Philips' $280 million acquisition of Stentor Inc. – announced July 6– signals yet another initiative from a major healthcare IT vendor to become an end-to-end provider of clinical information technologies in a period of intense merger and acquisition activity. The deal will make Philips the second biggest player in the $1.8 billion picture archiving and communication system (PACS) market, behind only GE Healthcare, which owns about a quarter of all installations worldwide.

The good news for Brisbane, Calif.-based Stentor is that it will become the global headquarters for Philips' PACS product line. Stentor president Oran Muduroglu said given the company's past growth and estimates of 50 percent annual growth in the foreseeable future, there will be no contraction in Stentor's 115-person workforce as a result of the deal.

"We anticipate that we will expand quite significantly," he said in an interview late last week. "There appears to be lots of work and opportunities ahead."

Current Philips customers were assured they won't be left behind. Stan Smits, senior vice president of Philips Medical Systems, said EasyAccess PACS customers can count on the company's ongoing support for the current product line, although he said, "Over time, if they want to move to the new Philips iSite PACs, they will have the opportunity to do so."

Smits said Philips would adopt Stentor's unique pay-per-study business model. With the number of radiology studies expected to grow between 7 and 9 percent per year, the model provides a reliable revenue stream while also increasing provider needs to store and distribute the resulting data cheaply and efficiently.

Smits also hinted that a similar pay-per-use model could be adopted throughout the entire Philips Medical Systems product suite, although he mentioned no details about how such a shift could be implemented. Smits stressed that the acquisition will enable Philips to broaden its healthcare offering to include an integrated electronic patient information system. It already has a partnership agreement with Epic to produce an electronic health records, and the Stentor PACS acquisition will enable Philips to integrate medical images to such records.

Analysts Ralph Reyes and Jeremy Bikman of KLAS Enterprises said Philips has been on this track for several years.

"When we first heard of the initial moves between Philips and Epic, many of the other vendors pooh-poohed it," Reyes said. "But we felt they leapt beyond the Siemens and the GEs of the world because most of them didn't have a comprehensive hospital information system."

Since then, other companies with a background in imaging have followed suit, most notably Kodak and Agfa, which have filled out their portfolio by acquisition. More recently, enterprise IT companies have made purchases and inked partnership agreements to reach into the PACS market. IDX – which previously relied on Stentor iSite PACS products – recently acquired Real Time Image. Eclipsys has signed a deal with Sectra medical Systems – which until now supplied Philips with its PACS offering.

Smits estimated Philips would gain a greater share of the medical IT systems business, currently worth $24 billion a year.

The Stentor acquisition will provide more than just revenue to Philips, Muduroglu said. The company, founded in 1998, is considered a technology leader in the PACS field and has been rated the top PACS vendor by KLAS Enterprises for two years running, Bikman noted. That cache should help Philips take on GE and its market-leading Centricity PACS.

"If Philips plays this right, it could be an incredible win for them," Bikman said. "Stentor has a reputation for treating its customers very well…"

GE Healthcare officials were nonplussed, however. The company went to the extraordinary step of responding to Philips' announcement by saying the acquisition "confirms the importance of what GE Centricity PACS has been delivering to clinical for years: quicker access, earlier decisions and greater confidence."

In a statement mailed to the healthcare information technology trade press, GE said "We are the pioneering medical equipment manufacturer that developed and built diagnostic imaging equipment and PACS systems years ahead of other vendors… With more than 400 enterprise PACS installations in more than 50 countries, GE continues to be a leader in the PACS marketplace."