|Industry||Health information technology, behavioral health|
|Headquarters||Overland Park, Kansas|
|Products||Electronic health record, practice management software, medical billing|
|Revenue||$110 million (2011)|
Number of employees
Netsmart Technologies is an American company that develops and sells health information technology, including electronic health records, especially for organizations and entities in the behavioral health field. It was founded in 1992 although its technology origins go back to 1968 with the founding of Creative Socio-Medics, which it acquired in 1994. Netsmart has since grown via many other acquisitions. It is headquartered in Overland Park, Kansas.
Netsmart Technologies was originally known as Medical Services Corporation. Created in September 1992, this was a holding company which did business under a subsidiary called Carte Medical Corporation. In October 1993, Medical Services Corp. merged its subsidiary into itself and became directly known as Carte Medical. In June 1994, Carte Medical acquired Creative Socio-Medics (CSM).
Creative Socio-Medics had been founded by Gerald O. Koop and John F. Phillips in 1968. It had then been acquired in 1973 by Advanced Computer Techniques (ACT), a New York City-based software company that specialized in language compilers but also engaged in information technology consulting and hosted service bureaus. CSM specialized in delivering software products and hardware and software services in the human services field, specifically for behavioral health providers such as psychiatric hospitals and mental health clinics. In 1989, CSM had stopped sharing physical facilities with the rest of ACT and relocated to Islip, New York on Long Island. CSM had tended to be profitable some years but not other years and was rarely in solid financial shape. By the early 1990s, ACT's other businesses had been closed down and it was motivated to sell CSM as well.
In June 1995, Carte Medical Corporation's name was changed to CSMC Corporation, and in February 1996, the name was finally changed to Netsmart Technologies, Inc. Creative Socio-Medics became the company's operations arm that it did business through.
James L. Conway, who had previously been an executive for a credit subsidiary of ITT Corporation, became president of Netsmart Technologies in January 1996 and its CEO in April 1998. Several former ACT and CSM executives still held executive or board positions with Netsmart, including Koop and Phillips as well as Chief Financial Officer Anthony F. Grisanti and Chairman of the Board Edward D. Bright. Another former executive, Oscar H. Schachter, did legal work for them.
Around 1999, the company began a period of rapid growth, with revenues increasing almost fivefold over the next six years, with both acquisitions and organic growth being responsible. It was especially strong in contracts with the different states. By the end of 2002, the company had 145 employees. Leading up to 2003, the business of Creative Socio-Medics benefited from the phase-in that year of Title II of the Health Insurance Portability and Accountability Act (HIPAA), which required the establishment of national standards for transactions involving electronic health records. The Avatar software suite from Creative Socio-Medics generally cost from $250,000 to $1 million at that time and covered patient tracking, medical records management, and scheduling and billing for both inpatient and outpatient services.
By 2005, Netsmart was the largest information technology provider within the behavioral health care sector, with revenues of around $50 million. That year it acquired its biggest competitor, CMHC Systems of Ohio, which was especially strong in community mental health centers, for $18 million. Conway remained CEO of the merged entity. At this point the Creative Socio-Medics and CMHC names were retired and the company operated solely as Netsmart. By the end of 2005 its profitability streak had reached 30 quarters in a row.
The purchase of CMHC in turn attracted the interest of private equity firms. In 2006, Netsmart agreed to be bought out by two such firms, Bessemer Venture Partners and Insight Venture Partners, for $115 million.
Shareholders then sued the company on the grounds that Netsmart's board of directors had not looked hard enough for a strategic buyer. The acquisition was held up for a while in early 2007 when Judge Leo E. Strine, Jr. of the Delaware Court of Chancery barred the sale until management better explained its decision to sell the company to these two particular firms. This was done and the sale went through. The case, In Re: Netsmart Technologies, Inc. Shareholders Litigation, became influential in delineating the responsibilities of management when agreeing to a private equity buyout.
In 2010, Genstar Capital, another private equity firm, acquired Netsmart Technologies from Bessemer Venture Partners and Insight Venture Partners . New management came in 2011 in the form of CEO Michael G. Valentine and COO Thomas Herzog, both of whom had previously been senior executives at the health care information technology company Cerner in the Kansas City metropolitan area. Conway went into retirement. As a consequence of the management change, Netsmart Technologies relocated its headquarters in that year to Overland Park, Kansas. Many of the company's management functions have moved there, while many development, sales, and legal functions remain in the office in Great River. They constructed a "Solutionarium" with an IMAX-like experience in the headquarters facility to foster collaboration with their customers.
By 2011, there were some 18,000 clients using Netsmart Technologies products or services. The company had 600 employees and revenues of $110 million. Netsmart continued to engage in acquisitions and form alliances, including some in 2012 towards offering cloud services and data mining to provide more powerful solutions for behavioral health providers.