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Analysts: Cerner Corp. a better fit than Epic for big DoD contract

In something of a surprise, Cerner Corp. beats out archrival Epic Systems Corp. for coveted $4.3 billion U.S. Department of Defense EHR contract.

Cerner Corp.'s reputation for greater interoperability, more mainstream corporate culture and experience of its bid partners ultimately proved to be key factors that likely helped the No. 2 EHR vendor beat out archrival Epic Systems Corp. for a coveted $4.3 billion contract to modernize the U.S. Department of Defense (DoD) EHR system.

In something of a surprise, the partnership of Cerner Corp. and systems integrators Leidos, Inc. and Accenture Federal Services squeezed out finalists Epic and its partner IBM, as well as a team made up of Allscripts Healthcare Solutions Inc., Computer Sciences Corp., and HP.

The potential 10-year contract -- the deal includes a two-year initial period, two three-year extensions and a two-year award term -- for the DoD Healthcare Management System Modernization project would eventually be worth more than $9 billion.

Cerner officials said they would not comment on the contract until the company's second quarter earnings media conference call Aug. 4.

As reported by the DoD news service, Christopher A. Miller, the Defense Healthcare Management Systems program executive officer, said: "Even apart from the wartime requirements, the patients we serve are frequently on the move, as are our caregivers, so it is very important to have a highly integrated system that is portable to serve the needs wherever they may be required.

"Today is not just about picking a software vendor," Miller continued. "Today is really about making sure we provide the right team that will provide the services and all those things that are necessary to meet our objectives."

Lower than expected price tag

Also surprising to many observers was the relatively low value of the project, which had previously been estimated to be around $18 billion over ten or more years. Epic has typically been the most expensive system.

The one thing that really struck me is the value of the contract is a little lower than we thought.
Judy Hanoverresearch director, provider IT strategies, IDC

"The one thing that really struck me is the value of the contract is a little lower than we thought. We're seeing a bit of a price reset," said Judy Hanover, research director, provider IT strategies, at tech consulting firm IDC in Framingham, Mass. "Unlike a lot of private EHR deals, this is something the government would have had to justify from a price perspective."

The deal will likely vault Cerner ahead of Epic in terms of number of installations and make Cerner, which acquired the former Soarian EHR unit of Siemens AG last year, the new No. 1 EHR vendor. Cerner, based in Kansas City, Mo., already has surpassed Epic, based in Verona, Wis., in annual revenues.

'Cerner was a better fit'

While Epic was seen as the frontrunner -- as the company has been in recent years in many healthcare systems deals it contested with Cerner -- this time, Cerner turned out to meet the bid criteria better, analysts said.

"A lot of pundits were handing it to Epic and IBM, but I just thought Cerner was a better fit," Nancy Fabozzi, principal analyst for connected health at consulting firm Frost & Sullivan, based in Mountain View, Calif., told SearchHealthIT.

Fabozzi said the Siemens acquisition brought Cerner top analytics technology, seasoned leadership -- such as former Siemens Health Services CEO John Glaser, now a senior vice president with Cerner -- and more robust population health offerings than Epic.

Critically, the contract calls for knitting together 55 hospitals and some 600 clinics in the sprawling DoD healthcare system in the U.S. and abroad, so interoperability with civilian clinics using other EHR systems was seen as a must-have feature.

Epic, meanwhile, has been under attack in Congress and the media for its perceived shortcomings in interoperability. By comparison, Cerner has assumed a more open posture with its high-profile membership in the CommonWell Health Alliance interoperability group and joint projects with providers such as Utah's Intermountain Healthcare and Advocate Health Care, the influential Chicago accountable care organization.

Culture clash may have played a role

Another point of differentiation between Epic and Cerner has been their different corporate cultures.

Epic is a privately held company with little to no marketing or media presence, whose annual user conferences attract attendees in fanciful dragon costumes. Publicly traded Cerner, on the other hand, has a disciplined, top-down management structure.

"Cerner is seen as being more interoperable and they sort of ooze efficiency," Fabozzi said.

Another advantage in Cerner winning the competitive contract, which initially had six bidders, was the extensive federal government experience with Cerner's partners, noted John Moore, founder and managing partner of health IT-specialized Chilmark Research in Boston.

Door opening for European expansion

One major effect of the deal could be to boost Cerner's fortunes in Europe, where it has gained a major foothold with its purchase of Siemens, which was founded in Germany, Moore said. If Cerner succeeds in essentially building a nationwide network in the U.S., it can show European countries with single-payer healthcare systems that it could do the same there.

"That would demonstrate that Cerner is a safe choice," Moore said. "Europe and Asia is where the market is headed, and this deal certainly gives Cerner something to sell."

Fabozzi added that the same phenomenon could develop in the U.S. in five years or so, when existing Epic customers look to either update or replace their systems. Those companies may look to Cerner, if it has successfully executed the DoD project.

Let us know what you think about the story or the battle between Cerner Corp. and Epic Systems Corp.; email Shaun Sutner, news and features writeror contact @SSutner on Twitter.

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