August 6, 2007

1. CEO Delbanco Quits The Leapfrog Group

Facts and Background

The Leapfrog Group founder and CEO Suzanne Delbanco has resigned, effective this fall.

Opinion

Delbanco struck while the "To Err is Human" iron was hot in 1999, drumming up corporate support for a business consortium that would demand accountability for hospital quality and safety. She formed The Leapfrog Group in 2000 at age 32 and quickly struck terror in the hearts of hospitals and providers with three aggressive "leaps": computerized physician order entry, evidence-based hospital referral, and ICU physician staffing. All were criticized by hospitals as having scant outcomes-based evidence and a tough implementation. Businesses jumped on board as Leapfrog members, but didn't exercise their purchasing power as Leapfrog intended. The organization faded fairly quickly into irrelevance starting in around 2005, losing most of its corporate members and causing Delbanco to be dropped off "most influential" healthcare lists.

Musings

• Not much surprise here. Delbanco's stock was dropping fast and she's got a lot of working years left at 39. Leapfrog was becoming an albatross on her resume.
• The idea of pushing specific practices wasn't bad, but played better for specific clinical practices, not business and operational practices with a sketchy correlation to quality.
• Others did it better: AHRQ and Joint Commission, for example. And that's not saying much.
• Delbanco was paid $179K, according to tax records. She will certainly increase that on the open market. 
• Does anyone care about Leapfrog any more? Hold a spot for them in Trivial Pursuit - Healthcare Edition.
   

2. Shareholder Sues Eclipsys Executives, Claims Options Back-Dating

Facts and Background

An Eclipsys shareholder is suing 20 of the software vendor's previous and current officers, claiming back-dating of options, falsification of financial reports, insider trading, and breaching fiduciary duties to shareholders. The Boca Raton, FL vendor sells clinical and decision support systems to hospitals.

Opinion

The company's May 2 announcement regarding its voluntary investigation into option back-dating was not entirely positive. Eclipsys admitted that it had discovered evidence of  back-dating, although by individuals who had left the company by 2006. Financial reports from 2002 to 2005 were restated to account for $9.4 million of miscategorized compensation expense. The individual bringing the suit has what sounds like good evidence, based on market prices and option dates, claiming that for four straight years, Eclipsys executives received options on the same day when the stock was trading at a yearly low price.  

Musings

• Sarbanes-Oxley works to some degree. Back-dating was easy when option reporting was minimal. This suit would have been nearly impossible to bring without quick public options reporting mandated under Sarbox.
• Given that half of the company's current management team has been named in the suit, Eclipsys could be hit hard if the lawsuit is successful. The suit may ask only for money, but if the jury finds for the plaintiff, surely the company can't keep executives who are seen as having broken laws and defrauded shareholders, even if they aren't charged otherwise.
• The plaintiff's attorney says he may ask for a committee of outside experts to probe the financial workings of Eclipsys. You never know what that could uncover, especially since it could span many tough Eclipsys years.
• The market doesn't seem to be concerned, as a good Q2 financial report on August 1 sent the stock to a 52-week high.
• It will help the company that Andy Eckert has replaced most of the old guard at Eclipsys, including those most involved with running the company during the years in question.
• Eclipsys has been generous in granting new executives shares and options before they've contributed anything. Many of those have pushed out the door, making such largesse questionable. A review into the company's options may remind shareholders of that.
• The share price gives Eclipsys a good warchest and financial probing could be damaging. I would expect the company to quickly engineer a settlement that covers all shareholders, thereby avoided a class action that could drag on for a long time right as Eclipsys is finally doing well after years of lackluster performance.

3. Brailer Admits Santa Barbara RHIO Failure, Defends Government's RHIO Push

Facts and Background

The journal Health Affairs reviews the recently disbanded Santa Barbara County Data Exchange, the interoperability project run by David Brailer when he was CEO of CareScience. It later became the foundation of the government's healthcare IT programs when Brailer was named by President Bush as the first national coordinator for health information technology in the Department of Health and Human Services. Brailer contributes an article defending the project from critics who say it unduly influenced US policy and was obviously doomed to failure from Day 1. Instead, Brailer said, the project was intended to take the previously failed Community Health Information Nework (CHIN) initiative into the Internet age, but only at a local level. Brailer admitted that he knew the project would fail by 2002, citing: (a) too much top-down planning; (b) an obsession with technology; (c) lack of a sound business model for providers; (d) too much reliance on grants; (e) excluding everyone non-providers in planning; (f) not making specific data available that providers needed; (g) developing standards that covered mostly information exchange, not the information itself; (g) legal arguments over ambiguous privacy laws that scared off providers.

