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Looking upstream, athenahealth eyes community hospitals

With its acquisition of RazorInsights, athenahealth sets sights on the small hospital market -- and expects to enter bigger inpatient settings.

When EHR market leader Epic Systems Corp. acknowledged that it was moving for the first time toward a cloud-hosting model for smaller healthcare systems, the Verona, Wis. vendor's new strategy was soon to be reflected by its cloud-only smaller competitor, athenahealth Inc.

Only in reverse.

With its January 2015 acquisition of RazorInsights, Watertown, Mass.-based athenahealth, has shifted upmarket into hospital settings just as Epic is focusing on smaller customers. RazorInsights is a rising star in the market for EHR and back-office systems for small rural, critical access and community hospitals.

For athenahealth, the move is a signal that the company intends to expand its reach, now for the first time into hospitals, but perhaps someday even into the larger healthcare system and integrated delivery networks long dominated by the likes of Epic and its main rival, Cerner Corp.

"This acquisition of RazorInsights will also accelerate sales into larger hospital accounts where we want to offer a cloud-based alternative," said Victoria Bartolome, a senior business development manager for athenahealth. "That's our longer-term play."

Potential to compete with Epic and Cerner

Like athenahealth, RazorInsights -- whose main office up to now has been in Kennesaw, Ga., an Atlanta suburb -- is entirely cloud based.

Some athenahealth observers are disappointed that the company's early 2015 gesture was not more ambitious and directed upward toward the high end of the health IT battlefield, which appears to be becoming more and more receptive to cloud technologies.

But the acquisition -- the cash value of which hasn't been revealed, but which some analysts have pegged at about $40 million – has drawn largely positive reviews, even in the face of hedge fund manager David Einhorn's well-publicized short sell recommendation on athenahealth stock.

"It gives them a foundation to move upstream into larger systems and could eventually lead to changing the competitive dynamic with Epic and Cerner," said Chris McCord, managing director at Healthcare Growth Partners, an Illinois-based health IT consultancy.

McCord said RazorInsights is an ideal takeover target for athenahealth because of RazorInsights' success in the under-50-bed hospital space, a huge market that comprises about one third of U.S. hospitals, and a kindred cloud-based technology.

RazorInsights competitors form a crowded field

Meanwhile, RazorInsights competitors -- such as Computer Programs and Systems, Inc. (CPSI), Healthland and Prognosis Innovation Healthcare, which all also focus on the small hospital sector -- were unlikely candidates for athenahealth to merge with because none except Prognosis is cloud-oriented, McCord said.

But some investors worry about athenahealth's expansion and earnings, as well as Epic's and Cerner's considerable strength in athenahealth's core ambulatory customer base. As a result, athenahealth risks "walking the line between being a hot company and an overrated one," McCord said.

Exec at athenahealth expresses optimism

Although looking to the future, athenahealth executives mainly tout the RazorInsights pickup as the crucial link in providing cloud-billing services along the entire care continuum.

"We hadn't really dabbled at all in the inpatient market, so this is kind of our first step beyond ambulatory," Bartolome said. "Ultimately, we'd liked to take it into the post-acute and home health areas."

As for taking on RazorInsights' traditional competitors in the small hospital sphere, Bartolome said that the merged company will be on strong footing.

Spokesmen for CPSI, Healthland and Prognosis did not respond to requests for comment from SearchHealthIT.

A 2012 report from market research firm KLAS Enterprises LLC revealed "incredible churn in the community hospital market," with more than 300 hospitals with fewer than 200 beds replacing their EHRs because of dissatisfaction.

As for merging the two cloud EHR vendors, athenahealth plans to transition most of the RazorInsights workforce from its Kennesaw office to athenahealth's large Atlanta hub, Bartolome said.

Let us know what you think about the story; email Shaun Sutner, news and features writer, or contact @SSutner on Twitter.

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