Medic alert.

• Author: Williams, Christopher C.
• Position: Medic Computer Systems Inc. - Includes related article on Charlotte Gastrointestinal use of Medic's equipment

Many investors were, and they've made a fortune on one of the hottest companies in health care.

Medic Computer Systems Inc. seems to have found a healthy niche - providing computer systems to private-practice doctors. The Raleigh-based company's sales and profits are growing 25% a year. And through June its stock price had soared a heart-stopping 1,025% since it went public four years ago.

"They're in the right market with the right products at the right time," says Sally A. Yanchus, an analyst with New York-based Punk, Ziegel & Knoell. What makes everything so right? Managed care.

HMOs and other insurers are pushing doctors to lower their costs. That's forcing them to run their practices more efficiently, and many are doing that by computerizing their practices. Doctors' desire to boot up has helped spawn a $9 billion industry for health-care information systems.

As physicians venture deeper into the technology age, Medic has aggressively positioned itself to be their guide. The market is significant: There are 570,000 doctors in private practice in the country, and, Medic notes, about 70% of practices now use computers or computer services.

Medic, which employs 1,050, sells the computer systems it designs to smaller physician practices of one to 150 doctors. About 38,000 doctors use Medic's products at more than 9,000 medical practices in 47 states. Medic wants its customer base to swell to 100,000 physicians by the year 2000.

But in an industry such as health care, which is careening from one transformation to the next, it's easy to run off the road. Medic is finding, for example, that the industry is shifting away from its main market - groups of fewer than 25 doctors - and consolidating into larger practices, which demand more sophisticated and powerful computer systems than smaller groups. Medic has had to play catch-up.

Some investors may be concerned, Michael Knepper says, "that the company isn't making moves to migrate up the food chain." The San Francisco-based Volpe, Welty & Co. analyst points to Cycare Systems Inc., a Scottsdale, Ariz.-based competitor that also focused on the small-practice market. Over time it found it harder to grow in that narrowing segment, he says, so it sold out to Atlanta-based HBO & Co. "The next shoe to fall could be Medic," Knepper says, "unless they make a dramatic move, a dramatic acquisition of strategic technology."

But Medic is not about to sit still and let the market pass it by. It is making acquisitions and introducing new products. "The company is well-positioned," Yanchus says, "and its growth will be greater than the industry's." Which, she notes, is expected to be more than 22% a year.

Medic got its start 14 years ago, co-founded by John P. McConnell, David A. Craven and Alan W. Winchester. McConnell, the CEO, ran the company from the start. Craven wrote the software; McConnell and Winchester sold it. Most of the initial $25,000 investment went toward buying a computer. They demonstrated their first system to a group of physicians who sat on cardboard boxes in Medic's office in Raleigh.

They soon hit the road, giving seminars to physician groups across the country and pitching their products, mainly medical accounting software. On one snowy, midnight drive to Detroit, their U-Haul, which held basically the company's entire assets, nearly slid into a ditch. But Winchester righted the car, and Medic's founders have hardly looked back since.

The founders sold the company in 1985 to Virginia-based Planning Research Corp., gaining the financial muscle to expand nationally. But in 1986, Medic got swept up in the mergers-and-acquisitions wave on Wall Street: PRC was bought by Connecticut-based Emhart Corp., which in turn was bought by Maryland-based Black & Decker Corp. in 1989. In 1990, McConnell, who continued to run Medic, bristled under the tight reins of his conglomerate bosses and bought back the company with the help of several employees and two Charlotte venture-capital firms. By then Craven had left to start his own billing service.

Winchester left to get a master's of divinity. He returned to Medic in 1992, the year it went through its latest transformation. Management took the company public in a $23 million offering. Revenues grew from $75.7 million (including some later acquisitions) in 1992 to $143 million in 1995. Net income increased from $7.9 million to $15.4 million, though it took a dip in 1993 when President Clinton's push for healthcare reform created uncertainty in the market. Doctors became reluctant to shell out any money until they knew what changes lay ahead. Now, McConnell says with...