I'm Praveen Suthrum. After 13 years of building and running NextServices, a healthcare technology/management company, the challenges and opportunities in the industry leap out at me. I also get early access to industry trends and changes.

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4 Takeaways from Practice Fusion EHR's $100M sale to Allscripts

4 Takeaways from Practice Fusion EHR's $100M sale to Allscripts

Two years ago, Practice Fusion, an electronics health record company was rumored to be valued at more than a billion dollars.

Last month, the company sold for a fire sale price of $100 million.

Having raised $157 million, you can imagine that most people didn't make any money. Apparently parachute deals help senior executives and the board make a few million (including $2million for the company lawyer).

But nothing really for employees who stayed on and ordinary shareholders. Few who exercised options earlier will even lose money via taxes.

Read: Employees at Practice Fusion expected IPO riches, but got nothing as execs pocketed millions (CNBC)

Apparently, the company has been looking for a buyer for 2+ years. And got offers ranging from $50-$250M. Allscripts, an EHR giant that recently acquired McKesson's Health IT portfolio, initially offered $250M. But got nervous after a Department of Justice investigation last year (of another company - eClinicalworks which settled with prosecutors for $155million).

Read: Allscripts offered to buy Practice Fusion for $250M. A DOJ investigation changed everything

That's the story. What does it all mean?

The evolving healthcare industry landscape will show what it eventually means. But here are a few takeaways.

1) A nod to the cloud

The EHR world's market leaders are Cerner, Epic and Allscripts. All of them are client-server based. Epic is based on 52-year old MUMPS technology.

In a world of client-server dominance, Allscripts acquisition of Practice Fusion is a nod to the cloud. That's clearly where the industry is going. Or, will be compelled to go.

Here's what the company's president Rick Poulton said: “Plus, Practice Fusion’s affordable EHR technology supports traditionally hard-to-reach independent physician practices, and its cloud-based infrastructure aligns with Allscripts forward vision for solution delivery.”

2) It's tough to make 'free' a sustainable business model in healthcare

Practice Fusion started on the premise of offering a free EHR to physicians. And in turn, monetizing de-identified healthcare data. Supported by ads etc.

Investors bought into it. Including Peter Thiel (he wrote the founder a check of $1million in 2011 before leading that round).

Then the valuation game caught up with itself. Investors put in money assuming someone else is going to put in at a higher valuation. Later. But when the company isn't making real cash, the valuation cycle eventually catches up.

Someone says, I can't agree to that valuation - it makes no sense. And then everything goes down-hill. Down rounds begin. Terms change. Dilution for earlier investors happens. People get fired. CEOs get ousted.

The problem with healthcare is that regardless of how fast the world moves, the industry moves at its own pace. Like life and death, the industry whiffs of a certain permanence.

You can't do a Google or Facebook here by offering free service and making money via ads or data. At least, not yet.

3) The landscape is freezing

Industry changes happen like lakes freezing and unfreezing.

Rules of the game shrink. Consolidate. Big boys dominate. They make it harder for each other and others to change rules.

In US, Meaningful Use incentive dollars that spurred the industry have dried up. Tech giants like Apple have made healthcare announcements ("effortless solution to bring health records to iPhone").

Companies like Allscripts bought McKesson (to go after smaller markets), now Practice Fusion. They'll keep looking for more deals to spread their reach.

Tired of their healthcare costs, Amazon, Berkshire Hathaway, and J.P. Morgan announced that they are teaming up to disrupt the industry.

When industry landscapes freeze, it'll take time before it melts again. But because it's healthcare, the freezing - while it's definitely begun - will happen slowly, slowly.

This leaves doors open for specialty and niche opportunities that are small for the big boys to focus on. That means there's no point building a new plain vanilla EHR. But there'll be strong needs for EHRs and products that go a mile deep in specific areas. That naturally plug into the new rules that are bubbling to the surface.

4) Practice Fusion's real asset is its data. But no one's talking about it

Practice Fusion has a dataset of 81 million patient records. Imagine applying AI on that data. Creating newer products for the same target group based on their data.

It may be tough for Allscripts because market commands their vision to focus on getting bigger faster. Not develop cool technology tools.

Practice Fusion's idea was a good one. To build a company around data. But their business couldn't sustain itself until that point where the industry is mature enough to make that data useful.

What's the moral of the story?

Practice Fusion's founder Ryan Howard moved on to build a heart-activity wearable devicecalled iBeat (after differences with the board).

Is there a lesson here? That the healthcare industry is trying to tell us. Perhaps it’s this. 

It’ll be slow. You can disrupt but not quickly or suddenly. You’ll need stable, sustainable business models. The boring stuff makes money. Regulations can disrupt your life. And yes, it’ll all be up in the cloud. Eventually.

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