July 7, 2008

1. E-Prescribing Rivals Merge, Choose Dumb Name as First Order of Business

Facts and Background

SureScripts and RxHub, which operate the industry's two significant electronic prescription networks, announced Tuesday that they will merge. The cashless deal gives each company a 50% interest in the combined entity, which will be called SureScripts-RxHub.

Opinion

This is possibly good for the industry, although surely the motivation for two competitors to merge is more about individual uncertainty about long-term success than a desire to benefit patients.

Musings

• SureScripts was created by chain drug stores and makes its money by charging pharmacies for each prescription delivered. RxHub was formed by pharmacy benefit managers and charges participating PBMs for formulary checking.
• The companies weren't really direct competitors since neither controlled the entire process end-to-end. SureScripts had the pharmacy connectivity, while RxHub had the formulary and benefits connectivity.
• The founders of both companies are now involved with a competing e-prescribing company, Prematics of Vienna, VA. RxHub founder James Bradley is chairman of the board, while SureScripts founding president Kevin Hutchinson is president and CEO. Prematics was the first investment of David Brailer's Health Evolutions Partners. Brailer is also on the board of Prematics.
• Surely the specter of Brailer-backed competition had something to do with the urge to merge, especially since e-prescribing is still minimal despite having standards and connectivity in place.
• E-prescribing penetration will never be significant until EMRs are prevalent in physician offices. Doctors aren't going to take an extra step to log into an e-prescribing screen and type in all the information, especially since there's no benefit for them (pretty much the same reason they don't use EMRs, either).
• While there may be some economy of scale in combing two similar organizations into one, both were small to begin with.
• It's tempting to say that this merger will accelerate e-prescribing, but there's scant evidence that the companies, individually or collectively, really have all that much influence on physician adoption. E-prescribing software is free, the network is free, and doctors still aren't interested.  
   

2. Cerner Attempts to Transform Itself Out of its One Successful Business

Facts and Background

Cerner president Trace Devanny was quoted in a Monday newspaper interview as saying, "We are transforming ourselves from an IT company to a health-care company," citing the 635 employees working in medical device connectivity, benefit coordination, and life science data discovery.

Opinion

A good but risky move. Cerner's revenue and growth need a jolt to keep Wall Street happy and there's only so much you can get when many of your prospects have bought from you already (or from uber-competitor Epic). If the company diverts too many resources so that core business revenue stumbles before other sources come online, shareholder punishment could be significant.

Musings

• Getting into new markets requires more than spare cash. Above all, it requires strong management capabilities and a track record for innovation. You might get different answers about whether Cerner has that depending on who you talk to.
• Expect acquisitions. Cerner can't wait on a few hundred employees to figure out how to slide into a market that already has entrenched competitors. Cerner is the Oracle of the industry - more likely to bully its way in with its checkbook than by quietly building its expertise base.
• If it were me, I'd buy Capsule Technologie to boost the medical device connectivity business. Cerner already knows the EMR end of that market and a relatively small purchase would earn immediate market domination. The only limit is the willingness of Cerner's EMR competitors to work with their CareAware division. Odds are this line of business will be the first to ramp up.
• The employee clinic business seems the least attractive. Just because Cerner can herd some of its cost-conscious employees into a cost-controlling clinic doesn't mean much.
• Likewise, the TPA business is unsexy and low margin for a analyst-consumed company like Cerner.
• Life sciences data monitoring could be promising and it's cheap to buy egghead researchers. That could be a quiet (and quietly profitable) sideline, although Cerner really doesn't have any particular expertise in it.

3. Lucky for Utah, Tape-Stealers are Generally Clueless Dolts

Facts and Background

The Salt Lake County sheriff's department announced Wednesday that three suspects had been arrested in the theft of University of Utah backup tapes containing financial and medical information on 1.5 million patients. Authorities said the information had not been accessed because the suspects did not have the technical expertise needed to do so.

Opinion

This is the obviously most likely outcome. People who steal sophisticated data backups aren't likely to be able or even interested in recovering their contents when more attractive targets theft are everywhere. Rarely does missing data result in anything more than hand-wringing since there's just no way to turn it into a quick buck. Unfortunately for providers, "missing" is synonymous with "compromised" the public eye.

Musings

• The suspects are about as sophisticated as you might expect for smash-and-run thieves, characterized by the sheriff as, "I don't think they could find their rear end with both hands."
• The suspects tried to get the $1,000 reward for returning the tapes. That's the surest plan for turning stolen data into cash: extorting the owner to pay for its return. Find a buyer and arranging a transaction otherwise is far more laborious and intelligence-intensive than the average petty thief can handle.
• Not to side with criminals, but in the university's plea for the tapes' return, they offered $1,000, no questions asked. Seems like they should honor that statement by declining to press charges and giving the suspects their $1,000. They came out looking good and the suspects already had long police records, so charging them for receiving stolen property probably won't take them off the streets anyway.
• I bet they start encrypting now.

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