Siemens/Cerner Megadeal Met with Praise, Trepidation by Industry Experts | Healthcare Informatics Magazine | Health IT | Information Technology Skip to content Skip to navigation

Siemens/Cerner Megadeal Met with Praise, Trepidation by Industry Experts

August 7, 2014
by Gabriel Perna
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Cerner Headquarters Credit: Cerner

Across the healthcare IT industry, analysts and insiders are praising Kansas City, Mo.-based Cerner Corporation for its $1.3 billion acquisition of Siemens’ health IT division, while recognizing that there is a lot of uncertainty surrounding the combined company’s future.

The deal, which had been rumored for a few weeks, makes Cerner the top revenue-earning company among U.S. electronic health record (EHR) vendors. Cerner says with the deal it 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.

This facet alone has been met with praise by several analysts. “It allows Cerner to grow share significantly. It allows them to get access to a new client base. It seems to be a good perspective move on their part,” Lydon Neumann, Vice President at Impact Advisors, says, while adding a caveat. “I don’t think it will be solving any competitive issues they have in the short-term, because they are competing favorably. But it will give them time to absorb and gain access to a new client base.”

Importantly, he and others note how this move could give them a leg-up against the Verona, Wisc.-based Epic System. According to an industry source, the deal was made as a defensive play against Epic, which has won a significant share of new hospital and health systems’ EHR contracts over the past few years.

“By not doing this, Epic may have won potentially more business,” says Kent Gale, one of the founders of the Orem, Utah-based KLAS Research. “The deal gives Cerner an incredible opportunity to package [to Siemens customers] a transition to [a] Cerner [product] that Epic won’t be able to tee up as easily, because Cerner will now have day-to-day conversations with these customers and can fine tune a solution for each and every one to make it more desirable to stay with Cerner and not go to Epic.”

Ben Rooks, the San Francisco-based principal at consultancy firm, ST Advisors and writer of the yearly mergers and acquisition (M&A) piece for Healthcare Informatics vendor-driven Healthcare Informatics 100 issue, says this was a good use of Cerner’s cash. He sees plenty of possibilities for this combined company. 

“With this purchase, Cerner is now the leader in the space and will enjoy huge cross-selling opportunities given the product fit – Cerner is a clinical leader, where Siemens (née SMS) lagged there and was more focused on financial systems (in fact, I recall the former CEO of SMS explaining to me that Cerner’s clinical focus was off-base!),” Rooks said in an email to HCI.

In many ways, this acquisition and overall transformation of the large-scale EHR marketplace seemed inevitable, says Neumann. Agreeing with that perspective is Gale, who says that this acquisition is Siemens acknowledging there is not enough room in the healthcare IT industry for every vendor to play. “This is a gracious way of one vendor kind of disappearing from the competition,” he says.

Many see this deal as a harbinger of things to come in healthcare IT. While it may not lead to more consolidation, Neumann says, it could come down to changes in ownership at the top level of many large EHR vendors.

“There aren’t many buyers for the acute-side client base, so you may see a change of ownership, but it may be more directed toward maintenance or trying to further consolidate product lines. Some of those vendors are trying to execute on that right now, culling out their products or trying to get people into other product lines,” says Neumann.

On Twitter, one Healthcare Informatics reader was emphatic that this was the beginning of market consolidation:

Gale contends that this kind of consolidation may not be the best bet for the industry. “The less competitive [the EHR market] becomes, the slower the innovation,” he notes.

Another Healthcare Informatics reader wondered about innovation at Cerner going forward:

Indeed, analysts and readers recognize that there are a ton of questions that will be have to be answered. As most note, history has not been kind to these kinds of large moves in healthcare IT.

 “The history of mergers in this industry has not been one of long-term success,” says Neumann. “It’s been short-term success in getting share, enhancing revenue, and enhancing the client base. Most acquirers run into the issue of how they’re going to rationalized multiple technology platforms. Most organizations try to get customers on fewer platforms. Ultimately, consolidating multiple technology platforms is going to be a challenge but I think they’re up to the task.”

Neumann says client retention will be one of Cerner’s more important tasks going forward. Gale at KLAS will examine the combined company’s efforts on revenue cycle management (RCM). He also noted that many Siemens KLAS clients have already called with “thousands of questions” on how the merger affects them going forward. Rooks at ST Advisors had this to say on whether or not he likes Cerner’s chances in executing on the challenges of this move:

“When discussing HCIT, I often quote Sun Tzu: ‘If you wait by the river long enough, the bodies of your enemies will float by,’ and observe that Neal [Patterson, CEO of Cerner] and Judy (Faulkner, CEO of Epic Systems) have already seen SMS, HBOC and Eclipsys (as well as others) bob through the stream – this no doubt adds icing to the cake for Patterson.  Whether Epic and Cerner remain safely on the banks or this pulls Cerner into turbulent waters remains to be seen, but given his track record of predicting and, in fact, driving the industry, I’m inclined to give Patterson the benefit of the doubt.”

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