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McKesson, Change Healthcare to Form New Health IT Company

McKesson Technology Services and Change Healthcare have agreed to form a new health IT company.

By Kyle Murphy, PhD

- After a series of moves that hinted at McKesson’s exit from the health IT marketplace, its technology division is set to merge with Change Healthcare to form new health IT venture with the former retaining majority control.

Health IT merger of McKesson and Change Healthcare

Last week, Reuters reported on the possibility of a merger between the health IT division of McKesson Corporation and Change Healthcare, a provider of revenue cycle management technology formerly known as Emdeon Inc. The latter claims to operate the single largest financial and administrative healthcare network in the United States, with more than 75,000 physicians, 5,000 hospitals, and 1,200 payers.

The end-result will lead to a new health IT company, combining resources from both companies and topping $3.4 billion in annual revenues. McKesson and Change Healthcare will own 70 percent and 30 percent of the company, respectively.

McKesson is set to contribute the majority of its remaining health IT businesses, excluding RelayHealth Pharmacy and its Enterprise Information Solutions division. Change Healthcare, meanwhile, will pony up its entire business, with the exception of its pharmacy switch and prescription routing business.

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  • “This is a bold, innovative transaction that creates a company with an enhanced ability to help customers address their increasingly complex financial and clinical challenges,” McKesson Chairman & CEO John H. Hammergren said in a public statement.

    “The new company will establish a more efficient suite of end-to-end payment and claims solutions, as well as clinical capabilities, while unlocking the value of our MTS businesses in a tax-efficient manner,” he continued. “We look forward to partnering with Change Healthcare’s management team and employees to create this new enterprise and to help customers reduce complexity, lower costs and ultimately provide better care.”

    The as-of-yet unnamed new company is targeting health plans and providers with its offering of end-to-end financial and payment technology as well as the transition to value-based care.

    “Together we will create significant value by bringing together complementary capabilities from both organizations to deliver innovative new solutions for customers, create opportunities for team members at a leading healthcare technology company, and drive advancements that address the three critical areas of cost, quality and outcomes across the healthcare sector,” added Change Healthcare President & CEO Neil de Crescenzo.

    De Crescenzo will serve as CEO for the new venture, with Hammergren serving as Chairman. According to Reuters, an initial public offering will follow a few months after the transaction closes.

    A recent report in the Wall Street Journal raised the possibility of a sale of the company’s health IT unit Technology Solutions in order to focus on its business as a drug and medical supply distributor, an unnamed source familiar with the matter told WSJ reporters.

    Compared to the company’s core drug-distribution business which had sales of $188 billion, its health IT division saw $2.9 billion in sales in its most recent fiscal year ending in March.

    Earlier this year, McKesson offloaded a sizeable portion of its ambulatory EHR technology to EHR vendor e-MDs, increasing the latter’s number of ambulatory EHR providers to 55,000. The announcement specifically mentioned six products as part of its expanded health IT lineup. In efforts to pare down its health IT units, the company also sold its care management unit to Comvest Partners.

    Recently, Black Book named two McKesson as the highest rated EHR vendor the ambulatory specialties —neurosurgery and oncology & hematology — and at the same time noting the growing interest in specialty-specific EHR replacement. At the same time, McKesson also lost market share to other EHR vendors, according to a June Kalorama Information report. 

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