McKesson May Spin Off Its IT Business Unit, According to Media Report

June 7, 2016
Following the sale of its ambulatory electronic health record (EHR) assets to e-MDs in March, there is now speculation that McKesson is considering separating its IT unit through a sale or merger, according to a Wall Street Journal report.

Following the sale of its ambulatory electronic health record (EHR) assets to e-MDs in March, there is now speculation that McKesson is considering separating its IT unit through a sale or merger, according to a Wall Street Journal report.

WSJ reporters Liz Hoffman, Dana Cimilluca and Dana Mattioli wrote an article posted Thursday citing sources “familiar with the matter” that San Francisco-based McKesson is “weighing a separation of its IT unit as the health care giant grapples with pricing pressure in its core drug distribution business.”

The article cites sources saying that McKesson is considering options for the IT unit, known as McKesson Technology Solutions, including either a sale or a merger, although the article also states that it is not clear whether any deal would be for the entire business or parts of the business. McKesson’s Technology Solutions division provides software, services and consulting to hospitals and physicians’ offices. According to the Healthcare Informatics 100, McKesson Technology Solutions ranked fourth on the list this year based on its 2015 revenue of $3.1 billion.

In March, McKesson sold its ambulatory EHR assets to e-MDs and included in the sale were McKesson Practice Choice, its cloud-based EHR; its Medisoft and Lytec MD server-based EHRs and Practice Partner, its practice management software.

As previously reported by Healthcare Informatics’ Contributing Editor David Raths, the sale of the ambulatory EHR assets had some health IT industry watchers asking if McKesson could also be looking to exit the acute-care space as well.

For instance, Raths reported, David Chou, who is a former CIO at the University of Mississippi Medical Center and now a consultant, posted a video of himself on Facebook saying he thinks there also will be a shakeup on the in-patient side.

Looking at the hospital EMR space, many hospitals decided not to replace their legacy system for the initial stages of meaningful use, but understood they must upgrade soon. For vendors like McKesson, it raised the question of how many of the hundreds of hospitals on their legacy systems would move to their newer version. And, according to many health IT industry watchers, hospital and health system IT leaders increasingly want EHR/EMR systems with ambulatory and acute care integration. When McKesson sold off its ambulatory EHR assets three months ago that also fueled speculation that the company would sell off its acute care health IT line as well.

According to a KLAS Research report on the acute EMR market and market share in 2014, smaller to midsize hospitals have been overwhelmingly choosing Epic, followed by Cerner, effectively squeezing midtier vendors Allscripts and McKesson from the market. In fact, according to the report, McKesson saw a dramatic decline in new contracts in 2014—from 36 in 2013 to only 4 in 2014. And, according to the KLAS Research report, in 2014, McKesson saw 49 Horizon losses compared to two Paragon Clinicals migrations. In addition, McKesson also had seven Paragon “losses”—most were single implementations of Paragon replaced as part of larger integrated delivery network decisions, the report authors stated.

Three months ago, Erik Bermudez, research director at KLAS Research, told Healthcare Informatics that based on feedback from McKesson customers it seemed that the company would stay in the acute care business.

“McKesson Healthcare is a small fraction of McKesson overall. Pharmaceuticals is a huge portion of their revenue and the healthcare software itself is a small fraction of the overall revenue,” Bermudez said. “On the acute side, they also have a whole services arm, population health services, along with revenue cycle services and back office services.”

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