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Microsoft buys hospital system's "health intelligence software"

The company decided that it could not pass up this opportunity to enter the health care application market.

By — Posted Aug. 21, 2006

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The crowded roster of health care information technology vendors added a new member July 26 when Microsoft Corp. announced it had agreed to acquire a clinical software product from MedStar Health, a seven-hospital health system based in Columbia, Md.

The purchase marks a departure in strategy for the Redmond, Wash.-based software giant, which -- except for a short-lived venture five years ago -- has typically sold health care vendors operating systems and software tools to build their software applications.

Microsoft is entering the health care application market because the health care sector presents a huge business opportunity, said Peter Neupert, corporate vice president of Health Solutions Group, a division Microsoft formed late last year.

"It has not yet captured a lot of the operational benefits that other sectors of the economy like retail and manufacturing have by investing in IT," he said. "We think there is an opportunity [for us] to play in the application space in addition to being in the tools business for other application providers."

Under the terms of the acquisition, Microsoft will pay an undisclosed sum to MedStar to acquire Azyxxi, which collects data from numerous disparate systems and stores those data in a clinical data repository, enabling physicians to access all the data available for a single patient at the point of care.

The software application will be sold to hospitals and health systems, Neupert said. He added that it's too early to say whether Microsoft would adapt the application for private practice physicians.

In addition to integrating and displaying data from disparate sources, Azyxxi, which was first deployed in 1996 in the emergency department of Washington (D.C.) Hospital Center, one of MedStar's hospitals, also is a data reporting tool, meaning that users can run queries against clinical, financial and administrative data in its database. Because of that capability, Microsoft and the developers of Azyxxi characterize the product as "health intelligence software."

Two emergency physicians -- Craig Feied, MD and Mark Smith, MD -- and programmer Fidrik Iskandar developed Azyxxi. As part of the deal, Dr. Feied, Iskandar and 40 other members on the Azyxxi development team at MedStar will become Microsoft employees. Dr. Smith will remain chair of emergency medicine at Washington Hospital Center and serve as chief clinical liaison between Microsoft and MedStar. The two parties also have formed a strategic alliance under which Washington Hospital Center will serve as the development laboratory for Microsoft and continue to deploy and test new features of Azyxxi.

Microsoft isn't the first prominent technology company to attempt to crack the health care technology market. Recently, for example, Intel and GE Healthcare have entered that space, and IBM has been in and out. But bigness doesn't guarantee success, experts say.

"Certainly, a large number of [well-known] companies have attempted to [get into the health care application space] and not done particularly well at it," said Thomas Handler, MD, a research director at Gartner Inc., a Stamford, Conn.-based technology consulting firm.

"I think Microsoft is somewhat vulnerable in that most of the established health care application vendors use Microsoft products, so that puts them in the pretty uncomfortable position of competing with their customers. We will have to see how that plays out," Dr. Handler said.

Azyxxi isn't Microsoft's first foray in the health care application business. Along with IBM and Pfizer, Microsoft in 2001 funded Amicore to sell electronic medical records software to physicians. Despite its prominent backers, Amicore remains a minor player in the ambulatory EMR market, and Microsoft has shed its stake in it.

At this time, Microsoft's entry into the health care market doesn't mean much for the industry, Dr. Handler said.

"Honestly, if this wasn't Microsoft, I don't think it would mean a thing. But because it's Microsoft it's being elevated, perhaps, into higher position than it would otherwise," Dr. Handler said. "For us, the real question is what are they going to be doing with this thing ... Right now, I think, there's some confusion whether the product is truly a point-of-care system or more a data warehouse analytics [system]. If it's the data warehouse analytics piece, it has potential; if it's a point-of-care system there's less potential because there's other [vendors] that are more established [in the market]."

Of the nine major vendors that sell EMR systems that Gartner tracks, two already sell more-developed EMR systems, and most of the others are closing in on that target. Meanwhile, Azyxxi appears to be an early-version product that's been custom-developed for and installed only at a single enterprise, Dr. Handler said.

Still, others believe that Microsoft will catch up with the more established companies such as Cerner Corp, McKesson Corp. and Siemens Medical Solutions Health Services Corp. regardless of whether it wants to sell a single application or offer the breadth of products that those companies do.

"To me, it's less that they bought a product," said John Osberg, president of Informed Partners LLC, a Marietta, Ga., health care technology consultant. "I think the significance for the industry is that Microsoft has made an investment in a living laboratory upon which they will build a comprehensive solution."

"They are clearly behind, but I think that if they have the commitment they could potentially catch up," said Marc Holland, program director of Health Provider Research at Health Industry Insights, a company owned by IDC, a market research company in Framingham, Mass. "The only way they would be able to catch up in the short run is through acquisition. I think they see this as a very good way of getting into the business because even if [selling Azyxxi] is all they want to do, there is a market for it."

Neupert declined to comment about whether Microsoft planned to make other acquisitions. It was also too early for the company to say how Azyxxi would be marketed or enhanced, he said.

"The question of whether we are late or not probably isn't the most important question. From our perspective ... there's still a big opportunity for us [in health care], and it's good for us to get started."

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