H.I.S.-toryby Vince Ciotti

Episode #104:

Cerner Part 1

© 2013 by H.I.S. Professionals, LLC, all rights reserved.

2nd of Today’s Leading HIS Vendors• We continue the HIS-tory of today’s vendors with

Cerner, whose 2012 HIT annual revenue of $2.6B puts them in a solid 2nd place among HIS vendors:

1. $3.2B = McKesson, née HBOC = Walt Huff, Bruce Barrington, & David Owens 2. $2.6B = Cerner, still run by Neal Patterson, co-founded by Cliff Illig & Paul Gorup3. $1.8B (est) = Siemens, née SMS: Jim Macaleer, Harvey Wilson & Clyde Hyde4. $1.5B = Epic. Gee, I have to wonder, just who was it who founded them? 5. $1.4B = Allscripts, née Eclipsys, also founded by Harvey Wilson of SMS.6. $850M (est) - GE Healthcare, née IDX/PHAMIS: created by Malcolm Gleser7. $597M = Meditech, still run after all these years by Antonino Papallardo8. $375M = NextGen: née Quality Systems Inc. founded by Sheldon Razin9. $183M = CPSI, founded by M. Kenny Muscat & Denny P. Wilkins (who??)10. $156M = HMS (Healthcare Management Systems), Tom Givens & John Doss 11. $150M = Keane, parent giant by John Keane, but HIS div. built by Ray Paris 12. $106M = QuadraMed, née Compucare, founded by Sheldon Dorenfest13. $75M (est) = Healthland, formerly Dairyland, founded by Steve Klick

Three Founders• I must confess I never knew Neal

Patterson (center) and Cliff Illig (right) had a third partner when they founded Cerner: Paul Gorup (left).

• Another interesting pattern in our strange industry: apparently it takes three to tango when it comes to the top three HIS vendors:- #1 HBO = Walt Huff, Bruce Barrington and David Owens- #3 SMS = Jim Macaleer, Harvey Wilson and Clyde Hyde

• And I must start with a sincere thank you to Neal for taking time form his world-wide travels to introduce me to April Martin who fully lived up to this email billing, providing many Cerner details:“Vince .. I bet we can come with some old stuff .. April Martin is brilliant and will help u .. my travel is taking me afar .. connect in a couple of weeks .. good luck.”

PGI, Inc. in 1979• No, not the “PGI” you can Google today in Kansas City that makes

iPhone apps, but rather Patterson, Golup and Illig’s initials, which they used for the first 4 years as the firm’s name back in 1979.– (good thing Gorup came before Illig – check that acronym!)– ((and I must give credit to Neal for that insider joke…))

• These three entrepreneurs met at Arthur Andersen, the giant accounting/consulting firm of the days of the “Big Eight” (check out episode #33 at hispros.com for the story of HIS consulting firms). Arthur was renowned for hiring only the “best & brightest” among young college graduates, then training them in the AA way at their St. Charles training facility in IL.

• We’ll look at each of their individual backgrounds in turn to see what education & family backgrounds prepped them for entrepreneurship.

Neal Patterson• From an article in the Kansas City Star, here’s Neal’s early story in own words:

“I was born in Anthony, Kansas, a small town near the Oklahoma-Kansas border, at the dawn of a new decade—1950, to be precise. The middle of three brothers, I grew up on a farm near Manchester, Oklahoma. My beginnings were pretty humble, but full of lessons. My father and mother were tenant farmers. My family’s water was hand-pumped out of a cistern designed to catch the rainwater off the roof. Our “bathroom” was located on a path outside the house—a real issue in winter. The only source of heat was a propane furnace in the living room, which was a popular place when you returned from the outhouse. Our household phone line was a party line with our neighbors on the west side of town. We were a long and a short (ring); if you needed to call the other side of the highway, our neighbor Mabel had to connect you through the operator console “patch panel” in her home. I remember going to our uncle’s house to see my first color TV. Each time a new technology was acquired that created value in our lives, it was exciting and noteworthy. I was impatient to see more. Perhaps that was the genesis of my interest in technology. I am still a fan of the “next new.”

Education, Nam, and First Jobs• “My first business was Patterson Brothers, where we raised hogs to finance our

college education. My younger brother, Bryan Patterson, received his B.S. in Business Administration and became my father’s trusted partner and successor, continuing to grow the family farm.

• I received my undergraduate finance degree from Oklahoma State University in 1971, and my MBA in 1972. While an undergrad, I served as chapter treasurer of Pi Kappa Alpha fraternity... the Vietnam War was at its peak, and on December 1, 1969, I learned as I watched on a TV in a Stillwater laundromat how external events shape our lives. The draft was reinstated using a lottery system, awarding me with a very low draft number. My service was through the National Guard, as I did my basic training, and I came back for an MBA before starting my career.

• After completing my MBA, I took a job in Kansas City with Arthur Andersen as an information system consultant. This was in the Administrative Services division, which later became Andersen Consulting and then Accenture, the global management consulting, technology services and outsourcing company. At Andersen, I met Paul Gorup and Cliff Illig, fellow twenty-somethings who would later become my business partners.”

Cliff & Paul’s Roots• Thanks again to April Martin for inside stories about early days:

– “Cliff and Neal are both Eagle Scouts. Neal was the youngest Eagle Scout in Oklahoma at one time – which he attributes to his blind, diabetic scout master. Cliff’s first entrepreneurial foray was selling T-shirts at scout camp.”

• Cliff Illig - graduated from the University of Kansas School of Business in 1972 with a degree in accounting and business administration. He was a system consultant and manager with Arthur Andersen in Kansas City, Mo. He is Cerner’s vice-chairman today, and on the Executive Committee of Boy Scouts of America

• Paul Gorup – got his BA in math at Kansas University, and MBA from Dartmouth College. He left Cerner from 1987 to 1999, but returned and is VP of Applications and Data Centers today. – In another cute inside story that April shared, Paul was the

only one of the founding troika to pass the CPA exam at AA. No wonder they started in the clinical side of HIS systems!

Early Days – First Clients• After spending about 6 years at AA, Neal left to form his own

application software company on 9/4/1979. He sold more in that first week than he could do alone, and so later that week, Cliff and Paul met around his dining room table on 9/11 to form PGI.

• The 3 started selling to and working for a variety of industries:– Paul started working with Cook Paint and H&R Block; – Cliff was working with manufacturing and trucking firms; – Neal worked with a healthcare client: MAWD Laboratories.

• Sound familiar? Many HIS start-ups first diversified:- Steve Klick started out as an DP auditor before

forming Dairyland as a consulting & payroll firm.- John Doss worked at Ernst & Whinney prior to

forming HMS to write software for NCR minis.- Another Neal’s (Pappalardo) early client was the

New York City Criminal Justice Department!

Finding a Home in Healthcare• Neal & Co. soon found their niche at 4 nearby hospitals:

– St. John Medical Center (Tulsa, OK) signed as the first development partner with PGI, followed by

– North Kansas City Hospital (North Kansas City, MO), – Saint John Hospital (Leavenworth, KS) and – Research Medical Center (Kansas City, MO). They pioneered the development of PGI’s PathNet.

• What’s a “PathNet?” In the next episode, we’ll step back in time a bit to put both the HIS and LIS industries into a bit of perspective to appreciate why PGI entered this highly specialized field, and how they rapidly grew to dominate it under their new name of Cerner.