“H.I.S.-tory” by Vince Ciotti

© 2011 H.I.S. Professionals, LLC

Episode # 57:

DairylandPart 2

Dairyland’s Rapid Growth• We left off last week with

Steve Klick running the firm, and Mark Middendorf making the amazing transition from programming to VP of Sales!

• By all accounts, Steve & Mark created an amazing corporate culture of listening to clients.– Just how many CIOs can

pick up the phone today & reach their vendor’s CEO?

– And how many VPs of Sales tell the absolute truth, no matter what, even if it costs them the sale?

So How Big Did Dairyland Grow?• Check out the table below to see how well Steve & Mark led

Dairyland’s sales surge into the small (<100 bed) hospital market:

# of Clients

# of States # of employees

Annual Revenue

1981 3 1 5 <$1M

1985 52 4 30 $3M

1995 250 24 100 $15M

1999 350 30 170 $25M

2005 400 38 250 $33M

• How did they do it? The same way Walt Huff led HBO’s charge:1. Very competitive pricing, undercutting the established vendors2. Acquisition after acquisition after acquisition after acquisition…

• Check out the following slides for all the gory details on each:

1. Pricing - Histor(hyster?)ical Comparo• Our firm first started doing system selections back in the late 80s

when Dairyland was making its run, and here are some amazing figures about just how affordable an HIS system was back then.

• The hospital that made the mistake of hiring us for our unique “Non-RFP” selection process was: - Central Medical Center ≈100 beds in one of

the poorest sections of St. Louis, MO (right in the heart of Dairyland’s Midwest turf)

- CFO was Steve Berger, a dear friend who has since gone on to form his own HIS firm: Healthcare Insights, with a stunning EIS & dashboard system – check them out at:- www.hcillc.com

- We wrote an article about it for HFMA Journal:

So How Did I Meet Steve Berger?• Glad you asked, it’s a HIS-tory episode all in itself! We started our

firm in New Joisey in 1987, and as a frustrated English major (why else would I be writing all these d____ PowerPoint slides?), I searched around for publication I could write articles for.

• Back in 1987, HIMSS had very little local presence, and since Controllers usually had IT reporting to them, I turned to the local HFMA chapter where, it turned out Steve was the editor of their “ECHO” newsmagazine. So I called him and learned to my shock:

• He was the only other healthcare pro in NJ using a Mac back in 1987! We became fast friends, and I wrote a series of articles for ECHO, one of which Mr. HIS-talk ran a while back when poor Jobs departed.

• So what did Steve B decide to call my series of MIS articles, which is what “IT” was called back then?

MIS-Information!

1. Pricing - the actual $s from 1988• We solicited bids from Dairyland and 3 of their prime competitors

in the under 100 bed market: Spectrum (JS Data), HMDS (Frank Poggio’s early PC system) and Amex (SAI – the old “Saint”).

• I realize you moderns may not believe these figures, but try to tell you kids just how cheap gas was when you first started driving!

• First, here are the one-time (capital) costs from those 4 vendors:

CAPITAL Dairyland Spectrum HMDS Amex

Hardware $98,625 $101,784 $103,681 $57,511

Software $109,500 $102,546 $123,800 $15,000

Miscellaneous $48,750 $85,000 $54,860 $24,000

Total $256,875 $289,330 $282,341 $96,511

• As you might have guessed, Amex bid a “remote” system (no “clouds” or SaaS back then – boy were we a bunch of old farts…)

• “Miscellaneous” = file conversions, interfaces, travel, which no CIO today ever overlooks today, right!!??!!!!??????!!!!!!!!!????????

1. Pricing - the actual $s, cont’d• Here are the annual (operating) costs from the same 4 vendors:

OPERATING Dairyland Spectrum HMDS Amex

Hardware Mtn $14,515 $16,080 $18,060 $129,600

Software Mtn $10,855 $3,684 $1,660 $7,051

Total $25, 370 $19,764 $19,720 $136,651

• Now, before you all start writing emails to Mr. HIS-talk, these were for primarily financial systems, as the term was defined back then, with modern terms in italics/parentheses for more recent CIOs:• ADT (Access), Billing & AR (Revenue Cycle), Medical Records

(HIM), and general financials: AP, GL, PR, HR, Materials (ERP)

• We calculated a 5-year TCO (total cost of ownership) that added the capital plus operating costs, with an allowance for annual CPI:

Dairyland Spectrum HMDS Amex

5-Year TCO: $383,725 $388,150 $388,941 $803,940

1. Pricing – compare 1988 to 2012• Just for kicks, here’s the figures we recently received from three

leading mid-size hospital vendors today, whose names in the columns below have been changed to protect the innocent.

• Granted, these figures are for a 250-bed hospital (twice as big as Central Medical), but for revenue cycle applications only (no ERP), so they are almost an apples to watermelons (?) comparison:

• Sort of Moore’s law in reverse, no? While hardware gets twice as fast for same dough every 18 months, software (and especially implementation) seems to get more expensive every few minutes!

Vendor A Vendor B Vendor C

Capital $5,200,000 $2,000,000 $2,500,000

Operating $650,000 $350,000 $375,000

5-Year TCO $8,500,000 $3,800,000 $4,400,000

So Who Won at CMC?• Steve Klick used a great phrase to

describe Frank Poggio when the two went head-to-head before a hospital’s Board in a tough sales situation: “Frank the Hammer!” Yes, Frank’s HMDS won the battle at CMC, not on costs, which were amazingly even, but on his red-hot technology: using PCs rather than minis to build his equally upstart HIS system.

• So next week, we continue the saga of Dairyland into the 2nd reason why they grew so rapidly: acquisitions. I sure need help from anyone who knew these AS/400 system vendors’ founders:• LeBlanc, Schexnayder & Associates from Abbeville, Louisiana• Henderman Management Systems, from Louisville, KY• Integrated Health Systems, from La Jolla, California