The document summarizes the acquisition of CyCare Systems by HBOC (now McKesson) in 1996. It provides background on CyCare, which was founded in Iowa in 1967 and had grown to be a leading provider of physician billing and practice management systems. By 1996, CyCare had over 5,000 clients and $63 million in annual revenue. HBOC acquired CyCare in a stock swap deal valued at over $120 per share, significantly expanding HBOC's product lines and client base in both hospital and physician markets. The acquisition of CyCare and two other companies that same year established HBOC as a major player in several healthcare IT sectors.
2. 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:
3. 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’sCliniCom, which had
started as a “partner” of HBO in the mid-80s, and later signed
a bedside “teaming” agreement with them in 1993.
4. 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 Houtzmoved 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.”
5. CyCare’s Roots
• Now that Jeff set the story straight about CyCare’sIowa 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.”
6. CyCare’s Acquisitions
• HBOC had no monopoly on acquisitions – as Jeff continues:
– “The story I heard was that Jim Houtzwas 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 Rooverscirca ’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 “inhouse” 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).”
7. 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.”
8. 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.”
9. 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…
10. Prophetic Ad!
• The text of this ironic HIS ad is enlarged on left for easier reading:
11. 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’sannual 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.
12. 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)…
