By JOHN MOORE

Today, GE and Microsoft announced a joint venture (JV) that will lead to the formation of a new company (NewCo) targeting the clinical healthcare market sector. The NewCo will be located near Microsoft HQ in Redmond, WA, start with roughly 700 employees and combine the remaining Microsoft clinical products, Amalga UIS and the former Sentillion products Vergence and expreSSO with GE’s eHealth and Qualibria suite. NewCo’s new CEO will be GE’s Michael Simpson, who has been heading up the combined Qualibria-eHealth group since earlier this year after a re-org at GE. Along with this announcement, Microsoft’s Health Solutions Group (HSG) leader, Peter Neupert stated that he’ll be retiring.

Combine the above announcement with Microsoft’s long anticipated sale of Amalga HIS, which went to Orion Health in October, and you are left with Microsoft completely pulling out of the clinical market. Sure, they’ll claim to be still in healthcare by directly selling their horizontal products (e.g., SharePoint, MS Office, various server products, etc.) into this sector and having a stake in this JV, but it is also exceedingly clear that Microsoft will no longer have any direct involvement in this market, that will be left to GE. That being said, Microsoft did state that they’ll hang onto HealthVault, but even here, that is more likely a by-product of no one wanting to take on HealthVault rather than Microsoft’s strong desire to continue to try and build a viable, revenue generating entity out of it. Do not be too surprised if, in a year’s time, HealthVault falls to the wayside much like Google Health did this year.

During our briefing call with Microsoft and GE we learned the following:

Core to NewCo’s objectives is to leverage the joint assets of Microsoft and GE to build out an entirely new platform that will focus on four key areas to begin with:

• Clinical surveillance to identify such things as infection outbreaks within an acute care facility before they run rampant.
• Population health management to facilitate care management processes, which is a productization of work GE has been doing with Geisinger as part of the Keystone Beacon program.
• Reduce hospital readmissions by leveraging analytics to identify patients at risk and initiate appropriate interventions.
• Facilitate transitions in care, which like reducing hospital readmissions, is something that is on the mind of every senior healthcare executive we talk to.

These four target areas are nothing new or inspirational as just about every vendor we talk to has some program in place or under development to address these four areas as well. The product roadmap does not have much hitting the market until 2014.

Financial terms were not disclosed but our guess is that Microsoft contributed IP and the development team behind these products. In return, they will receive some sort of royalty stake in future sales. GE will lead the new organization, contribute its Qualibria/eHealth IP and GE sales and marketing will take the product(s) to market. Thus, most sales and marketing folks and other support staff in Microsoft’s former Health Solutions Group are being shown the door, which is unfortunate as we head into the holidays.

A couple of things come across as a bit ironic. First, Microsoft executives time and again stated that they knew what they were getting into when they entered this vertical and that it would take patience to build a viable presence. So much for patience. Second, Microsoft sold off the Amalga HIS product as many a potential HIT partner was wary of partnering with Microsoft as long as Microsoft had under ownership an EHR. Now what does Microsoft do, it joins in partnership with a struggling HIT vendor in the acute care market. Will any of the other major or even second tier HIT vendors partner up with the GE/MSFT NewCo – don’t bet on it.

The announcement also raises more than a few questions such as:

What becomes of Microsoft’s existing HIE contracts, particularly the one they pulled all the stops out to win, the Chicago HIE which is now under development?

What becomes of Microsoft’s recently announced relationship with Orion Health? Will Orion now be partnering with NewCo, which is essentially GE?  GE, with its own HIE solutions targeting enterprise accounts, is a direct competitor to Orion.

What becomes of HealthVault Community Connect, which combined Amalga with HealthVault and SharePoint? Is this now a dead product or will NewCo simply use the Centricity patient portal?

As you can probably tell by the tenor of this piece, we’re not a big fan of this announcement and are disappointed that Microsoft has decided to fold-up its tent and retreat. Unlike the legacy HIT vendors in this market, Microsoft could lay the claim to some neutrality and potentially build-out an Amalga-based ecosystem platform. But business is often not kind to those that have an altruistic bent and in this case Microsoft simply made a clear-cut business decision to unleash an asset that was not meeting internal metrics despite what some believe may have been an investment in excess of $1B in the last 5 years to build-out HSG.

Once again, another company with grandiose plans to change healthcare has quietly walked away leaving this market to the incumbent HIT vendors. We also do not see strong prospects for the future build-out of a robust ecosystem of partners on the combined Amalga-Qualibria platform that NewCo proposes as there are too many competitive issues that just get in the way. We could be wrong on this one, but our guess is that NewCo is likely to struggle as much as Microsoft has in the past for relevance in this fractious HIT market.

John Moore is an IT Analyst at Chilmark Research, where this post was first published.