GE bids $1.2 billion for IDX Systems

October 10, 2005

GE may be the biggest name in PACS, but the company has struggled in the broader market, addressing healthcare IT with a string of departmental solutions rather than an integrated enterprise approach. This will change, however, if GE succeeds in its $1.2 billion cash bid to acquire IDX Systems.

GE may be the biggest name in PACS, but the company has struggled in the broader market, addressing healthcare IT with a string of departmental solutions rather than an integrated enterprise approach. This will change, however, if GE succeeds in its $1.2 billion cash bid to acquire IDX Systems.

The deal, which could close in early 2006 pending regulatory and shareholder approvals, will include the IDX clinical and financial platform Carecast. This EMR provides access to patient records across enterprises, including those involving academic medical centers and large hospitals.

Carecast is the most attractive aspect of IDX for GE. That company's primary focus has been the development of products that support specific aspects of the healthcare enterprise, such as radiology, laboratories, labor and delivery, the OR, and pharmacy, according to Don Woodlock, GE vice president and general manger for inpatient clinicals.

"We have been less focused on - or less successful at - enterprise systems," said Woodlock, who served 14 years at IDX before joining GE in 2002 and helped negotiate the deal between his current and former employers. "This is really a terrific combination in that respect, because for large hospital systems, we would have both a strong clinical and a strong financial platform with Carecast that we can combine with departmental clinicals from our Centricity product line."

GE would benefit from other IDX products as well. Flowcast includes workflow software with consulting services and support for enterprise-wide applications. Groupcast provides patient and financial management for mid- to large-size physician practices. The depth and breadth found in a consolidated portfolio of IDX and GE products would provide customers with the choices they want, Woodlock said.

"We have clearly heard from customers that they want to leverage companies as much as they can in IT," he said. "There are so many applications in a hospital system that getting every one from a different vendor is unworkable."

The products are mostly, though not completely, complementary. GE has evolved Centricity into an inpatient electronic health record similar to Carecast, although this product has been promoted only to specific market segments, such as community hospitals or hospitals dedicated to cardiac care.

The most substantial overlap, however, is GE Centricity PACS and IDX Imagecast. Centricity PACs includes a RIS. Imagecast is composed of a homegrown RIS and a PACS supplied by Stentor. GE has installed about 400 Centricity PACS. IDX has installed about 320 integrated RIS and PACS.

Combining the Imagecast RIS component and Centricity PACS would seem to pose few problems, as an interface between the two has already been developed to serve customers with these technologies, according to Woodlock. Lopping off the Stentor-provided PACS and replacing it with Centricity, however, may not be so easy.

In November 2004, IDX signed a 10-year strategic alliance with Stentor to package its RIS with Stentor's PACS. Complicating matters is the acquisition of Stentor in August by Philips Medical Systems (DI SCAN 8/15/05).

"We have grown up with a very close partnership with Stentor as we moved into PACS, and our agreement to resell Stentor technology into the marketplace has nine-plus years left on it," said Jim Crook, IDX chief executive officer. "But we clearly have different long-term road maps."

Woodlock downplayed the problem that agreement might present.

"IDX has that relationship with Stentor," he said. "When we are a combined company, things may look different."

But there may be other complications. IDX is in another long-term relationship, this one to sell Allscripts' ambulatory clinical product. That 10-year agreement, which began in 2000, makes Allscripts the exclusive provider of Internet and point-of-care clinical applications sold by IDX to physician practices.

"GE will not be able to market a clinical ambulatory product to the IDX customer base (if the merger concludes)," said Crook, who noted that Allscripts also has an obligation to sell IDX practice management products.

An agreement struck by GE might also be problematic. In January, GE Healthcare announced a collaboration with Intermountain Health Care to develop workflow automation, clinical documentation, decision support, and quality assurance tools for integration into Centricity (DI SCAN 2/21/05). The five-year project will go beyond radiology to such departments as pharmacy and cardiology and include functions such as computerized physician order entry.

Whether and how the two companies will handle each other's baggage from existing relationships may depend on the efforts of the integration team now being assembled by GE and IDX. In the days and weeks ahead, this group will address issues affecting what a combined firm might look like, Woodlock said. If the deal goes through, the team will help form the leadership for the new organization and implement product road maps.

In the meantime, executives from both camps are adamant that the marriage of these two firms is in the best interests of both. GE needs a company like IDX to provide enterprise-wide solutions, according to Woodlock, just as IDX needs a company like GE to bolster future growth, according to Crook.

"Some months ago, we came to the conclusion that our opportunities to expand further would be better realized through greater scale and additional resources," Crook said. "We therefore set out to review, with financial advisors, our strategic options."

The chosen option was merger and, after looking at potential buyers, GE came out on top.

"This transaction offers significant and immediate value to our shareholders with high certainty of closure, while offering clear advantages and benefits to our customers and employees," he said.

IDX products are installed at more than 3400 customer sites, including nearly 900 group practices and 400 integrated delivery networks serving more than 500 hospitals. The company has about 2400 full-time employees. GE Healthcare has more than 43,000, of which at least 1200 are dedicated to IT.

The definitive agreement to merge, announced Sept. 29, pegs IDX stock at $44 per share. Shareholders representing about 20% of the company's outstanding stock have agreed to vote in favor of the proposal.

Details about the consolidation of the staff who will work together on existing projects have yet to be worked out. Details are also lacking as to how sales and administrative staff might be consolidated. None of this, however, is a major concern to Woodlock, as the deal is being driven by strategic considerations.

"The purpose of this acquisition is growth," he said. "The core reason we are doing this deal is to bring together complementary product lines that our customers really want to buy from one company and to integrate those product lines so our customers can be more efficient and provide better clinical outcomes to their patients."