HCIA flourishes in data niche Health information is prosperous market

January 28, 1996|By M. William Salganik | M. William Salganik,SUN STAFF

In the Jan. 28 editions of The Sun, the closing stock price for HCIA for Jan. 26 was listed incorrectly. The stock closed that day at $43.375.

The Sun regrets the errors.

HCIA is on a tear.

The Baltimore-based health information company has seen its stock rocket from $14 when it went public last February to $41.375 on Friday.

Revenues have jumped from less than $2 million in 1990 to more than $30 million in 1994, with analysts projecting more than $47 ++ million when 1995 figures are issued next week. Earnings are expected to triple from the previous year, to $5.3 million, or 59 cents a share.

FOR THE RECORD - CORRECTION

HCIA has laid out $31.75 million for two major acquisitions -- in cash. The company is virtually debt-free. Its net worth has zipped from $34.4 million in 1994 to more than $103 million.

Quite a year for a company whose 33-year-old chief executive began the spade work for HCIA as a Hopkins undergraduate majoring in mathematical sciences.

Its customers now include more than 2,000 hospitals, 17 of the 25 largest insurers, 14 of the 25 largest managed care companies, and 21 of the 25 largest drug manufacturers. And it's now setting its sights on expanding to other areas of the hotly competitive health care industry.

What, exactly, does it sell?

"What we really do is take incoherent data and make it coherent," says Jean Chenoweth, a senior vice president. "We take data from all these different sources, make it look the same, clean it up and put it in usable form."

For example, doctors at the Greater Baltimore Medical Center were able to use HCIA data to reduce the length of stay on hip replacements by a day. The HCIA data showed the doctors not only what a hip replacement costs at GBMC compared to other hospitals, but every lab test done and every drug administered.

Such information provides customers the means to measure medical and financial results -- critical details for hospitals and other health care providers struggling to remain competitive. It also helps insurers and managed care companies look for the best results at the best price.

"We can benchmark ourselves against other Beltway hospitals and hospitals that have excellence in areas where we're strong," says Michelle Tobin, GBMC's chief information officer. "It shows us how much we're costing and charging vs. other Maryland hospitals, and we also get a national perspective."

Also, Ms. Tobin says, "When we start a program, we try to predict what share of the market we need to make that a successful business," and HCIA data allows GBMC to track market share and make changes as needed.

HCIA has an edge in the business because of the depth and breadth of its data and because of a proprietary coding system that enables it to get data from lots of different hospital systems and standardize it.

"HCIA operates within a niche in the health care system," says Steven P. Halper, an analyst for Donaldson, Lufkin & Jenrette in New York. "There are just not a lot of tools out there that provide bench-marking analysis to compare hospitals."

"There might be people who could come into the market and compete with them, but they'd have to catch them first," says Eleanor H. Kerns, a Boston-based analyst with Alex. Brown Inc., which was an underwriter for HCIA's two stock offerings last year. "There may be companies that can compete on systems, but it would take a long time to develop a database to compete. They have this vast database, both longitudinally [over time] and clinically rich."

"Clinically rich" means that the data shows not just overall costs and length of hospital stay, but considerable detail about what was actually done for the patient.

Two types of products come from HCIA's data.

At an average cost of about $100,000, more than 300 customers, such as GBMC, get "decision support systems." HCIA keeps data the client can access from desktop computers, provides benchmarks, and shows the customer how to analyze everything.

At the low end, there are books and reports based on the data, bought by more than 7,000 customers at an average cost of $1,500. An individual book generally costs in the $300 to $400 range.

It is these, not People magazine, that are displayed on the coffee tables in the lobby of HCIA's offices in an Inner Harbor high-rise -- books with titles like "The DRG Handbook: Comparative Clinical and Financial Standards," "Length of Stay by Operation, United States, 1995," and "The Outpatient Utilization Profile: Comparative Clinical and Financial Measures."

Those don't sound like best-sellers, but stock analysts are maintaining "buy" recommendations, despite the jump in share price, based on projections of growth of 30 percent or more over the next few years. Ms. Chenoweth says the company expects to maintain 20 percent to 25 percent internal growth, and will continue to seek acquisitions in addition to the two made in 1995.

L The company certainly had room to grow when it was launched.

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