What Cerner’s DoD Win Means to Industry

So much ink, so little insight.

Quite a lot has been published on the awarding of the large Dept. of Defense (DoD) EHR contract, but almost all articles are simple rehashes of the press release and occasionally including some basic, on-the-record, public comments made by those in the upper echelons of the DoD selection committee. Once you have read 3 or 4 of these one gets frustrated with the lack of analysis, which I guess is a good thing for folks like us analysts, as that is our bread n’butter and keeps us in business.

So what is our take on this big win by Cerner, Leidos and Accenture…

• Price played an important role as the winning bid came in roughly 20% lower than what was anticipated.
• Leidos was a huge factor in that DoD, for better or worse, knows Leidos well and as the saying goes: “Better to work with the devil you know than the one you don’t.” Margalit did one of the better analyses of this factor.
• Software vendor’s perceived position on interoperability was important, but likely tertiary to previous two.
• Good PR win for Cerner and Epic’s golden glow has faded just a tad.

But it is that third bullet point where the healthcare industry may see the biggest impact from this contract award.

Background:
The three EHR vendors bidding for the DoD contract where Allscripts, Cerner and Epic. Allscripts was never really in the running as their solution suite has had issues, especially on the acute side. That left Cerner and Epic duking it out for the contract and the war of words began.

That war of words centered on the relative “openness” of these two vendors’s solutions and in this case openness was not about open source software, but how easy did these solutions interoperate with solutions from other EHR vendors. Neither had a stellar record in this regard, but Cerner has worked hard to reposition itself as an advocate of open, interoperable systems and was a key founder and architect behind the CommonWell Health Alliance.

While Cerner was joining with several other vendors in the founding of CommonWell, Epic held fast to its integrated, ambulatory/acute solution strategy, encouraging customers to forgo the headaches of interoperating with other EHRs and simply go all in on Epic. This has been a very lucrative strategy for Epic. Even here in Massachusetts, senior officials at Partners Healthcare, which recently went live on Epic, have said that they intend to have all physicians working with Partners, including affiliates, on Epic. If those affiliates balk at moving to Epic, Partners will remove them from future contracts with payers. Talk about tough love. Epic also had some notoriety for not playing well with other EHRs and basically holding hostage patient data by charging hefty transaction fees for access to such, which Epic, under public pressure, rescinded this Spring.

What is particularly interesting is that our latest research on EHR vendor platform strategies found both Epic and Cerner to be roughly equal in providing access to their systems for third party developers, which is to some extent a proxy for interoperability. Who was one of the better ranked vendors? Yup, the third man out, Allscripts.

But we digress.

Looking ahead:
Epic may not have gotten a black eye from this loss, but they certainly took one on the chin. For the last several years, it appeared that Epic could do nothing wrong and was simply rolling up all the large academic medical centers and integrated delivery networks across the country. They were invincible. This loss will take away a little of their luster.

Cerner certainly gets big PR points for this win, but it is unlikely to be a highly lucrative contract for them. They won’t lose money (Cerner is extremely disciplined when it comes to finances) but they won’t make a lot either.

The contract will not significantly drain Cerner resources and existing and future customers of Cerner should not be too concerned. Leidos and Accenture will be doing the heavy lifting, Cerner just needs to provide the software capabilities that the DoD needs, and for that matter the industry.

The biggest impact on the market will be building out interoperability capabilities to support some fairly significant DoD needs. While the DoD has its own facilities, some 400+ located on military bases around the globe, 50%+ of care provided to military personnel and their dependents is from local healthcare providers via Tricare. The new system that Cerner will provide the DoD, must be able to interoperate with systems outside of DoD (those Tricare providers) to create a longitudinal patient record. Certainly Cerner will leverage the work it has done to date with other vendors that are participating in CommonWell but there are a number of EHR vendors that are still not a part of CommonWell, chief among them, Epic.

How Cerner addresses the interoperability needs of the DoD will have broad reaching implications across the industry and bears watching. Our long-term prediction is that Cerner, with DoD’s assistance, will successfully overcome many of the interop challenges we face today. No, it won’t happen overnight, but it will happen and it will be the biggest impact (and contribution) to the healthcare sector writ large.