How Cerner deal could change the EHR market

January 10, 2016

The massive contract could create a ripple effect,analysts say, but impact won’t be clear for years.

What does the U.S. Department of Defense (DoD) deal with Cerner Corporation mean for the broader electronic health record (EHR) market? While the immediate impact will be limited, according to most health information technology experts, the trickle-down effect from the massive contract could ultimately make the project a “win” for small practice physicians as well.
Bruce Kleaveland, president of Kleaveland Consulting, a health IT consulting firm in Bellevue, Washington, expects EHR interoperability to get a significant boost from the initial two-year, $4.3 billion deal to replace the military’s outdated EHR system. (The DoD estimates the project will take 10 years to complete, at a total cost of about $9 billion.)
Cerner, which partnered with Leidos and Accenture on the project, will need to migrate information not only through the DoD healthcare system but also to the Veterans Health Administration and TRICARE, a complex civilian health insurance program serving military personnel, military retirees and their families.

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“It’s not just interoperability within a single vendor, but interoperability across multiple vendors,” Kleaveland says. “To the extent they are able to achieve that and set standards everyone can easily comply with, it’s a very positive thing.”
Mark Anderson, FHIMSS, chief executive officer for the healthcare technology advisory and research firm AC Group in Montgomery, Texas, does not expect the DoD contract to derail Cerner’s commitment or service to its private sector clients either, in part because Leidos and Accenture will be doing much of the actual work on the DoD contract.

Next: Small practice effects

 


“For the software vendor, the value is in selling the software licenses,” he points out. “Leidos and Accenture are in charge of configuration, implementation, and training. Yes, there are software modifications that will be needed, but since the DoD wanted an off-the-shelf product, the sale will not adversely affect day-to-day operations for Cerner.”

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Anderson does not expect Cerner’s victory over Epic Systems-which had partnered with IBM and Impact Advisors in bidding on the contract-to alter the balance of power among in-patient EHR vendors, where the top four companies (Epic, Cerner, Meditech, and CPSI) already control about 80% of the market.
“Eighty-three percent of hospitals already have a product. They are not going to replace a Cerner with an Epic. They’re not going to replace an Epic with a Cerner,” Anderson says. “If Allscripts would have won, it would have made a bigger difference for them because they are a relatively smaller player than Epic or Cerner.”



Small practice effects


In the small-practice EHR market, where Cerner’s presence is limited, the deal’s impact may be even less noticeable. Kleaveland believes Cerner’s ties to the DoD contract may cause smaller practices to discount them because physicians will perceive Cerner “as way too large to meet the very specific needs of a smaller practice. This deal, in my opinion, will marginalize Cerner as a small practice vendor.

Next: The shakeout in the ambulatory market

 


“They were never very big into it anyway, but this will further enhance the notion that Cerner is really not intended for the small practice market,” Kleaveland adds. “They don’t have the corporate focus for it. They are involved in world domination. They don’t have time for the small guy.”
Cerner, however, disputes Kleaveland’s assertion that small-practice physicians are no longer its focus and vows to maintain its commitment to “all our clients, including physician practices.”
“Keep in mind that the Department of Defense has chosen Cerner’s commercial product–an off-the-shelf solution that’s already built and implemented in thousands of facilities in more than 30 countries worldwide. Cerner’s Investor Owned and Federal Government organizations–a separate group of resources than those dedicated to our physician practice business–will manage Cerner’s relationship with the DoD,” Cerner said in a written statement to Medical Economics.

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The shakeout in the ambulatory market is likely to continue as consolidation reduces the number of players in the smaller practice segment. The Cerner vs. Epic decision is unlikely to alter that landscape or create ripples across the broader industry.
“For Cerner, which has struggled with its footprint, the DoD is a big customer so it tends to solidify that, assuming they can pull it off. Otherwise, I am not really sure it has much impact on the broader EHR market,” notes Robert Rowley, MD, a family practice physician in Hayward, California, chief medical officer at Flow Health in San Francisco, and a health IT consultant.
Jacob Reider, MD, chief strategy officer at Kyron, a startup focused on advancing personalized medicine, and the former deputy national coordinator for the Office of the National Coordinator for Health IT, believes Cerner and its partners may encounter unexpected hurdles as they attempt to mesh their commercial product with the military health system’s uniquerequirements.

