National Business

Cerner ready to tackle military health records

Cerner Corp. is confident it can handle the mammoth task of upgrading the U.S. military’s medical records – and it already has a model system ready to go, says the company’s president, Zane Burke.

“The Department of Defense (contract) is big and complex and hard, but it’s not new to Cerner to do big and complex and hard projects,” Burke said Tuesday in an interview.

The interview marked the first time a Cerner executive had spoken publicly since the Pentagon announced last week that a team that included the Kansas City, Mo.-based health information technology company had won a hotly contested multibillion-dollar contract to modernize the electronic health records of military personnel, retirees and their families.

Cerner decided 12 months ago to invest in building a model system for the Pentagon so that the company could offer a tested, ready product as part its team’s bid, Burke said.

Next year, that system will go live as part of a pilot project at eight sites in the Pacific Northwest, including Madigan Army Medical Center at Joint Base Lewis-McChord in Tacoma, Wash.

“This is a situation where I feel very comfortable we’ll deliver the value,” Burke said. “We’re on time, on budget, and it will be very good for our shareholders.”

The Cerner president was speaking on the same day the company released second-quarter revenue of $1.13 billion, less than the company had projected. But bookings were at an all-time high of $1.29 billion, a 20 percent increase from a year ago.

Cerner executives on the call said the lower revenue had little impact on profitability and the company is now ramping up hiring.

Cerner also announced a contract with Baptist Health South Florida, a faith-based, not-for-profit health care organization that operates the Baptist Hospital of Miami and Baptist Children’s Hospital, among others.

Stock analysts have been quick to declare last week’s Pentagon contract announcement as a major strategic triumph for Cerner. Investment bank Piper Jaffray called it “the biggest win in the company’s history.” FBR & Co. said that it could help Cerner distinguish itself from Wisconsin-based Epic Systems and other companies in the health IT market.

But analysts also noted concerns that such a high-profile project could distract Cerner from its core business, or that Cerner might have sacrificed profit by underbidding its competitors in price.

One report, by RBC Capital Markets, a Canadian investment bank, estimated that the Cerner team’s bid might have been as much as 25 percent lower than another bid from IBM and Epic, Cerner’s primary rival.

Burke declined to comment on any potential differences in the bids.

“The partnership overall proposed the best value and the lowest-risk solution,” he said.

Cerner teamed up with defense technology contractor Leidos, Accenture Federal Services and Intermountain Healthcare in its winning bid for the $4.3 billion, 10-year defense contract.

The outcome surprised many industry observers, who had considered the front-runner to be the Epic-IBM team.

The Cerner team has a difficult mission ahead: It must modernize the medical records of 9.5 million beneficiaries at 56 military hospitals and hundreds of medical and dental clinics across the globe.

The new digital system must be compatible with the Department of Veterans Affairs and health care providers in the private sector, as well as by military doctors stationed on aircraft carriers or in far-flung battlefields.

Burke stressed Cerner is up to the task. He noted that the company has tackled a number of very large projects in the last four or five years that he said are comparable in size to the Pentagon contract.

Among them are Tenet Healthcare, Health South, Dignity Health and Ascension Health, which together operate dozens of acute-care hospitals, ambulatory surgery centers, academic medical centers and pediatric sites all over the country.

Far from distracting Cerner from other projects, Burke argued that the new defense contract will improve Cerner’s software for the company’s other clients by emphasizing security, mobility and interoperability.

Burke also touted the contract as a boon for Kansas City.

Cerner is the area’s fastest growing employer, and the company plans to hire 16,000 associates in Kansas City over the next 10 years.

“We’re planning on growth, and (the defense contract) is part of that growth strategy,” Burke said. “People in Kansas City will work on this product, which is really cool when you think about the impact Kansas Citians will have on global health care and supporting the troops and the families of our troops.”