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IDC: Cerner/DoD Deal Will Create New Benchmark for EHR Market

September 4, 2015
by Rajiv Leventhal
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The massive U.S. Department of Defense (DoD) electronic health record (EHR) contract that was awarded in July to a team led by Cerner Corp. will create a new benchmark for ROI in the market for EHRs in large healthcare systems, according to recent analysis from IDC Health Insights.

Epic Systems, Cerner and Allscripts Healthcare Solutions were the three vendor finalists for the contract, each with its own team aimed to upgrade the military’s EHR system: Allscripts with Computer Sciences Corporation (CSC) and Hewlett-Packard (HP); Epic with IBM Corp, Impact Advisors and others; and the winning team Cerner with Accenture Federal Services and Leidos.

Although smaller than expected, the size of the award to the Cerner consortium is nonetheless considerable at $4.3 billion over the initial years of the complex, international implementation. IDC estimates indicate that the rival proposal from the Epic consortium was likely in excess of $11 billion over the first 10 years. Cerner's DoD bid was designed to position the consortium as a very motivated and ultimately competitive supplier; this will be noted by other future potential customers making EHR investments, Judy Hanover, research director of IDC said.

The DoD's highly publicized award will create a new benchmark for ROI in the market for EHRs in large healthcare systems, which will exert far-reaching implications on buying decisions by the largest provider organizations, particularly in the U.S. private healthcare market, IDC said.  Going forward, it sees a number of implications for the larger EHR market in addition to pricing resets:

Focus on ROI will grow. Perhaps most importantly for buyers of EHR technology, the DoD award outcome focuses attention on the ROI of EHRs and increases the expectations placed on all EHR suppliers in the market. For the DoD bid, it appears that Epic and IBM were unable to support the argument that taxpayers and the military would reap more than double the ROI from the Epic-IBM software and services bundle. It's simply not clear to most buyers that the difference in functionality, customer experience, ROI, and TCO support the pricing premium that Epic demands in most implementations.

Competitive dynamics will change. IDC expects that Cerner will gain competitive traction at Epic's expense, especially in the customer tier that constitutes the midsize and large provider systems are not among the best endowed and most profitable.

Interoperability and open architecture matters. The choice of Cerner also represents a move toward open systems and interoperability. Open architecture was likely a key consideration for the DoD when considering the far-flung and heavily networked needs of the Military Health System. In the future, among domestic provider organizations (both for profit and nonprofit), open architecture will become increasingly important — especially as industry consolidation continues apace.

IDC Health Insights expects that the DoD's ROI calculus will gain credibility among other potential buyers of EHR solutions and intensify competition not only between Epic and Cerner but between additional EHR suppliers and systems integrators across the broader EHR market. Closer attention to ROI will also enhance market entry opportunities for newer cloud-based EHR offerings, as IDC Health Insights expects EHR buyers will refocus on ROI when they select EHRs software and services vendors, IDC said. 

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