system company Meditech, died of kidney cancer at 68 on April 1, it was announced last week.

Opinion

While he was unknown to most of the healthcare IT industry, Grossman was a healthcare pioneer in several areas.

Musings

• Like several founders of Boston-area HIT companies, Grossman graduated from MIT. He earned his medical degree from Penn.
• Grossman was involved in creating the EMR system of Massachusetts General Hospital in the 1960s.
• He was named president of New England Medical Center (now Tufts) in 1979, where he advocated formation of a federal oversight committee for medicine similar to the FAA. He served at Tufts for 16 years as president and a professor of medicine.
• In addition to co-founding Meditech, he also was involved in Tufts Associated Health Plan, Chartwell Home Therapies, and Transition Systems Inc.
• Grossman was chairman of the Federal Reserve Bank of Boston from 1994 to 1997.
• He chaired several committees of the Institute of Medicine.
• Grossman and his wife sued Meditech and its executives in 2004, claiming they conspired to keep the private company's stock priced low so it could be accumulated by chairman Neil Pappalardo. His family owned 6% of the company.
• Grossman was a director or trustee of The Mayo Clinic Foundation, Penn Medicine, Stryker Corporation, Eureka Medical, and the Committee for Economic Development.
• He was a senior fellow at the Harvard Kennedy Shool and director of its Health Care Delivery Policy program.
• A book he was co-authoring at the time of his death, The Innovator's Prescription: A Disruptive Solution to Our Health Care Crisis, will be published posthumously.
• He is survived by his wife of 40 years and three daughters.

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