After weeks of rumors on the status of its healthcare IT activities, healthcare giant McKesson has released details on its proposed shake-up of the business. The San Francisco company said it plans to spin out much of its IT operations -- including PACS -- into a separate company with some $3.4 billion in annual sales.
In a pair of June 28 announcements, McKesson said it will create a new standalone healthcare IT company in partnership with Change Healthcare Holdings, the revenue cycle management firm formerly known as Emdeon. The new entity will have estimated annual revenues of $3.4 billion, with McKesson owning 70% of the firm and Change shareholders owning the remainder.
The new firm will combine all of Change's operations with most of McKesson's Technology Solutions division, which includes its Imaging and Workflow Solutions unit, which offers enterprise PACS software as well as image management applications for radiology and cardiology. Other operations in the division include Health Solutions, Business Performance Services, and Connected Care and Analytics units.
In announcing the spin-off, McKesson Chairman and CEO John Hammergren said the move would "establish a more efficient suite of end-to-end payment and claims solutions, as well as clinical capabilities," while also "unlocking the value" of the Technology Solutions business. McKesson and Change are also positioning the move as one that will help their healthcare customers navigate the transition to value-based healthcare.
Following the closing of the transaction, McKesson and Change plan to pursue an initial public offering for the new venture. McKesson will then exit its investment in the new company.
McKesson said the spin-off will not include its Enterprise Information Solutions division, which it will retain as it "explores strategic alternatives" for the division. This business includes electronic health record (EHR) software, such as McKesson's Paragon hospital information system. McKesson's RelayHealth Pharmacy division also is not included in the spin-off.
The deal starts to unwind a position in healthcare IT that McKesson built over nearly two decades. Originally a pharmaceutical wholesaler, McKesson entered the HIT space by acquiring information systems firm HBO & Co. in 1998.
The company entered the market for radiology PACS in 2002 when it bought Canadian firm ALI Technologies, and it added cardiology image and information management by acquiring Medcon of Israel in 2005.
Speculation that McKesson might be seeking a divestiture surfaced in early June, when an article in the Wall Street Journal suggested that the company might be looking at options due to pricing pressures in its core drug distribution business.
The article indicated that the Technology Solutions business had $2.9 billion in sales in its most recent fiscal year (end-March 31) and operating profit of $519 million, which is just a fraction of the $188 billion in sales and $3.6 billion in operating profit produced by McKesson's drug distribution business.
The move is a sign that ongoing changes in the industry are affecting even some of the largest players, according to Michael Cannavo, principal of PACS consulting firm Image Management Consultants.
"It is interesting to see moves by many of the larger companies to either start refocusing their core offerings or consolidating their products with other vendors' offerings," Cannavo said. "End users used to be concerned about the smaller vendors not surviving, or at least the products they bought surviving. Now the larger vendors are starting to have some of these very same issues. The sad reality is no one vendor is considered a safe bet anymore."
