Homepage Rankings and Research Companies Channelcast Marketing Matters CRNtv Events WOTC Jobs Dell Technologies World Digital Experience 2020 HPE Zone Masergy Zenith Partner Program Newsroom Intel Partner Connect Digital Newsroom Dell Technologies Newsroom Fortinet Secure Network Hub IBM Newsroom Juniper Newsroom The IoT Integrator Lenovo Channel-First NetApp Data Fabric Intel Tech Provider Zone

Health Care Solution Providers: McKesson Spinoff Of Tech Arm Will Pose Channel Challenge

Solution providers with health care customers are bracing for the arrival of a larger competitor now that the technology arm of McKesson Corp. will be merged with Change Healthcare, creating a $3.4 billion channel giant.

Health-care solution providers are bracing for the pending arrival of a bigger player in their market after medical supply behemoth McKesson splits off its technology solutions business.

San Francisco-based McKesson, No. 5 on the Fortune 500, said this week that it will create a new company by merging its $2.9 billion technology arm with Nashville, Tenn.-based Change Healthcare, most of which is owned by private equity giant Blackstone Group. The deal will create a new, yet-to-be named $3.4 billion solution provider serving the health-care industry.

’Selling off the technical side of [McKesson] eliminates me from competing with [them], but now I’ll be competing with Change Healthcare,’ said Jamie Shepard, senior vice president for health care and strategy at Lumenate, a Dallas-based solution provider. "It will make it a little more challenging."

[RELATED: Verizon Partner's Solution May Have Solved $300 Billion Health-Care Problem]

Shepard said he has worked with McKesson since it bought Atlanta-based medical software provider HBO & Co. in 1998 for $14.1 billion, which effectively launched McKesson’s IT business.

But with the company now selling off that part of its business, Shepard said health care-focused IT providers are going to compete with the bulked-up Change Healthcare, especially companies such as Lumenate that are providing strong application-focused solutions.

"In health care, just because you are bigger, it doesn't mean you can solve the business problem," said Mike Gentile, president and CEO of CISO Share, a San Clemente, Calif.-based security services provider with health-care customers, "To be successful, you are going to need to have a bunch of focused niche solutions."

Over the past few years, Gentile added, there has been an increase in the number of solutions, applications and IT hardware in the health-care market, and with that, smaller providers have thrived by creating individualized, focused approaches for customers.

But according to Shepard, the bigger players have traditionally partnered with OEMs to sell software and analytics technology, bundled with all the necessary infrastructure and storage hardware to support it.
IDC analyst Jeff Rivkin said the deal won't have a big impact on the channel.

Rivkin said there will be "a little overlap" with health-care solution providers. ’They [solution providers and the new company] both have payment integrity solutions; they both are interested in consumer engagement, but if you took a Venn diagram, it’s not that much overlap, except in the payment integrity area,’ he said.

Kris Fortner, a spokesperson for McKesson, said in a statement to CRN that the new company will aim "to help customers reduce complexity, lower costs and ultimately provide better care.’

In a statement on McKesson's website, Chairman and CEO John Hammergren said the new company will provide clients with a health-care-centric technology platform that will help them be more efficient and lower costs.

The move is also a response to customers that have been asking for a broader solution portfolio, according to a statement on the deal.

John Caucis, a lead analyst at Technology Business Research, said McKesson’s decision was not a surprise.

In January, McKesson said it would conduct a strategic review of its technology services business, which accounts for only 2 percent of McKesson’s $190 billion in annual revenue, according to the company’s fiscal 2016 filings with the U.S. Securities and Exchange Commission.

With McKesson facing market consolidation and pricing pressures, Caucis said it makes sense that the company would turn inward and focus on its core pharmaceutical distribution business instead of continuing with the small slice of its business that has been shrinking.

Revenue on the technology side ’has been contracting at a pretty fair pace; for the most recent [fiscal] year, they are down between 5 and 6 percent,’ he said.

Caucis added that although McKesson has been on an acquisition spree, it hasn't bought any company that would strengthen its technology business, leading Technology Business Research to believe that McKesson was not investing in it.

But Caucis said Change Healthcare comes out a winner in the deal since it's now in a good position to grow. He said Change Healthcare has been growing by a near-double-digit rate annually since 2011.

Cynthia Burghard, another IDC analyst, said that although the new company will be bigger and will compete with some solution providers, she also expects the market for IT solution providers in health care to look the same.

In a recent report, IDC listed the 25 largest IT vendors in health care, Burghard said, and after separating McKesson’s pharmaceutical business and taking into account revenue strictly from its health-care IT unit, the company ranked third largest, with Change Healthcare ranked lower.

From a revenue perspective, she added, the new company will still be at the same spot the McKesson unit holds now.

’McKesson was already a big gorilla, and this will make them bigger, but it's not going to change their ranking in terms of where they sit from a revenue point of view,’ she said.

The deal is slated to close in the first half of next year. McKesson and Change Healthcare will own approximately 70 percent and 30 percent of the new company, respectively, and each side will receive approximately $1.25 billion and $1.75 billion, respectively, in cash after the transaction closes.

The two companies said they would take steps within months of the closing to take the company public, after which McKesson would divest its stake.

McKesson CEO Hammergren will be chairman of the new company, while Change Healthcare CEO Neil de Crescenzo will serve in that same role, McKesson said in a statement.

The deal does not include McKesson’s enterprise information business, which provides hospital information systems. However, the company said this week that it's ’exploring strategic options’ for that business, but did not elaborate.

Back to Top



sponsored resources