H.I.S.-tory

by Vince Ciotti

© 2013 by H.I.S. Professionals, LLC, all rights reserved.

Episode #118:

McKessonPart 7 = CyCare (Seated) Scott Waldrop, VP Hospital

Division, (Standing, from left) Larry Benton & John Henson – Hospital Sales, Dave McClellan – Hospital Services

Recapitulation• The last 2 episodes covered the biggest of Charlie McCall’s many

acquisitions that vaulted HBOC to the top of HIS vendors in terms of annual revenue and product line breadth, illustrated below:

Two More Big Ones…• Right after the AMEX and FDC deals, Charlie scored 2 more huge

acquisitions that made HBOC a player in 2 new markets:– Physician Billing – known today as Practice Management Info.

Systems (I use the acronym PMIS to avoid the giggles about PMS…), which had been dominated by giants like IDS & CyCare for shared systems, and Medical Manager for PC-based systems, offering reg., sched. and 1500 billing.

– Bedside Systems – which had taken off enormously with pioneers like Ralph Korpman’s (whose MDC LIS HBO had acquired in 1981) UltiCare, Micro HealthSystems’ MedTake (whose President Jim Pesce runs McKesson’s enterprise systems today), and Peter Gombrich’s CliniCom, which had started as a “partner” of HBO in the mid-80s, and later signed a bedside “teaming” agreement with them in 1993.

Complex Beginnings Itself…• This episode covers CyCare, HBOC’s first target, itself being a

complex HIS-tory told best by one of its early employees still who is still working at McKesson after all these years:– “From: Parypinski, Jeff (Jeff.Parypinski@McKesson.com)– To: Vince Ciotti (vciotti@hispros.com)– Subject: Enjoying your McKesson history– In your coming attraction slide on HBOC, you mention the 1996

acquisition of CyCare Systems and refer to the company as being from CA. I was at CyCare in 1996 when we were acquired (starting there in ‘85 when CyCare acquired MSWI -where I had started as a college recruit in ‘79) by HBOC and participated on the diligence team. CyCare was founded in Dubuque, Iowa and was largely based there even after establishing corporate headquarters in Phoenix, AZ in the late 80’s (founder & CEO Jim Houtz moved out there). A couple years before CyCare acquired MSWI, which had acquired competitor MCSI of Dallas. The Dubuque operation remains a part of McKesson, housing practice management development, support and some ops for RelayHealth.”

CyCare’s Roots• Now that Jeff set the story straight about CyCare’s Iowa location,

check out these details from the Dubuque online encyclopedia (it’s just amazing what you can find online these days!):“ CYCARE SYSTEMS, INC. - North America's leading provider of data management systems to medical groups and health care organizations. Founded in 1967 by James HOUTZ, CYCARE's first commercial account was the Ertl Toy Company of Dyersville, Iowa. Within one year CYCARE had entered into contracts with Medical Associates and the Dupaco Credit Union”

• (VC: non-healthcare roots just like Meditech, Epic, Dairyland…)

“In 1970 the decision was made to concentrate market strategy on the national medical community. The company's client list grew from 10 clinics in 1972 to 35 in 1973. In 1981 CYCARE, by then an international provider of computer systems, went public and sold stock. In the fall of 1986 CYCARE purchased the landmark Dubuque Building” (pictured above) “for $5.7 million.”

CyCare’s Acquisitions• HBOC had no monopoly on acquisitions – as Jeff continues:

– “The story I heard was that Jim Houtz was working for IBM and leveraged IBM stock he had acquired to launch CyCare. CyCare would go public in the 80’s with an IPO. I believe shortly before acquiring MSWI in 85 and leveraged the cash from the IPO to buy them and MCSI…

– MSWI was formed by Tom Roovers circa ’72-73. Employers Insurance of Wausau (later Nationwide) acquired it in the mid 70’s with the idea that the medical billing and claims processing would provide tons of useful data (no HIPAA yet), and also leverage the horsepower of their IBM mainframes when not doing work for the insurance company. Wausau named it Management Systems and Services Division (MSSD) and then in 1980 incorporated the business as Management Systems of Wausau, Inc. (MSWI). MSWI acquired MCSI in ’82. Both companies had services bureau offerings (in Wausau and Dallas respectively) but MCSI also had an “in-house” system running on a ‘mini’ which MSWI needed as the market was shifting away from Service Bureau to in-house technologies. MSWI called its service bureau offering WCS (Wausau Clinic System). MSWI had Rx1 (batch), Rx2 (services bureau) and Rx3 (in-house).”

