Xerox Joining Health Care Fray

Last Updated Sep 28, 2009 11:36 AM EDT

While Xerox has been reinventing itself as a "document management" company, the name that became eponymous with photocopying has quietly shifted into lucrative health care industry. Its acquisition of outsourced services vendor ACS [Affiliated Computer Services], announced today, will further its ambitions in this market.

The deal also perpetuates a trend several years in the making, epitomized by HP's acquisition of EDS last year and Dell's deal to acquire Perot Systems earlier this September. These deals allow equipment vendors to diversify their revenue streams, and append higher-margin services deals to their hardware sales. It's odd when you consider that only a few years ago the pendulum was swinging the other way (as exemplified by IBM's 2004 divestiture of its hardware business to Lenovo so that it could focus on software and services). Clearly these deals are as much a function of external circumstances as they are deeply-held business philosophies professed by the executives during their press conferences.

In today's environment, the availability of stimulus funds in the health care industry is clearly playing a role.

Xerox CEO Ursula Burns tried to downplay the importance of health care as a driver for the deal, but ACS CEO Lynn Blodgett let the cat out of the bag during a Webcast Q&A with reporters. Asked to explain how the deal is more than a simple cost-saving exercise, Blodgett brought up the health care industry. He explained that while ACS has heretofore helped health care providers reduce administrative costs, the companies see a much bigger opportunity where the actual provisioning of health care is concerned. According to Blodgett, only 2 percent of health care costs are related to administrative expenses, while the balance is a result of the actual delivery of health care. Technology developed by Xerox, particularly in the area of document management and imaging, "will make it better, faster, cheaper," to deliver high-quality health care, Blodgett said.

The American Recovery and Reinvestment Act includes $20 billion for health information technology that improves the quality of health care, reduces duplication of services, and limits errors, with the potential of saving hundreds of billions of dollars each year.

According to Blodgett,
Xerox has a tremendous capability in the area of unstructured data-- There are hundreds of millions of health care claims forms and images, and with the technology Xerox has created to deal with unstructured data, we have the ability to do more analytics and drive towards more outcome-based health care solutions-- That's one example of how the combination of these companies can make a huge difference.
Burns and Blodgett emphasized that the deal will pair a services company with a very complementary technology company; Burns noted that Xerox technology will help ACS serve its customers more efficiently, and its global footprint will enable the services vendor to grow its international business. But as Computerworld's Patrick Thibodeau noted during the Q&A session, the deal comes hot on the heels of Dell's acquisition of Perot Systems, which, like ACS, has a large presence in the health care industry, and also has visions of stimulus dollars dancing in its dreams. Thibodeau writes:
Perot, which says that about half of its $2.8 billion in annual revenue is derived from health care projects, is in a good position to gain a significant chunk of the $36 billion the federal government is poised to spend on IT related health care projects. Even before-- Dell [announced] plans to buy Perot, the PC maker and IT services firm had agreements in place develop platforms dedicated to electronic health care applications.
As the economy picks up, and health providers running new and complex IT systems require even more hand-holding from the likes of HP, Dell and Xerox, those vendors will eventually spin out their combined health care technology-plus-services units into independent entities -- because today's opportunity for synergies is tomorrow's opportunity for "maximizing shareholder value."
  • Michael Hickins

    Michael Hickins has written about technology and business for BNET, InformationWeek, InternetNews.com, eWEEK -- where he was executive editor from 2007-2008 -- The Curator, Pseudo.com, Multex Investor, Reuters, and Conde Nast's WWD.com. Hickins is the author of The Actual Adventures of Michael Missing, a collection of short stories published by Alfred A. Knopf in 1991. He also published Blomqvist, a picaresque novel set in 11th century Europe, in 2006. Hickins remains passionately interested in the intersections of business, technology, politics and culture, and endures a life-long obsession with baseball. He is married with two children and lives in Manhattan.