HCIA consulting unit sold after major losses

Health data firm sells at $122.5 million below purchase cost

Information industry

April 02, 1999|By M. William Salganik | M. William Salganik,SUN STAFF

HCIA Inc., the Baltimore health data company, said yesterday that it had unloaded its ill-performing consulting unit for $7.5 million.

It had paid $130 million for the Denver-based business, then called LBA Healthcare, in 1996.

"At this point, they had written off so much, and it was still a drag on earnings, that just dumping it for a nominal price should be viewed as a positive," said Anthony V. Vendetti, an analyst with Gruntal & Co. in New York.

HCIA, which said in January that it intended to peddle its Implementation Unit, sold it to MECON Inc. of San Ramon, Calif., a health consulting and data company. HCIA said it will take a one-time gain from the sale in the quarter that ended March 31.

HCIA collects data and sells it to hospitals, HMOs and other health businesses. The information allows a hospital to be compared with others and with national benchmarks on the methods, costs and results of patient treatment.

Its revenue, profitability and stock price were all rising when it bought LBA in 1996. But it was never able to generate consulting business from its data customers, and suffered a series of losing quarters and a stock price that dropped from $65 a share just after the LBA deal to below $4 this year.

"It's been a long, hard fall for HCIA and this unit," Vendetti said. "They recognized that they made a mistake, and they want to put it behind them and move on."

George D. Pillari, chairman and chief executive officer of HCIA, said, "This transaction removes HCIA from the consulting arena and returns us to our original focus as an information company with key strengths in data analysis and market research."

Vendetti, who has a "hold" recommendation on the stock, said, "Now that they have their cost structure in place, we need to see evidence that they can grow the core business."

While LBA was a loser for HCIA, MECON said it thought LBA would work well for its new parent. "We're pretty excited," said Eleanor Anderson-Miles, director of corporate communications for MECON. "It's really a wonderful fit for us."

MECON has specialized in "operational" consulting and data for hospitals, studying such areas as staffing and purchasing. Adding the clinical consulting and data capability from LBA will allow the company to provide double services to its customers, Anderson-Miles said. MECON will use the LBA name.

Pub Date: 4/02/99

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