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BREAKING: Cerner to Buy Siemens Health IT Division for $1.3 Billion; EXCLUSIVE: Cerner President Speaks First to HCI

August 5, 2014
by Gabriel Perna and Rajiv Leventhal
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In one of the biggest deals in healthcare IT history, the Kansas City, Mo.-based Cerner Corporation is acquiring Siemens healthcare information technology business for $1.3 billion.

The deal will make Cerner the top revenue-earning company among U.S. electronic health record (EHR) vendors. Cerner and Siemens AG agreed upon the deal that will combine R&D, knowledgeable resources, and complementary client bases. Specifically, Cerner says the combined company will have 20,000 associates in more than 30 countries, 18,000 client facilities, including some of the largest health care organizations in their respective countries, $650 million of annual R&D investment, and a projected $4.5 billion of annual revenue.

According to an industry source, the deal is a defensive play against the Verona, Wisc.-based Epic, which has won a significant share of new hospital and health systems’ EHR contracts over the past few years. The deal with Siemens would add to Cerner’s market share and customer base.

However, in an exclusive interview with Healthcare Informatics, Cerner president Zane Burke said that was not the case at all. “There are lots of ways to actually figure out who [the top revenue producer is] in this marketplace, and actually, Epic is not the largest as of today—another competitor of ours probably is,” Burke said. “Cerner is doing incredibly well today. We didn’t need to make an acquisition, nor were we even looking for one,” he added.

Burke said that the fit with Siemens was “great,” and that Cerner is looking forward to adding some of Siemens’ additional skill-sets such as revenue cycle and connectivity through the clinical workflow process. Also noteworthy, Burke added that the RIS/PACS pieces of Siemens would not be part of the merger and would remain with Siemens separately.

Cerner says that the acquisition will have no effect on support for Siemens Health Services core platforms and current implementations will continue. The company says it plans to support and advance the Soarian platform for at least the next decade.“This means interoperability will start at home, and while we have been at that for quite a while, this is one more way to do that,” said Burke.

Burke said the main significance of the merger, in regards to the health IT industry, is getting its client base the tools they need to succeed in the ever-changing healthcare environment. “I have never seen the need for better or more efficient tools than our clients need today. We want to be able to drive innovation in a better way, advance that medical practice, and then for us, it does create some complementary global elements. There are countries we are strong in as well as countries they are strong in, and that’s a very positive thing for healthcare,” Burke said.

The deal had been reported as rumor on Twitter, by Healthcare Informatics and others, a few weeks ago for $1.2 billion. According to the industry insider, the two sides argued over the amount for a few weeks, with Cerner wanting to buy the division at the $1.2 billion price and Siemens wanting to sell it at $1.4 billion. They met in the middle and a deal was struck.

According to Burke, the two sides have been talking for about seven months and “a deal really come together in the last 30 days. As far as we knew, there were no other bidders involved. This was just about us and them,” Burke said.

Earlier this summer, Siemens was rumored to want out of the health IT business to focus on their energy and industrial businesses. In a statement, Hermann Requardt, CEO Siemens Healthcare said: “An increasing number of country-specific reruirements, many resulting from US healthcare reform, make it increasingly challenging to achieve sufficient scale effects. Going forward we will focus on the development of information systems that support our businesses in laboratory diagnostics as well as imaging and therapy.”

The transaction is expected to be more than $0.15 accretive to Cerner’s non-GAAP diluted EPS in 2015, and more than $0.25 accretive in 2016.