Where is the vendor consolidation wave in Canadian Healthcare IT?

I feel like I’ve been sitting around waiting for this to happen forever. When I was working as an analyst, I was once asked by one of my favourite vendors (you know who you are) “when is the consolidation going to start in the EMR market? “ Being the genius that I am I predicted in the next 12-18 months…this was in 2007. Ummm not exactly a home run.

This got me thinking lately, not just about EMR market consolidation, but the whole Canadian Healthcare IT market. I’ve always had an abiding interest in all things merger and acquisition, and on the surface the Canadian healthcare IT market seems ripe for consolidation. For the sake of this post, I am going to assume that consolidation is good and inevitable thing. You may agree or not as you see fit.

Many CIOs and others on the provider side would be just as happy dealing with a smaller number of large vendors than hundreds of smaller guys. Combine this with a highly fragmented geographic distribution of vendors and market share and the big guys “should” be buying companies left and right.

I think there are a number of systemic issues that are preventing this from happening.

1)      The most logical buyers (the big companies) are largely branch plants of US or International companies, and they have to compete with the head office for acquisition resources. I know who would get the first crack at resources if I was running one of these companies, the US market. Why by Vendor A in Canada that sells into a small market, when you can buy the same kind of company and sell your stuff into a market 10 times bigger. Simple math wins every time.

2)      The Canadian market has hundreds of small companies, with most selling into highly regional markets. Many of these small companies have limited access to capital, a record of building things themselves and an unrealistic view of the dollar value of some of their targets.  This makes for reluctant buyers or unrealistic ones, not a good situation if you are looking at consolidation.

3)      In terms of the EMR market, have the provincial certification programs actually slowed down market consolidation? Given that it did happen, then it is pure speculation as to the alternatives, but I love speculation.

  • Would the market have consolidated already if all vendors were equal with no certification? Perhaps. I think one of the big reasons there is less activity is that with a 70% discount to switch vendors, it makes it awfully hard to buy another EMR for their user base.
  • Would the market have consolidated already if there had been a single national certification program created years ago? Again I would say perhaps. It would be easier to source acquisition capital to do a national play than to do 4 or 5 regional plays. This would also be more attractive to the big players who are only interested in selling nationally with their other stuff.

I wonder what those who have done a recent acquisition think about my logic? Did I get it right or am I missing something?

Mark

4 responses to “Where is the vendor consolidation wave in Canadian Healthcare IT?

  1. Karim Keshavjee

    You’re missing something. A market consolidates when there is a market. There is no market for EMRs in Canada. When there is only 20% penetration, how can you call it a ‘market’? A market implies either a steady, healthy level of purchasing or growth in numbers of goods purchased. Neither applies to EMRs in Canada. When a government decides to subsidize EMR costs, doctors purchase EMRs. When the subsidy dries up, doctors stop buying. You need a large percentage of the population to participate in transactions for it to be a market.

    We are still at the stage of Design Competition –where any EMR vendor could still come up with the ‘killer app’. There is no killer app in the EMR market at the moment. Until there is, there will continue to be poor uptake and a non-market. We have not crossed the chasm. And until we cross the chasm, we will be in a non-market. Until there is 80% penetration, we won’t see a ‘consolidation’. Anybody who tries to consolidate a market that has only 20% penetration will be shooting themselves in the foot.

    There has been some merger and acquisitions activity in the market lately, but I don’t think it is really consolidation, as much as it is vendors failing to compete effectively.

  2. Karim is absolutely right. But I offer a few further missing points…the costs of acquisition are not properly understood by most. In this case, it’s not just the cost to buy another vendor, but then to protect their revenue stream / market share. The economies are only seen if the surviving entity strips cost (particularly since most, ney all, EMR vendors in Canada are losing money). To do that invariably means converging on a single product / platform. Because data is not portable between EMRs in Canada yet, this migration is hugely expensive, fraud with problems, and painful for the customer. So the precept of buying market share is flawed…not at a reasonable price, and without significant repetitional risk to the suitor.

    • Scholomo,
      Thanks for your comments. I agree with your assessment of the challenges faced by any vendor considering an acquisition strategy. I also believe that acquisition is a natural part of the market consolidation lifecycle and the barriers you have cited are inhibiting this process. Stronger vendors will choose instead to wait until the smaller vendors fail and pick up the pieces at bargain basement prices. This approach will be much more chaotic for the users and painful for the owners and employees of the vendors forced to exit the market.

      Mike

  3. Do you feel this has changed now? Is it a good idea for an experienced global tech consulting firm to enter the Canadian healthcare market now? If not for EMR, what other initiatives might be good to consider (wait time mgmt, facilitation of user adoption, lean healthcare, mHealth, patient-focused portals)?

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