Technical details…• Writing a history is a very humbling experience as you learn just

how much you don’t know! More technical details from Jeff:– “IBM 4300 mainframes in Wausau were connected to medical groups via

T1 lines, giant modems, telex type machines for data entry – which gave way to CRT’s. No hardware to buy. Monthly fee for terminals, lines and data processing based on patient volumes, transactions, statements, claims, reports. Applications were a la carte. 100% recurring revenue model. Sounds like SaaS to me today.

– When CyCare acquired MSWI in 1985, they canned the in-house offering as CyCare had the C100 (Wang) for small to mid-size groups and the C250 and C35O for large groups. The CyCare products offered distributed processing – an in-house system with remote printing and distribution in Dubuque of statements, claims and reports. CyCare renamed WCS “C74” (I need to try and remember where the 74 came from). The Wausau operation remained open into the 90’s supporting the C74 customer base. It was closed in mid 90’s and operations moved to Dubuque.”

EDI Pioneers!• “CyCare offered distributed processing on the C250 and C350 on Honeywell

gear with distributed processing for claims and statements produced in Dubuque, at the time the largest data center in Iowa. So CyCare sold a box, software & software maintenance, and also receive monthly revenue for remote printing and distribution of patient statements and claims.

• The biggest value MSWI brought to CyCare was the early development (I believe the leading developer) of electronic claims submission and payment for doctors offices. Because of the service bureau type processing, MSWI had critical mass of claim volumes with each carrier.

• I remember a meeting in 1980 with EDS in Des Plaines, IL, who was the adjudicator of Medicare claims there, where we proposed shipping a large reel tape once a week with all our clients’ Medicare submissions. More such ‘electronic’ deals followed (though most involved shipping: on more than one occasion I drove the tape from Wausau to Chicago!). Claim submission exploded. The reason I think I was at that momentous meeting was because the MSWI principles flew down to Chicago; I was based in Chicago and was able to pick them up at O’Hare and drive them to the meeting. After all, I was only 22 and an implementation consultant.”

Adding An HIS• In 1987, CyCare celebrated its 20th anniversary by adding an IBM

mainframe-based HIS to its product line up. The Hospital Division team led by VP Scott Waldrop was featured on the opening slide.

• The HIS was developed under a contact with IBM at Carraway Methodist Medical Center in Birmingham, AL.Scott was the MIS Director there during the system’s development. It was not based on IBM’s PCS-ADS, but rather had its own “engine” and a profile-driven structure.

• The HIS didn’t sell that well, but CyCare claimed 30% of the PMIS market by 1987, with over 1,700 clients (a mix of single physicians, group practices, and HMOs), and 1,000 employees in 17 offices around the country. By 1995, they had become quite a lucrative target…

Prophetic Ad!• The text of this ironic HIS ad is enlarged on left for easier reading:

Gulp!• On August 23, 1996, HBOC “linked up” CyCare in another

complex stock swap deal, exchanging .43 of a share of HBOC stock for each of CyCare’s ≈5M shares. HBOC’s stock was trading around $120 per share back then so it was quite a big deal in financial terms as well as market share. By 1995, CyCare’s annual revenue was $63M, and they claimed about 5,000 clients (including many EDI). By 1995, HBOC had ≈$600M in annual revenue, from 2,200 US hospitals (out of 5,300 total back then – it’s below 5K today…) and another 500 international clients.

• Only one month later, HBOC gobbled up two more HIS vendors:– MSI – a leading Home Health Care vendor based on Missouri.

McKesson still runs MSI as its “Horizon Homecare” today…– GMIS – a Pennsylvania-based vendor of data quality and

decision support systems, subsumed into HBOC’s TrendStar.

Product Line to Date• So here’s HBOC’s product line with the acquisition of CyCare.

Next, we’ll cover their foray into the bedside (pun intended)…