Allscripts: Veradigm Strength to Offset Declining Core Revenue in 2022

Equity Analyst

Dylan Finley

Allscripts is a provider of healthcare IT services, with a wide portfolio of software targeting the operational and financial management needs of hospitals and physician offices. The company’s core offering is its suite of electronic health record (EHR) solutions--the electronic record of a patient’s medical history. In the acute hospital space, Allscripts’ market share significantly lags competitors Epic and Cerner, which combined represent a majority of the market. Allscripts’ relative strength in the more fragmented physician office EHR market has been subject to erosion in recent years, due to the trend of practice acquisition by integrated delivery networks (i.e. hospital systems). The EHR market is highly mature, and the technology is ubiquitous across medical care settings--early movers like Epic and Cerner have been the primary beneficiaries of the industry boon following the introduction of federal subsidies (Hitech Act of 2009) and overall trends toward digitization over the past decade and a half. The hospital EHR replacement market has largely favored Epic over the past few years, and Allscripts has largely been focused on the smaller community hospital setting. 

The company’s future growth opportunity lies the monetization of its data through standalone data offerings (tailored to payers and life sciences companies) and add-on tools to the EHR suite enhancing physician workflows and patient outcomes. This strategy is hardly differentiated from competitors--Cerner has invested in similar strategic growth areas over the past few years (population health management and data-as-a-service offerings). Allscripts surprised the market in October 2020 with its $1.3 billion sale of its care coordination software, CarePort. The transaction valued CarePort at 13 times annual revenue, significantly higher than the market valuation of the standalone company.

Business Strategy & Outlook

Allscripts’ comparatively weak positioning and unfavorable outlook in the electronic health record (EHR) software market are the primary determinants of our no-moat assessment. While multiyear contracts and the traditionally high switching costs associated with replacing an EHR vendor partially insulate the company from client erosion, Allscripts has a significantly smaller market share and weaker competitive positioning in the stickier and more lucrative hospital EHR market, compared with rivals Epic and Cerner. In these settings, the direct cost and expense of switching to a competing solution is very high both in terms of costs (roughly $25,000 to $75,000 per physician to implement) and in terms of operational disruption within the hospital. Furthermore, the hospital EHR market is fully mature with over 96% of non-federal acute care hospitals possessing an HHS certified EHR (per HealthIT.gov). The remaining opportunity--the replacement market--has largely skipped over Allscripts, with privately held Epic’s best-of-breed EHR platform dominating the market for larger hospitals and health networks, and Cerner having won a $16 billion contract to upgrade federal (Dept. of Veteran Affairs) hospitals through 2028. Additionally, while the Allscripts’ Veradigm business segment--a catchall for its data offerings--has exhibited stronger growth and relatively higher margins, we fail to see any meaningful differentiation over Epic and Cerner’s own nascent data offerings. 

Sunrise, Allscripts’s flagship hospital EHR, is a comprehensive platform that combines the core functionality of the EHR (patient details, medical history, labs, treatments, etc.) with operational and revenue cycle solutions (payment management and collection). Allscripts’ focus on the physician market during the rapid period of hospital EHR technology adoption in the early 2010s left the company with a comparatively small share of the market (midsingle digits). The rate of adoption occurred rapidly in part due to substantial government subsidies (2009 Hitech Act’s meaningful use incentive), pushing forward demand and trends toward digitalization and giving a substantial benefit to companies with an early mover advantage (i.e. Epic and Cerner). EHR software is particularly sticky, not only due to the high cost of system implementation but due to the operational disruption resulting from switching vendors. Beyond the loss in productivity associated with new system training and data transfer, the risks extend to patient lives’ themselves, so hospital administrations are highly risk-averse when making major operational changes to their EHR technology. 

While there is virtually no remaining greenspace in the industry, the replacement market has favored Epic’s best-in-class EHR offerings, particularly in the large hospital network setting. As a result, Allscripts’ has shifted its focus to retaining its current client base and looks to expand its offerings primarily in rural areas and in the community hospital setting. These hospitals typically have fewer resources, making a system like Epic less attractive. Allscripts’ primary competitor in this market is Cerner--which also places an emphasis on the community hospital setting. 

Allscripts’ positioning in the ambulatory EHR market for physician offices has weakened in recent years. Compared with the hospital market, the number of vendors and degree of market fragmentation are much higher. Despite Allscripts’ early efforts in the space, according to a 2018 analysis conducted by KPMG, Allscripts only trails Epic in market share and holds around 9% of the physician office market. Limited transparency and disclosure by Allscripts in the segment make it difficult to ascertain more recent trends; however, given the lack of innovation or product differentiation, it is unlikely any changes in the market have played out favorably for Allscripts. Additionally, based on user reviews aggregated by Capterra, a software guide and review site for businesses, Allscripts’ Professional EHR garners reviews at the low end compared with other top vendors (3.4 out of 5 as of January 2022). Epic’s ambulatory EHR proves to be the leader in the space by user satisfaction (4.3 out of 5), with other large competing vendors falling in between (eClinicalWorks, NextGen Healthcare, athenaOne, Cerner PowerChart). 

Allscripts’ growth and profitability are highly dependent on the performance of the company’s Veradigm segment--which includes health information data and analytics. The company touts Veradigm as having the largest de-identified ambulatory patient records available, which the company is able to monetize by selling to payers and PBMs, or by selling to life sciences companies as real-world data, used in conjunction with clinical trials in the drug development process. The largest shortcoming with Allscripts’ data offerings is its lack of substantial market share in the acute hospital EHR market, putting it at a disadvantage versus the wealth of data available to Epic and Cerner. These areas are of focus to Epic and Cerner as well, and we find it unlikely that Allscripts will be able to leverage its data more effectively than its better equipped peers.

None

Economic Moat

Allscripts Healthcare Solutions

Veradigm, Inc. engages in the provision of clinical, financial, and operational results services. It operates through the Provider and Veradigm segments. The Provider segment includes the hospitals and health systems, ambulatory, CarePort, FollowMyHealth, EPSiTM, EISClassics, and 2bPrecise strategic business units. The firm solutions include All EMRs, All Population Health Management, Patient Engagement, and Precision Medicine. The company was founded in 1986 and is headquartered in Chicago, IL.

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