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More Questions Than Answers on Cerner/Siemens Deal

August 6, 2014
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Will Cerner continue to support Siemens systems or seek to convert customers to Millenium?

When trying to decide how to think about the big news that Cerner is buying Siemens’ health IT division for $1.3 billion, my initial tendency is to set aside the impact on EHR market share or the finances of both companies for a moment, and instead zero in on what the impact is likely to be for hospitals using both legacy and Soarian systems, who are in the midst of trying to attest to Stage 2 of meaningful use. Our reporters are reaching out to a few CIOs at those hospitals to see if they will share some of their thoughts once they have had a chance to digest the news.

When I first heard the official news yesterday, I thought back to an interview I did with Colin Buckley, director of research strategy at KLAS, for our "Best in KLAS" supplement earlier this year:

Each vendor in the acute-care EHR space faces its own particular challenges, he said. In the case of Siemens, some integrated components are still maturing and lack functionality, Buckley said. “There is a perception that Siemens could move a lot faster still. Siemens does have integrated ambulatory and ED systems, but providers that have tried them out, have told us while they are glad that Siemens has made the effort, they are not ready for prime time yet.”

That about sums it up. Everyone I have interviewed has had nothing but positive things to say about CEO John Glaser, M.D. But the fact is, Siemens was at a disadvantage because it couldn’t get to the kind of integration that Cerner and Epic already had. They never got enough of their legacy customer base to switch to Soarian. One question is how does Cerner solve this problem for them?

A few other questions:

• Could Cerner be tempted to move people on older legacy Invision and MedSeries4 Siemens systems to Cerner Millenium instead of Soarian when contracts come up for renewal? In the long run, why support two platforms? Is the deal really about buying access to these CIOs sitting on legacy systems and needing to move?

• We saw that Allscripts struggled, at least initially, with a big corporate and product integration with Eclipsys. Will this deal prove equally challenging for Cerner? We haven’t seen a deal of this size where one vendor buys another with competing health IT systems across the board, have we?

• What will be the impact of the RIS/PAC business not being part of the deal?

• And what will happen to headcount at the Siemens offices in Malvern, Pa.? Traditionally, one of the first moves after a merger is cutting staff to gain efficiencies.....Will John Glaser and other top Siemens execs want to stay? The press release had lots of talk about win-win situations, but it doesn't usually turn out that way, does it?

• What are some other ways this deal could shake up the industry? Could it cause other dominos to fall?

We'd like to hear readers' thoughts (or questions) on this industry shakeup!




You hit it on the head here: Buying access to CIOs. And here's another reason. It's almost 'free'

This acquisition can be financially beneficial to Cerner if they limit the time for supporting two very different product lines.

Considering they are paying $1.3 billion for a company that has recurring revenues of about 1 billion/yr. By cutting duplicate overhead (execs/finance /sales/ marketing/ R&D) you can easily generate profits of $300 million/yr so in 3-4 years the acquisition pays for itself. Of course not all Siemens clients will convert to Cerner products but even if only 50% do that’s all gravy with a minimum sales/marketing expenditure.

At this point you might say 'but what about the customers'? The reality is Siemens sold the division because they did not want to make the big R&D investments needed to keep up - plus their poor record of delivering new product on time. So over the next five years the product would have received mediocre support and little or no enhancements. Just bug fixes and regulatory changes. Customers lost out when Siemens decided to get out, not when Cerner decided to buy in.

Now a real winner in all this is Epic and they did not have to spend a dime. If Cerner holds onto 50% of the clients or even 70%, where are the others going to go? Based on past experience, the majority will go with Epic. I can see Judy buying Neal drinks at their next encounter.
Frank Poggio
The Kelzon Group