GUEST ANALYSIS -- The headline reads "GE to buy healthcare company IDX for $1.2 billion," approximately a 25 percent premium from the previous day and a 44 percent premium from one month ago. GE is notorious for a healthy premium, but at 1.8 times the enterprise value to 2006 total revenue forecasts, the deal is at the high end of the recent average for companies in the $6.3 billion healthcare IT market. As the statistics display, the IDX acquisition will measurably augment GE's ability to compete in the healthcare IT segment. Over the past few years, GE has seen a gradual erosion of market share to traditional imaging, system integrators, and companies with innovative product offerings. The absorption of IDX Systems provides GE with a comprehensive set of solutions that will favorably compete with these and other companies and complement its healthy PACS and imaging products.

Unquestionably, the acquisition signifies the dominant trends of consolidation in the healthcare IT market. However, the deal points to a competitive market that is slated for broad-based and scalable growth in the next decade and beyond. As the worldwide market comes online, GE will now be juxtaposed to aggressively capture market share. Peering into the acquisition through these lenses emblazons a resolute picture for the combination and its significance to the industry.

Through the acquisition, GE is likely positioning to compete solutions-wise with Philips, who recently acquired Stentor, which originally collaborated with IDX to develop a joint PACS solution. With the 10-year contractual arrangement between IDX and Stentor, GE is likely to achieve immediate benefits from IDX's leading radiology information systems and other solutions. Furthermore, IDX has a contractually binding strategic alliance with Allscripts in the ambulatory clinical area, and it is expected both contractual obligations will continue through expiration (see [we will add link to a story we ran on 10/4/05]). However, the efficacy of these contracts is extremely unlikely to remain at current levels, especially given the competitive demeanor of GE. Formally, the contracts with Allscripts and Stentor are expected to relinquish in 2011 and 2014. The tenuous scope of these relationships lends insight to the extent GE desired this relationship, as well as the product potential for the combined companies post contract expiration. In sum, the deal characterizes the opportunity to bundle enterprise clinical information solutions from IDX Systems with GE's imaging and PACS, which together forms a robust and differentiated offering.

As GE integrates the acquisition and systematically coalesces all solutions, the combined entity will offer a total platform that will compete heavily in all areas, including areas only where exclusive arrangements previously existed. When looking at product alignment, GE will integrate the Centricity line with IDX's Groupcast and Flowcast.  In addition, IDX brings to the table its Carecast solution that possesses a strong presence in academic healthcare institutions and further emboldens GE with a solid reputation and install base for growth and product development and introduction. GE obtains IDX's customer base of more than 150,000 U.S. physicians of the 500,000 that practice and a strong international presence in the United Kingdom with the NHS London contract, which provides an international platform for growth. Though the press release focuses on the ability to offer an electronic medical record, the pure value-play of the acquisition resides in the ability to link complementary solutions that cross-sell on a worldwide basis. The combination will increase GE's offerings and present all customers with best-in-class solutions that are scalable and easily integrated. Similarly, IDX Systems captures a mechanism to continue its strategic expansion on the backbone of GE's infrastructure, resources, and international experience. Therefore, it is perceived that the dominance of the GE/IDX Systems combination will act as an integrated competitive behemoth that spawned from a well-timed syncopation of products, intellectual capital, and strategic core competencies.

As individuals contemplate the shockwave across the bows of healthcare IT, hospitals and those close to healthcare information technologies have seen a snowball effect for implementing information technologies. In the next 12 months, healthcare organizations are expected to increase capital spending on healthcare IT by 8 to 10 percent from the previous year, which grew approximately 7 percent. Across the board, healthcare organizations are realizing the benefits to the total organization for utilizing information technologies. The underpinnings for the change have been not only CIOs' and other administrators' desires to adopt solutions that reduce costs and improve patient care but also mandates from the executive branch, such as the executive order for implementing electronic health records throughout all practices by 2014 and the creation of the Office of the National Coordinator for Health Information Technology (ONCHIT), occupied by David J. Brailer, M.D., national coordinator of health IT. Coinciding with these actions, congressional leaders from both sides of the political spectrum have posited and signed legislation to fund the implementation of healthcare IT.

Understanding the tremendous growth ahead for the United States and worldwide healthcare IT vertical, GE's acquisition of IDX Systems points to their uncanny ability to shore up product gaps and aggressively compete for the leading market share position. A recent survey indicated that approximately 75 percent of U.S. CFOs (with inputs from CIOs and others) expect to accelerate capital spending over the next five years for items such as information technologies. Unquestionably, more than ever before, GE's Healthcare IT division will be strategically positioned to favorably compete for these contracts as well as international offerings.