Originally published in Business Digest, June 1998

IDX Revisited

by Virginia Lindauer Simmon

This is the kind of story that's fun to write.

Back in September of '85, Business Digest featured the story of Rich Tarrant and Bob Hoehl, Saint Michael's basketball buddies and former IBM-ers who had turned a $12,500 investment in 1969 into a 16-year-old business designing and selling software systems to the medical industry with sales of $20 million. Called Interpretive Data Systems, its headquarters were in a building the article described as "unobtrusively tucked back from Shelburne Road in South Burlington," but with offices in Chicago, Dallas, San Francisco and Philadelphia, and one in Atlanta ready to open. Of its 200 employees, 70 were in the Burlington area.

Tarrant and Hoehl ran the show as a team. In the early '70s, one of their clients was Dr. Henry Tufo, who liked their style and took a chance on them, awarding them the plummy contract to design a system for the University Health Center, which was just being formed. "Fifteen years ago," Tufo said in '85, "we saw medicine going from a cottage industry to a more complex organization of groups of doctors. At the time we were organizing the University Health Center, we knew we'd need an information system. Rich and Bob bid for the job, and they outbid several national firms." He added with a smile, "Probably because they didn't know what they were doing." He described Hoehl as "the best practical computer mind I've ever run into," and said Tarrant "understands his business and has the talent to sell ice cream to the Eskimos."

That was then. Now, Tufo is part of the company, having come aboard in 1995, the year the company went public, as chief operating officer. Other things have changed, too, at the not-so-little company better known these days as IDX.

The "unobtrusive" office has blossomed on its lovely 14-acre campus in South Burlington with a generous lawn, a curving drive and maturing trees (which become an after-dark showpiece each Christmas season). There's 143,000 square feet of space, including the original building and an impressive, new structure completed in two stages -- the second one finished last year. The 200 employees have grown tenfold to 2,000, 650 of them here; 1997 sales were $134.5 million, with total revenues of $251.5 million. According to Hoehl, IDX serves 75 percent of the medical schools in the United States, plus a healthy number of large medical centers. IDX is now the third largest company of its kind in the country, largely because its two leading competitors carry more hospitals. "Far and away, we're the largest for physicians," he says. Overall, while there have been huge adjustments, especially since taking the company public, Hoehl and Tarrant still seem to be the savvy, energetic, likeable guys they've always been.

On the surface, Hoehl's life has probably changed the most in the last few years, because, in 1996, he decided to trade the day-to-day operation of the business for a quarter-time involvement. "I don't have the proclivity to compartmentalize my life," he says, "so I was bringing work home every day for 28 years and driving my wife nuts in the process. I'm a workaholic, and I realized that the only way I was going to stop doing that was to get out of the day-to-day operational stuff." Hoehl hired a successor, Jeff Sutherland, "a Vietnam jet pilot, a Ph.D., a good guy. I'm chairman of the board, now," he says, quickly correcting himself. "Well, I've always been chairman of the board, but it never meant much until we went public. That's when the world changed."

Since going public, the company's stock, which opened at $23 per share, has done well, closing the day of the interview at $41. Hoehl and Tarrant, together, own 48 percent of the shares. Both speak with some degree of awe about the process of becoming a publicly held corporation.

"It forces you to be much more astute," Hoehl says. "In the past, Rich and I had always invested for the future. When you're a public company, you've got to make each quarterly number. That's number one, because we've seen some of our competitors miss their quarterly numbers, and their stock value went to half. Can you imagine losing half the value of your company in a day! That's incredible! We've made 10 straight quarters now, so we're still on track." Hoehl adds that, while the need to change the planning focus to concentrate on quarterly numbers has been a challenge, he believes it's also made them more professional. "You've really got to toe the mark when you're a public company."

Tarrant puts it this way: "Going public helped us focus. One of the best parts -- and I never would have expected this about going public -- was that, while I had heard all the bad things about dealing with Wall Street and stockholders -- the pressures, quarterly numbers, all the stuff that's hard -- what nobody ever said is that they will ask great questions. Wall Street analysts ask great questions. They are very smart people. They focus on an industry. They study the competition. They really make you answer the tough questions. It's had a side benefit that I never would have expected."

Hoehl needed some time to become comfortable with one other thing about going public: knowing that he and Tarrant together own less than half the company. "I think Rich understood better that, even with a 20 percent ownership, you still have control. With me, this less than half thing, you know, maybe I was more myopic." He acknowledges, though, that everything seems fine.

While going public necessitated big adjustments, Tarrant gasps when asked what else is different now. "Wow! The whole world's changed since 1985!" They mention "integrated delivery networks." In 1985, the company's markets were divided into "verticals" and each vertical had its own sales staff dealing in products tailored to those segments. "We've sort of done away with those -- merged and blended them -- so we have a single sales force now," Hoehl says.