Opinion

Brailer says these lessons were used to improve what eventually became Washington's RHIO push. What's unsaid is whether the market really wants RHIOs in any form. Given a recent domino effect of RHIO failures, the Santa Barbara lesson is being learned over and over, although part of that is because RHIO startups are ignoring history in their zeal to provide better patient outcomes. Brailer created the RHIO market, good or bad.

Musings

• RHIOs are generally unsuccesful, with most of them not having exchanged a single byte of information so far.
• Successful, grant-free business models will be local and regional, not state-wide or national, and will use nationally sold technology platforms to reduce timelines and risky self-development.
• Brailer is a good guy, but his RHIO fixation was not necessarily healthy for federal IT initiatives.
• Brailer's former company, CareScience, wasn't much of a success. Modeling federal policy on its one high-profile project was probably not a good idea, although inherent with bringing in Brailer.
• Efforts around the Nationwide Health Information Network ensure that the same arguments will be made all over again, only with many more zeroes involved in the price ($156 billion over five years, according one estimate, with another $48 billion per year in operating costs). RHIO work, successful or not, may be throwaway technology, although potentially delivering patient benefits along the way.
   

4. Microsoft Gears Up for Healthcare IT

Facts and Background

A Wall Street Journal article says Microsoft is focusing on healthcare as an important growth area. The company has hired 20 new clinicians stateside and 30 developers in China to work on unspecified projects.

Opinion

Most big vendors (Microsoft, Oracle, Dell, etc.) go through a regular "we want to play in healthcare" phase every few years, with minimal impact. Steve Ballmer keynoted at HIMSS, although with a generic pro-company speech that should have invited puzzled looks instead of polite applause. Clearly Microsoft is a technology provider, not a solution provider, and one used to selling shrink-wrapped products. What will these new folks work on? Maybe a broader version of the Common User Interface application it rolled out in the UK to make PC-based applications easier for users to understand.

Musings

• Developing in China means designing in the US. That's certainly the division of labor implicit in the announcement.
• The company says the right things about healthcare, but what it wants is growth. That means hospitals and physicians sending more money Microsoft's way.
• Hospitals already spend a lot with Microsoft and aren't always happy about that.
• The odds are 50-50 that Microsoft will develop anything useful once they see the complexity of the market, long sales cycles, and resistance to innovation for innovation's sake. Even a staff of 50 is peanuts to Redmond.

5. Partners Gives Siemens a Big Break in Buying Soarian

Facts and Background

Partners HealthCare of Boston, MA announced on July 30 that the hospital group will implement Soarian Financials from Siemens Medical Solutions.

Opinion

Soarian hasn't sold well despite overconfident vendor projections and too-early announcements (i.e., "PowerPointware"), so this is huge news for Siemens. What little success Soarian has had involves clinical applications, so hooking up with a high-profile client like Partners is the best news they've had in years. Partners is hot on using Web-based services, so Siemens could learn a lot about that and sprint ahead technically against vendors stuck with 1980s-era technology and an installed user base not looking for technical challenges.

Musings

• This is a big risk for Partners. I'm sure they're smart enough to have written an ironclad contract, however.
• Soarian's lack of success hasn't been due to technical weaknesses. Adding on more impressive technology won't necessarily help move it off the shelf.
• The company's main problem is moving from concept to deliverable product. They've been talking up Soarian at every HIMSS conference for years, but still have few referencable sites (and several high-profile failures, like early adopter Carilion in Roanoke, VA.)
• Partners has said they need some major success in revenue management, so presumably their contract with Siemens will give them an exit if the company can't deliver.
• Is it too late to convince CIOs that Soarian is viable?
  
  

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