Cerner and Siemens: Astaire and Rogers—or Spirit Airlines….???

Sept. 10, 2014
My first reaction on hearing of the confirmation of the Cerner-Siemens deal yesterday was to think of airline industry consolidation. The question is: will the merger of Cerner and Siemens end up creating a Fred Astaire-Ginger Rogers-like duet, or a new Spirit Airlines…???

I don’t know why, but for some reason, the moment I got wind of the confirmation of the Cerner-Siemens deal on Tuesday, my first reaction was to think about the consolidation taking place in the U.S. airline industry. With United Airline’s acquisition of Continental Airlines in 2010-2012, and American Airlines’ merger with US Airways in 2013, and both of those developments closely following the Northwest/Delta merger in 2008-2010, air travelers are reaching the point at which the options involved in most U.S. flights are dwindling in terms of the number of possible airlines to choose from.

And yet, is the Cerner-Siemens deal more analogous to developments in the airline industry—or perhaps more akin to what happened with Microsoft Word decades ago? In that case, a single purveyor of word-processing software became absolutely dominant and near-universal, with competitors like Wang and WordPerfect rapidly sinking beneath the waves within a few years of the release of Microsoft Word for Windows in 1989. Indeed, I’m dating myself by even mentioning WordPerfect and Wang in this context—young professionals who entered the workforce anytime after the mid-1990s will probably not even know of the existence of those past programs!

In any case, the acquisition of Siemens Health Services by Cerner Corporation, announced officially yesterday, and first reported in depth by our editors here at Healthcare Informatics, confirmed rumors that had been swirling for months around the two healthcare IT vendors.  And, despite the protestations of Cerner president Zane Burke in his interview with HCI Associate Editor Rajiv Leventhal yesterday, it’s hard to conceive of the Cerner/Siemens deal as anything but a reaction to the juggernaut of the success of Epic Systems Corporation in the field right now.

So really, to even ponder the Cerner-Siemens deal means to also ponder the market context involving Epic, and the other major electronic health record (EHR) vendors as well. Why has Epic been clobbering most of its competitors in the market lately? From what everyone has told me, the reason is simple: Epic’s unique implementation system, which I described way back in our July 2009 cover story. Essentially, Epic has become—if I may pun a bit!—epically successful in the marketplace by essentially guaranteeing a successful implementation, on time and within budget.  As a hospital CIO said to me two years ago at the beginning of an Epic implementation, “Look, it’s very simple. On paper, Epic costs twice as much as their competitors do. But in practice, given how much it costs to keep the consultants coming back again and again to fix problems in the implementations of the competitors, it ends up being about the same cost in the end. And when you implement Epic, you do it absolutely their way. They’re very dictatorial; they tell you exactly how you’re going to do it, and there are absolutely no variations. But they get it done in time and on budget. And given that this is going to cost me $25 million, I’d rather have a sure thing. Because if I mess this up, it’s my job!” That same CIO said that in her opinion, Epic’s core code was no better than anyone else’s; the sole differential was the guarantee of on-time, on-budget go-live. But in the current operating environment, with meaningful use Stage 2 bearing down on patient care organizations nationwide, and a huge laundry list of important sets of tasks to accomplish (laying the foundation for population health, accountable care organization development, bundled-payment contracting, value-based purchasing, and on and on), there is simply no room for maneuver for CIOs and CMIOs anymore. Thus, Epic’s “epic” success.

Meanwhile, the list of questions that the Cerner/Siemens deal is prompting is longer than the list of self-evident answers. Our Senior Contributing Editor, David Raths, has written a wonderful blog today about the questions. Rather than repeating his terrific content, I’ll link it here.

What I will say is that I particularly would like to highlight the integration question that David referenced in his blog. The Allscripts/Eclipsys deal, so lauded at the time, did not lead to the easy, “add water and stir” kind of integration, at the code-writing level, that had been predicted. What’s more, the combined company in that case struggled mightily with management and governance issues, which ultimately led to the firing of that company’s CEO.

Could Cerner and Siemens be headed for some of the same problems? It’s hard to say, but the underlying situational context seems more favorable than with regard to Allscripts/Eclipsys at the time of the merger of those two companies.

There are many aspects to this deal, of course. Sterne Agee analyst Greg T. Bolan indicated this morning via e-mail that he sees real upside to the deal, though with caveats. In his words, “While Cerner has acquired a finite number of small assets over the years, we think the management team has consistently looked for platforms to dramatically expand its installed client base.” He went on to say that, “While we think the Siemens asset has the potential to be quite accretive to Cerner over the next decade, we suspect that some investors may question the use of cash for acquisition versus a stock buyback.” He also said that Siemens Health Services “adds about 4,000 new client facilities to Cerner's current installed base of ~14,000. SHS also adds about 6,000 associates to Cerner's existing 14,000 associates. SHS' revenue stream is around 50% revenue cycle and 50% clinical IT applications and technologies. Overall, we would think the largest opportunity for Cerner is to sell its non-competitive technologies/services into SHS acute clients, such as for example, ITWorks.”

That’s one view from the analyst world. Meanwhile, more apropos to our audience, what will the impact be on customer organizations? Here, to me, is one of the key questions, one that can only be answered over time. Will the people doing implementations for the combined company be able to make hyper-efficient the rollouts of many hundreds of EHR new implementations and upgrades in the next two years? Because CIOs and CMIOs simply cannot afford to have their implementational processes slowed down by this new development.

And so we come full circle to my opening paragraph about the consolidation now taking place in the airline industry. Has the ongoing consolidation in that industry led to better customer service? The answer is a clear and horrific NO. As someone who flies very frequently now, I can honestly say that airline customer service has never been worse in all the years I’ve been flying. And yes, the EHR vendor world is very different from the airline transportation, in numerous key ways. But it is also true that in general in the corporate world, mergers and acquisitions usually lead to considerable internal chaos and activity before things get sorted out, and at this moment in the evolution of the healthcare IT industry, prolonged sorting-out will not be helpful to end users and healthcare IT leaders. So my hope is that this business deal will end up being a good one for patient care organizations, and not just for shareholders. Because the last thing we need right now is a “Spirit Airlines” of the EHR vendor world.  But only time will tell, and the truth will be in the proverbial pudding.

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