Speaking from my usual perch in the peanut gallery (as I’ve done work for neither company), I’m fairly astounded by the price [of Medicity’s acquisition by Aetna ]. Rumor has it that $500 million (twice what Ingenix paid for Axolotl) is approaching 8x revenues, a princely multiple that dwarfs, say, Allscripts’ purchase of Eclipsys for 2x revs or even Ingenix’s purchase of Picis for 3x revs. Medicity appears to be the leader in its space, with over 750 hospitals and 125,000 physicians using its system. Still, it’s a huge bet on the HIE market that’s not quite emerged. I believe a good part of the excitement...around the HIE/clinical messaging space is that the emerging government regulations which mandate a minimum proportion of premium dollars that a payor spends on actually taking care of sick people (known as the medical loss ratios) appears to allow them to count this type of business towards the MLR (as opposed to say, marketing spend, corporate art, or even executive salaries). Therefore, I’d posit that United and Aetna see this as a way to improve their MLRs while actually improving patient care. With health reform reducing the payors’ arsenal to maximize their profits (by prohibiting them from underwriting away sick people and mandating certain forms of community rating), they now have a greater incentive to reduce loss through what HIEs can, in theory, bring: reduced duplicative tests, better access to patient data, etc. What I wonder most, however, is what will the fact that Axolotl and Medicity are now owned by payors do to their sales prospects, both near and long term? I’ve little doubt that a fair number of potential customers would rather douse their dollars in kerosene and torch them before giving them to the same insurance company that has tormented them (in their view) for years. The half-billion dollar question is: what percent of the market does this preclude them from selling to? I’d guess more than 15%, but less than 50%.
Mr. HIStalk approaches this purchase from primarily a business perspective. According to KLAS, the HIE space is quite crowded (see: KLAS: HIE software market is crowded, muddled ). My primary concern about this news is that it allows a health insurance company easy access to clinical patient data. UnitedHealth, another health insurance company, demonstrated few qualms about tweaking "usual and customary cost" data generated by its wholly-owned company Ingenix to improve its bottom line (see: UnitedHealth Settles Suit with New York Attorney General Cuomo ). Perhaps its unfair to group UnitedHealth with Aetna but put me down as nervous with a health insurance company as the parent of a provider of HIE services.