Healthcare Matters

According to reports circulating in the New York Times, Bloomberg News and others, Allscripts has lodged a formal complaint with the NYC Health & Hospitals procurement review board because it didn’t select Allscripts for a major EHR implementation contract. Rather, the award went to its primary competitor, Epic Systems of Wisconsin. And because public money is involved, Allscripts’ complaint must be resolved before the award can be finalized and Epic’s implementation work can begin.  Which, of course, is precisely what’s going to happen.

The dispute centers not on the core cost but on the total cost of ownership over 15 years, including third-party software, hardware and support services. Health & Hospital Corporation documents said that the Epic contract would cost $303 million and that the Allscripts proposal would cost $299 million, but Allscripts claimed that when all ancillary costs were included, its system would be more than $700 million less expensive to implement than would the Epic system. “If you’re going to spend that much (more) money, just tell me why,” Glen Tullman, the chief executive of Allscripts, based in Chicago, said on Tuesday. “This is a trade-off. Do I hire more teachers, more doctors, more nurses, or do I give the money to a software company?”

But Alan Aviles, president of the NYC Health & Hospitals Corporation –the customer– said on Tuesday that Allscripts’s cost analysis was false and unrealistic. He said that the choice made by his procurement staff, made after considering nine vendors over four years, was well justified, noting a) that the Allscripts proposal did not account for ongoing support costs and b) that reported instability within the executive management ranks at Allscripts was also a factor.

“How can you implement a complex electronic-medical-records system and have zero support on our side?” Mr. Aviles said. “This is more than surprising. This calls into question the leadership there.”  In fact, Mr. Aviles said that Allscripts was estimating that an application-support team needed to carry out the contract would cost nothing, while the hospitals procurement leadership had estimated that it would have had to use its own newly hired and existing staff, at a cost of $357 million.

And Mr. Aviles didn’t stop there: “Allscripts and its C.E.O. absolutely knew that that $700 million number they tossed out is fallacious,” Mr. Aviles said. The company’s formal complaint, he said, was a way to force his corporation to delay the contract and hold out hope that Allscripts could still get it, “as they scramble to get private-equity firms to take them over.”

Allscripts’s stock price fell sharply in April after its chairman was fired and three directors resigned in protest. According to a Bloomberg News report this week, Allscripts is considering a leveraged buyout and has received first-round bids from private-equity firms, including BlackStone Group, Carlyle Group and Silver Lake Management. Mr. Tullman declined to confirm or deny a Bloomberg News report that Allscripts was being taken private, saying, “As a public company, we never comment on rumors.”

Epic declined to comment on the specifics of the Allscripts complaint, but issued a statement Tuesday saying that the company was “happy to be chosen after an open and rigorous selection process spanning several years and many detailed reviews.”

It doesn’t seem to make a whole lot of sense for Allscripts to create an unnecessary spectacle –to draw this kind of negative attention to itself. So with that said, it would stand to reason that Allscripts genuinely feels that it has been legitimately wronged. But when you read between the lines of this developing story and listen to Allscripts new CEO offer up one of the lamest excuses ever to explain away the fact that Allscripts’ bid did not include support services (“because its system is Microsoft based”), well, matters of credibility seep-in faster than you can say, “did the Allscripts CEO really suggest that secure applications built on top of Windows don’t require support?”