Cerner looks to government for growth

Electronic health record provider Cerner is looking to capitalize on a streak of successes in the government market. On an Oct. 26 earnings call, President Zane Burke said that the company was "in the early stages of government business contributing to our growth."

Cerner's government presence has been increasing since winning a $4.3 billion contract to replace a group of separate, siloed legacy systems across the Department of Defense. On Oct. 23, the Military Health System announced that the Cerner solution, called MHS Genesis (with Leidos as the prime contractor and integrator), went live at Madigan Army Medical Center in Washington state.

In June, Department of Veterans Affairs Secretary David Shulkin announced the sole-source selection of Cerner to replace its Vista health records system, citing interoperability with the new DOD system as a driving reason behind not putting the contract out for competition. Recently a federal judge threw out a legal challenge to the planned deal, setting a stage for an award.

The infrastructure at VA around the Vista replacement is also starting to take shape. In late September, VA awarded Booz Allen a task order worth a maximum of $750 million to provide program management, administrative and technical support to the program office charged with managing the Vista replacement and the Cerner integration.             

On the earnings call, Burke said that Cerner was poised to pursue other government electronic health record opportunities at the Bureau of Prisons, the Coast Guard and the Indian Health Service as well as with state-level Medicaid programs.

The Indian Health Service is currently a user of the Vista system. The Coast Guard is in the midst of procuring a new system after a failed effort to implement Epic, the leading commercial health software provider. The Bureau of Prisons conducted market research for a replacement health record system in 2014 but apparently never followed up with a solicitation.   

"That market has become wide open," said Roger Baker, formerly CIO at VA and a consultant with Cerner on the Vista replacement. "I would look at the National Institutes of Health and some other places with potential. Cerner's in a great position for those deals," Baker said.

A report in Politico's Morning eHealth indicated that a VA-Cerner deal could be coming in the first half of November. It's not clear how much the initial contract will cover, but current estimates peg the value of the deal at $18 billion. FCW has been told in the past that the total cost could exceed $16 billion. Burke said on the earnings call that he was expecting a contract by the end of 2017.

That sounds like it dwarfs the DOD spend, but the $4.3 billion for MHS Genesis is just a down payment. Baker said that the DOD contract could wind up costing the Pentagon north of $10 billion, when collateral spending and additions to that contract that have been awarded or are in the pipeline.

On the investor call, Cerner executives wouldn't say what they expect their profit margins to be on the government business. Burke did, however, address concerns that the VA implementation would be the first time Cerner has been a prime contractor in a large government deal.

"While we haven't necessarily been a federal prime contractor, we've been the prime contractor on many, many large implementations. And so, from that perspective, this is not something that's out of the ordinary for us to think about managing and having expertise around managing very large implementations with a number of third parties," Burke said.