The repercussions of Oracle’s acquisition of Cerner
The future of clinician-centric innovation may be brought into question as a result of this combination.
Much has been written about this $28.3 billion monster acquisition. Most articles focused on what this means for Oracle and Cerner, yet little has been said as to what this may mean to the broader healthcare IT sector.
In my musings below, I hope to clarify some of the longer-term repercussions of this acquisition.
Oracle knows how to make big enterprise software acquisitions – and they’ll profit from snapping up Cerner.
Oracle is arguably the most successful company in making large enterprise acquisitions and capitalizing upon them; I wrote about this back in 2008, when I pondered what would happen if Oracle acquired Cerner.
Oracle has made a number of such acquisitions in the past, including Peoplesoft. Core to their model is stripping a company down to its bare essentials and raising maintenance revenue fees.
It remains to be seen how Oracle will treat Cerner going forward, as they have set up Cerner as a standalone division within Oracle, and that may provide some autonomy. Also, unlike previous acquisitions in which Oracle had some domain expertise, Oracle has exceedingly little in the provider market and will be heavily dependent on Cerner to make this acquisition work.
That being said, Oracle paid a lot for Cerner, and achieving a return will all come down to execution, especially in taking Cerner into new markets overseas.
Also, with such a large investment in Cerner, it remains to be seen what Oracle’s appetite will be to fund research and development within Cerner, which is sorely needed. My hunch is that Cerner will have to rely on its own internal resources to fund such advancements.
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How will customers fare?
This is a win for Cerner investors; however, the jury is out on Cerner employees and clients. Cerner investors have found a good exit with the Oracle purchase of Cerner, especially as it is an all-cash deal. They are happy.
But to cover the costs of this acquisition, Oracle will likely continue Cerner’s selective closure of less profitable lines of business with subsequent layoffs.
Cerner clients, who have seen a drop in Cerner’s support and product enhancement capabilities — by and large a function of resources dedicated to the massive VA/DoD rollout — will not see any drastic improvement in service and feature and function rollouts for the foreseeable future.
However, there will be two glimmers of light. The first will reside in Cerner’s new revenue cycle management platform, RevElate, that will become generally available later this year. The second is their life sciences data play, Cerner Enviza.
Oracle has a wealth of experience in the FinTech arena that can be leveraged to further build upon RevElate, a long overdue viable RCM solution from Cerner. Oracle also has a very robust business in the life sciences market, and Enviza will be an excellent tuck-in for Oracle.
An obscured cloud prognosis
The acquisition will not accelerate the move to cloud for Cerner; if anything, this will disrupt advances to date.
Much has been reported, including from Oracle, about how this acquisition will accelerate the growth of Oracle’s public cloud initiative, which is way behind Amazon Web Services, Microsoft and Google in the market. This is a feint to satisfy Oracle investors, many of whom were not that supportive of this acquisition, having preferred Oracle put that cash directly to work on the cloud.
Several issues will hinder taking Cerner to the cloud:
- First is the current deal Cerner has with AWS. There are likely both contractual obligations and client obligations to continue to support those solutions (HealtheIntent and CareAware) that currently sit on AWS
- Secondly, although Cerner is built on top of Oracle’s database, it still will not be a walk in the park to migrate Cerner’s core product, Millennium, to the cloud. This will take years to complete.
- Third, in the future, large enterprises will take a multi-cloud approach that will be highly dependent on the use case at hand. Sure, certain applications may reside in a single cloud, but clients will want flexibility to leverage the strengths of other public clouds as well as hybrid.
Lastly, the Kronos debacle also highlights the risk of the cloud, with many healthcare organizations hitting the pause button on their cloud migration efforts.
The competitive landscape
Epic stands on its own and will be the primary beneficiary in the U.S. market, but Oracle’s presence in international markets may tell a different story.
Epic has continued to gain market share on Cerner in recent years after the passing of Cerner founder and CEO, Neal Patterson. Neal was a visionary leader with a strong presence. However, that vision sometimes got in the way of the brass tacks needs of Cerner’s customer base – a strong ambulatory solution and equally robust RCM solution, two capabilities Epic did well.
Despite these losses, Cerner still holds a strong No. 2 position in the U.S. and has been the most successful U.S.-based EHR vendor selling overseas. The ambulatory solution is improving, and RevElate could stem the tide of losses, if not reverse them.
Epic will continue to gain significant market share at the expense of Cerner over the next three to five years, particularly among Cerner’s larger client accounts, as they weigh the risks of staying with the company vs. defecting. But Cerner also has an opportunity to gain significant market share overseas by leveraging the Oracle sales force.
Meditech also will be a beneficiary of this acquisition at the lower end of market, especially the community hospital market, where Cerner had made some inroads. Allscripts and CPSI will see little, if any, benefit from this acquisition.
The real need in the market
What strikes me most is the need to completely rearchitect the EHR, from what was pushed on the market as a result of the HITECH Act, to one that truly supports clinicians in the care of their patients.
This continues a trend of accelerating acquisitions and consolidation among remaining EHR vendors.
Yes, Oracle paid a lot for Cerner, but it was worth it? Cerner is the only target in the entire provider health IT space with such gravitas and market and mind share that was available for purchase. Epic, per CEO and founder Judy Faulkner’s edict, will never go public and is unlikely to be sold. Meditech is still firmly in the control of one of its founders and not for sale.
But the acquisition will trigger a number of future acquisitions in the near future. In the acute care EHR market, Allscripts, as a public company, will likely be acquired at some point. I would not be surprised if a private equity firm buys it and sells off the pieces. NextGen, another public company in the multispecialty ambulatory market will be acquired. CPSI, which serves very small hospitals is a publicly traded company, but it’s hardly a standalone acquisition – it likely will be folded into other EHR acquisitions as part of a roll-up strategy, such as what Harris has been doing lately or even Point Click Care.
Sadly, innovation in the EHR market, which has been slowing, is likely to decelerate further. This saddens me the most. Without a strong competitor such as Cerner, it will be difficult for competing EHR companies to continue to innovate and stay ahead, because there is little motivation. Rather, those R&D resources likely will be applied to sustaining the base and build-out of bare-minimum add-on solutions to sell into vendors’ bases to keep revenue numbers up.
Another avenue that will likely be explored is how to leverage existing provider relationships and clinical data for serving other markets – after all, the EHR market is fully mature in the US. Epic has done very well with this in serving the payer market, and Allscripts is looking at the life sciences market with Veradigm. But in both cases, this does not improve the end product that clinicians use on a daily basis.
By providing a “system of record,” EHR companies are increasingly becoming platforms on which others will build, leveraging those data resources to serve a multitude of end user needs via “systems of engagement.” The recently promulgated interoperability rules will be an accelerant to this transition.
Concluding thought
What strikes me most is the need to completely re-architect the EHR, from what was pushed on the market as a result of the HITECH Act to one that truly supports clinicians in the care of their patients.
I harken back to a visit I had with my doctor just after the massive go-live of Epic at Partners Healthcare in Boston. When I asked him what he thought of Epic, he turned to me and said, “Well, it appears to be good for billing, but doesn’t do a thing for me in the care of my patients.”
It is high time we build an EHR to serve clinicians first, not administrators and the CFO. Who among the incumbents will take up that challenge? Only time will tell.
Reprinted with permission from Chilmark Research (https://www.chilmarkresearch.com/repercussions-oracle-acquiring-cerner)