IRVINE, CA – A player with a small exposure to healthcare IT has announced a major investment in the segment, with plans to focus on selling applications to small physician practices.

Sage Group plc, which offers financial applications to small businesses and in five other industry verticals, has reached an agreement to acquire Emdeon Practice Services from Emdeon Inc., Elmwood Park, N.J.

Sage will pay about $565 million in cash for the practice services division, which had revenue of $304.5 million in the year ended Dec. 31, 2005.

The purchase includes the practice management software, Intergy electronic medical record application, a radiology PACS application and a community health application. Sage will operate the practice services division as a wholly owned subsidiary, said Ron Verni, president and CEO for Sage in North America.

The acquisition does not include the business services portion of Emdeon. However, the deal cements a long-term relationship between Sage and Emdeon to continue to work together, for example on bringing more of Emdeon’s WebMD content into the physician office.

The deal apparently ends Emdeon’s decade-long effort to crack the physician application market. Emdeon, which burst onto the scene as Healtheon Corp. in the mid-1990s and later became WebMD, bought Medical Manager Corp. in 2000 as the Internet craze pumped up the value of Healtheon’s stock. But as the Internet bubble burst, former Medical Manager executives increasingly gained control of the company, which changed its name to Emdeon in 2005.

Emdeon announced in February that it was seeking “strategic alternatives” for the practice services division. It’s continuing to analyze options for its business services segment, it announced in a press release issued Tuesday.

Emdeon’s main lines continue to be its WebMD brand for information delivery; its business services unit, which provide revenue cycle management and transactions; and its Porex plastic products division. Emdeon’s revenues in 2005 were $1.28 billion.

Sage already has about 7,000 physician offices that are using its accounting products, such as Peachtree Accounting. Emdeon has about 20,000 physician offices using its products.

Sage expects to increase revenues as physicians take steps to automate their practices, including higher adoption of electronic health records. Sage also sees opportunities to cross-sell Sage accounting software to Emdeon clients and to improve and facilitate integration between accounting and practice management applications.

“Physician practices, especially small ones, will be looking to streamline their businesses,” Verni said. “It’s important for physician offices, where time is everything, to have one vendor to service all their needs.”

The physician practice management software industry has existed for 20 years and remains highly fragmented. Verni said he expects consolidation as physicians try to move to applications that easily integrate with business-critical software and adopt electronic medical record software.

The acquisition of the Emdeon practice service division gives Sage a quick entry to the healthcare sector and instant credibility, he said.

“The division includes 1,800 dedicated professionals, and we’re buying all that huge intellect and content base,” he said. “We couldn’t build a business and collect that expertise ourselves. What we bring is the dimension of being able to bring technology to the small business.”