Sale of respected laboratory information system company may be an early sign that investors believe clinical laboratories and pathology groups are ready to upgrade their LISs and add needed capabilities
In the past 10 years there has been little disruption to the laboratory information systems (LIS) market that clinical laboratories and anatomic pathology groups use. Yet, over that same 10-year period, almost every hospital and physician group practice adopted an electronic health system (EHR), primarily because of federal financial incentives that encouraged such adoption.
For medical laboratories and pathology groups, this widespread—nearly universal—adoption of EHRs by the nation’s hospitals and physicians was disruptive. Labs were required to expend resources building digital interfaces to the EHRs of their parent hospitals and client physicians to support electronic test ordering and test reporting.
However, because that wave of EHR adoption is now over, clinical labs and pathology groups have an opportunity to assess the current state of the health information technology (HIT) that they use daily, primarily in the form of the classic laboratory information system that handles nearly all the primary functions needed to support testing and other operational needs.
This opportunity to help medical laboratories enhance and/or upgrade the capabilities of their laboratory information systems may be one motivation behind the recent sale of a well-known LIS company.
Private Equity Firm Buys Orchard Software
On Oct. 7, 2019, Orchard Software Corporation of Carmel, Ind., announced its acquisition by Franciscan Partners, a private equity firm based in San Francisco.
Orchard Software, founded in 1993, has grown steadily over the past 20 years, primarily by serving physician office laboratories, community hospital labs, and independent clinical laboratory companies. With each stage of growth, Orchard added functionality to its LIS and related software offerings and moved up-market to serve larger hospitals and larger labs.
The purchase price and the terms of the sale were not announced. Orchard’s Founder, President and CEO, Rob Bush, will retire. The new CEO is Billie Whitehurst, who came to Orchard from Netsmart Technologies, where she was Senior Vice President. The remainder of Orchard’s management team will be kept in place.
Is the LIS Market Heating Up?
What makes the purchase of Orchard by a multi-billion-dollar private equity company noteworthy is the fact that it is the first significant transaction in the LIS sector probably since the mid-2000s, which saw several significant mergers and acquisitions.
During that period, Cerner Corporation (NASDAQ:CERN) purchased Siemens Health Services and Misys acquired Sunquest information Systems. Then, Roper Technologies purchased Sunquest Information Systems from Mysis. Roper later also acquired PowerPath, an anatomic pathology LIS owned by private equity company Thoma Bravo.
Other acquisitions or investments involving LIS companies need to happen before it would be appropriate to say that investor interest in the LIS sector is heating up. However, it is accurate to say that many professional investors will be watching to see whether Franciscan Partners succeeds with its investment in Orchard Software. If Orchard’s revenue and operating profits increase substantially in the next few years, that may encourage other investors to look for LIS companies and products that they can buy.
If this were to happen, that would be a positive development for both clinical laboratories and anatomic pathology groups, because these investors would have a motive to add new functions and capabilities to their LIS products. It would also wake up a sector of lab information technology that has been relatively quiet for several years.