Will there be mass consolidation among EHRs?

Posted on July 17, 2012 by Robert Rowley

The number of vendors of Electronic Health Records products seems unsustainable. Stimulated by federal Meaningful Use incentives, plus the irresistible tide of pressures and encouragement from all sides (specialty societies, peers, licensing boards, insurance payers), the uptake of EHRs has been steadily increasing.

As a result, large established EHR companies, some of whom have been around for 15 years or more, are experiencing competition from a wave of smaller start-ups – some successful, others not. Two general categories of EHRs have emerged, rather distinctly: EHRs for ambulatory use, and EHRs for hospital use. These really do represent two different markets.

If one carries out a detailed analysis of 2011 Meaningful Use data, some patterns emerge. Firstly, ambulatory clinicians nearly always choose Complete EHRs – 95% of ambulatory Meaningful Use attestations were done using Complete EHRs. Hospitals, on the other hand, represent a different pattern – only 48% of hospitals attested for Meaningful Use using a Complete EHR, whereas 52% used Modular EHR components.

The resulting landscape looks like this:

• On the ambulatory side, there were 949 products offered by 558 vendors on the Certified product list (CHPL). 70% of all attestations were made using products from the top 12 vendors; 30% of attestations were made using products from 272 vendors. 295 vendors offered certified products that were not used by anyone for Meaningful Use in 2011.
• On the hospital side, there were 220 products offered by 175 vendors. 72.5% of hospital attestations were made using products from 5 top vendors. The remaining hospital attesters used products from 54 different vendors. 134 vendors offered hospital-based certified products that were not used by anyone for Meaningful Use in 2011.

This scenario seems ripe for consolidation. Market forces, however, are rather Darwinian – novel approaches abound (“mutation”), but many will not achieve market penetration (“selection”). Failure of products, even well-designed ones, are part of the startup experience – true in all market spaces, not just health care.

There will likely be some consolidation. As is seen in other sectors, when companies buy other companies it is more a purchase of their market footprint than it is a purchase of their technology. In fact, examples of mergers with ultimately incompatible technologies behind them abound.

If this pattern plays out in the EHR marketplace, then we might see purchase of companies with significant market footprints by others wishing to acquire their market base (and let the technologies merge in the background once the acquisition takes place). More likely, however, is that companies that offer Complete EHR systems for ambulatory audiences, and companies that offer Modular EHR components for hospital customers, will end up buying niche technology companies – a “make/buy” decision on increasing their technology offering in order to strengthen their market position against the competition. It is less likely that successful companies (from a market footprint standpoint) will wholesale buy each other.

And the myriad smaller companies who built products on the CHPL list that were not used by any Meaningful Use attester will likely fail. Their investment money will run out, and the companies will implode. This is a common scenario in all markets and might even be considered the norm in the Silicon Valley entrepreneurial environment. At which point, those bright and motivated entrepreneurs will either try again with a slightly different approach, or will work with more successful companies who are looking for talent. There will always be churn – that is the nature of innovation.

Tags: EHR market, innovation

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