"We don't really sell products any more," says Tarrant. "If you look at this company in '85, you could identify, clearly, products. We'd sell a billing product for doctors, a scheduling product for doctors, because that fit the fragmented or cottage industry. Now -- and Fletcher Allen is a perfect example of this -- what used to be a Medical Center Hospital of Vermont, Fanny Allen, University Health Center, Vermont Managed Care, all came together into an integrated delivery network. Health care, which has always been very fragmented, is now maturing, and part of what you see in a maturing industry is a consolidation like the Fletcher Allens of the world. Systems and methodologies are becoming more important in terms of how you manage a mature industry, and that's our business. We provide systems, methodologies, process improvement kinds of things to help this fragmented industry come together and become something more efficient and effective."

Tarrant says that this kind of change forces IDX to change. "Because now, it's not just a billing system. Billing is integrally tied to all the other things they do -- the process, the registration, how you collect data at the front end, how it affects billing. It impacts the schedule, whether the doctor is ready or not. You have to think about how fast you can get patients through the system. So in 13 years, we've gone from a product company to a systems and process company to reflect our customers, who've gone from fragmented, cottage, stand-alone segments into a consolidated, maturing industry."

In light of all these changes and the company's growth, Tarrant says the single biggest change for him was moving from being an entrepreneurial president to a professional company management type of president, or CEO. "An entrepreneur kind of manages everything him- or herself, knows where everything is, can do everything. Entrepreneurs can do a job better than someone they're going to hire, but they need someone to help them. I pride myself on having made the transition to professional management, where the people who report to me are better at what they do than I could ever be. I couldn't do any of their jobs," he says. "In fact, I don't even manage day-to-day stuff. That's the chief operating officer's stuff. As the CEO, I'm responsible for strategy, direction, Wall Street, the investors and waving the flag when we're dealing with big customers. You know, a lot of times, with a CEO, if you just show up, it means something."

He names some of the large medical centers that are customers. "With Mayo, Stanford, Duke, Hopkins -- a lot of times, they just want the CEO to be there to show you love them. So there's a lot of that. And a lot of setting direction, making sure all employees and customers know what our mission is; what our value system is."

Acquisitions have been a major component of IDX's success and growth. Tarrant says a major part of his job is keeping up with acquisition possibilities. "Because there's a billion technology companies out there. And we could buy most any of them because our stock is trading so well, and the currency's good. I get probably two or three requests a day from companies to look at buying them. The trick is, what I have to ask is, 'OK, what's the synergy? How do you put two companies together so that now you really have something?' And that something could be anything," he adds, "it's not just bigger. That's not a goal of ours. We want strategic acquisitions. Developing companies with new technologies. You can creatively put the puzzle together and say, 'Well, if we bought this company, then merge that in, then a year later bought that company, look at how the three of them would work. What if they could start connecting up electronically, those three companies' products? Look what you could do!' "

With offices in Atlanta; Arlington, Va.; Boston; Burlington; Chicago; Dallas; Deerfield Beach, Fla.; Louisville, Ky.; San Diego; San Francisco; Seattle and a satellite in the United Kingdom, there's a continuing need to plan for growth and change of physical plant as well as systems. "The U.K. customer is something we inherited when we bought Phamis last year, and we are watching to see how that goes," Tarrant says, admitting that chances of expansion in the United Kingdom or Canada are slim. He's not enamored of the British National Health Service, which he spent time studying a year ago. "The Labor Party comes in and all of a sudden there's huge changes!" he exclaims. "The bureaucracy, the red tape. I just said, 'No, thank you.' It's so hard to get anything done."

Here, substantial expansion plans are under way, because, although the South Burlington building was completed just last year, the company is starting to outgrow it. "We've just barely completed this building, but as we currently see it, unless we pull some magic somehow, this space isn't going to handle us more than a few years. The problem, ironically, is not that we don't have land," Hoehl says. "Obviously, there's 14 acres out there you can put a building on. The problem is parking." IDX owns property behind the Talbot's shopping center next door, but it's zoned residential. "We're trying to buy some land from the people next door," he says, referring to the auto dealerships to the south. But, eventually, we're probably going to have to expand somewhere. We weren't as smart as IBM," he quips, "or we'd have bought this whole ton of land out there." Tarrant adds that they're facing the same expansion issues in Boston, Chicago and Seattle. "It's just booming."

On the personal front, Hoehl's new schedule has allowed him to "do all those things I always wanted to do but never had time to do." That includes a lot of traveling and discovering the joys of golf. Tarrant finds the time to occasionally pursue golf, boating and deep sea fishing. Both are avid readers.

It's hard to imagine Tarrant anywhere but where he is right now -- happily at the helm of this ship. "It's fun," he says. "You know, the possibilities are endless -- the creativity of putting technologies together, customer bases together. So if you've got all these doctors and you also had all those hospitals, and you had an electronic connection company, now what could you do. All kinds of things are possible."