Next: Interoperability challenges

 


“Health IT companies make products that were developed for the markets into which they currently sell,” Reider explains. “The products were not developed … to meet the needs of a very diverse, very complex, very politically charged, and in many ways very dysfunctional organization. I can tell you that some people in the companies not selected are actually breathing a sigh of relief.”
He suggests the real winners in what is officially called the Department of Defense Healthcare Management Systems Modernization (DHMSM) deal may be Epic and Allscripts, the two companies passed over in the final selection process. “It will enable the companies that were not selected to focus on the existing market,” Reider notes. “They won’t be distracted by market requirements that don’t exist in the private sector.”



Interoperability challenges


In announcing the winner of the DHMSM contract, DoD described the Cerner-Leidos-Accenture bid as a “clear best value.” Judy Hanover, MBA, research director for International Data Corporation, an information technology consulting firm based in Falls Church, Virginia, suggests the lower-than-expected price of the bid may signal a continued downward trend in EHR pricing. She says the initial $4.3 billion contract was “less than half of what we expected” and indicates the premium the DoD placed on value and return-on-investment when making its decision.
“There’s a significant premium on pricing in the software market when we look at EHRs.” Hanover says. “The price point of the DoD deal was definitely a bellwether of change, but one of many that we have noticed in the market in the private sector.”  She credits the development of cloud-based EHRs that offer metered pricing with pushing down prices in the private sector, a trend “echoed in the government deal,” she says.
Hanover notes that the DoD’s emphasis on interoperability also favored Cerner, because it likely viewed the company as having a better track record in achieving information exchange in “more disparate environments.

Next: Further challenges

 


“Generally speaking, none of the products on the market now generally deliver interoperability in an ideal form,” Hanover says. “Both Epic and Cerner talk the talk in terms of a roadmap that would lead toward greater interoperability, but I think Cerner is a little more convincing. But we need to see results to verify those claims.”


Cerner President Zane Burke told Medical Economics that as the alliance moves through the early months of the massive DoD contract, he is confident about the deal’s long-term benefits for EHR development and healthcare in general.
“Some of the challenges and things the DoD was looking for as part of this [contract] around security, interoperability, [and] telemedicine are all things that need to be solved by all of healthcare, not just military medicine,” he says.
The Cerner EHR not only will need to achieve interoperability with a wide range of private healthcare facilities and providers, it must also enhance information sharing with the VA’s Veterans Health Information Systems and Technology Architecture (VistA) EHR, an open-source, homegrown system that traces its roots to the 1960s.
Reider doesn’t doubt that the DoD contract will improve interoperability, but he suggests the impact in the private sector will be small because currently there is a “net sum of zero motivators” for healthcare providers to share information. He suggests that a shift to value-based care will be the major catalyst for change.
“As we move toward value-based care, as care providers really see the quality, safety, efficiency advantages of sharing information and that is paired with better financial outcomes for each of these institutions, that is what will cause interoperability to succeed,” he says.

Next: No shift in 'balance of power'

 



No Shift in ‘Balance of Power’


During the lengthy procurement process, most industry insiders viewed Wisconsin-based Epic as the frontrunner, in part because it tops most rankings of EHR market share and physician satisfaction. Thus, “it was refreshing and interesting to see them make a different decision,” Hanover says.
Burke refutes any suggestion that the company will get bogged down by the DoD contract, pointing to the numerous large-scale implementations the company has been a part of such as HealthSouth, Universal Health Services, and Ascension Health.
“When you look at the scale of the DoD project, it fits in a top 10 scenario, but probably not a top five in terms of size [of Cerner EHR implementations],” he says. “We’ve been doing big, large projects. The difference here is the impact we can have on the troops and their families and the way these men and women and their families go between military healthcare and private healthcare.”
Burke says physicians attending the Cerner Health Conference in October responded positively to the DSMHS news and anticipate a positive spillover effect. “They view this as a very good thing,” he says. “They are going to benefit from both the intellectual property development as well as some of the workflow pieces that come out of that from the DoD.”
Rachelle Blake, PA, MHA, chief executive officer for Omni Micro Systems, a health information technology development and consulting firm in San Francisco, suggests the DoD decision may serve as a wake-up call for Epic.

Next: Who holds the keys to success?

 


“Epic is going to have to take a close look at their worldwide implementation strategy following some major recent stumbling blocks in Cambridge in the UK and elsewhere, and perhaps this will provide an opportunity to take a closer look at forming better team alliances with partners with deep implementation successes, like Cerner has done here with Leidos and Accenture,” Blake wrote in an email response to a query from Medical Economics.
While much of the attention regarding the DoD decision has focused on the EHR vendors, Cerner’s partners are more likely to hold the keys to success.
“There’s a lot of customization planned,” Hanover says. “The work that Leidos and Accenture do is critical. In the end, this might not even resemble a commercial Cerner implementation.”

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