Like many of those in attendance, my post-HIMSS14 recovery weekend was spent on a variety of therapeutic activities such as spending time with family, attempting to work off one too many breakfast/lunch/happy hour/dinner/reverse happy hour meetings, and flipping through a stack of special edition publications picked up at the conference (thank you FedEx!). I also had time to reflect on some of the key conference takeaways that I wanted to discuss with my colleagues this week.

The first thing that struck me was how the overall conference vibe appeared to change over time; however after thinking it over I came to realize what really changed was my perspective, which oddly enough brought to mind lyrics from “Shakedown Street” by the Grateful Dead.

“You tell me this town ain’t got no heart. Well, well, well, you can never tell.
The sunny side of the street is dark. Well, well, well, you can never tell.”

Despite President Obama’s re-election and legislative gains by Democrats at the federal and state level in 2012 elections that were couched in part as a referendum on the Affordable Care Act (“ACA”), hyper-partisan bickering over the ACA escalated even higher and dominated the 2013 news cycle. Combined with the recently announced mandate delays for businesses, I was expecting the mood at HIMSS14 in Orlando to be somewhat darker than in past years due to all the ACA-related noise and uncertainty.

“Don’t tell me this town ain’t got no heart.
When I can hear it beat out loud!
Nothin’ shakin’ on Shakedown Street. Used to be the heart of town.
Don’t tell me this town ain’t got no heart. You just gotta poke around”

I spent most of my time in the exhibit halls, poking and prodding around hundreds of booths and speaking with even more vendor reps…and much to my delight the overall atmosphere and conversations were quite upbeat! I suppose this shouldn’t have come as a surprise given healthcare IT vendors are accustomed to operating in an industry where IT spending lags smaller, less important verticals.


So what did I discover at HIMSS14? For starters, reps for mature on-premise vendors across almost every product category spent most of the time talking about their cloud solutions. Also the number of distinct product lines per vendor appears to have increase exponentially, especially revenue cycle management (RCM) solutions. Speaking of rapid growth, the number of private equity professionals attending HIMSS has picked up significantly – a meaningful number of vendor reps I spoke with mentioned this to me unprompted. Finally there was general consensus (some delivered grudgingly) that in aggregate ACA-related regulations have accelerated much needed IT adoption (and IT spending!) in healthcare.

There are numerous reasons why vendors are feeling giddy. Venture capital dollars flowing into healthcare IT continues to set new highs, nearly doubling in 2013 versus 2012 ( Meaningful Use (MU), ICD-10, Accountable Care Organizations (ACO), Personal Health Management (PHM) and a slew of other initiatives made prominent thanks to the ACA and HITECH Act have rendered obsolete the old adage that “the only thing that changes in healthcare are the acronyms,” leaving in its place real need for innovation. MU incentive programs have allowed providers to more easily rip and replace incumbent vendors (more than once in quite a few instances). Advances in cloud computing have enabled companies to not only enter new businesses quickly and cost-effectively, but also extract, analyze and share data that historically had been locked away and hidden behind closed vendor systems. I haven’t even tapped other growing areas such as mHealth and Medtech.

While I don’t expect the overall trajectory of the healthcare IT industry to change much over the next few years, I do expect to see major vendor consolidation take place over this time period. It is an inevitable outcome for a few reasons:

  1. Given the amount of venture capital money flowing into healthcare IT there is already too much overlap among the hundreds of vendors out there competing for business from a declining universe of unique providers/ IT spend decision-makers. (As an aside, the question vendor reps had the most difficulty answering is how they were differentiated from a laundry list of competitors I threw at them.) Unlike early stage VC funds who in aggregate place small bets across a large number of startup vendors, later stage VC funds place larger bets among a smaller set of companies, making it more difficult for the majority of vendors without access to additional capital to compete for growth (and forcing those who are not profitable to either sell or close).
  2. Strategic healthcare companies will use M&A to achieve growth, more quickly gain market share, add required capabilities, and/ or simply keep up with their competitors. In addition an industry as large and important as healthcare is bound to attract interest from global companies not traditionally associated with the sector.
  3. Software buyout firms like Virgo Capital are attracted to fragmented verticals such as healthcare IT where vendors provide mission-critical solutions and require domain expertise for success, since companies with these traits can generate defensible, predictable revenue and act as consolidating platforms.

Well, those are my initial thoughts coming out of HIMSS14. All of us at Virgo Capital would appreciate hearing yours.