awarded the most coveted prize in recent HIT memory – the Defense Healthcare Management Systems Modernization (DHMSM) contract. And the winner is... Leidos, the contractor formerly known as SAIC. A couple of years ago, when the race for the DoD contract began, Leidos/SAIC selected Cerner as its EHR of choice for this contract. The smart money though was on Epic and its Big Blue partner because they are and seemingly always have been the safest procurement choices for top brass in any large organization.
A stunned HIT “community” initiated its favorite game of providing post facto authoritative explanations ranging from cute to grotesque. Here are the most common and least specious opinions. The interoperability lobby offered Cerner’s recent and vocal leadership in organizing a national information exchange as the reason for the DoD choice. Others, who may have been bothered in the past by the prices Epic was able to command, suggested that the relative cheapness of Cerner must have tilted the balance. The technically inclined opined that the Cerner architecture is more modular and hence a better fit for DoD needs. These theories and more may all hold some truth, but what we all seem to forget is that the DHMSM contract was awarded to Leidos, and Cerner is just a subcontractor.
In September 2013 the Science Applications International Corporation (SAIC), one of the largest defense contractors in the U.S., changed its name to Leidos Holdings, Inc. and spun off a smaller entity that retained the SAIC name. The split was explained as a way to avoid conflict of interests and get more business. The classic SAIC expose, written by Donald L. Barlett and James B. Steele, and published in Vanity Fair in 2007, should be required reading for anyone trying to understand why the DHMSM contract award was pretty much preordained. Epic lost the day it partnered with IBM, and Cerner won the day it selected, or was selected by, SAIC.
Back in 1988 SAIC was awarded a $1 billion dollar initial contract to design, develop, and implement the Composite Health Care System (CHCS). When the first version of the CHCS turned out to be lacking, SAIC was awarded a contract to replace it with CHCS II. Over 27 years SAIC has evolved the CHCS into the current Armed Forces Health Longitudinal Technology Application (AHLTA) through design, redesign, rip-and-replace, integration and deployments in military facilities of all types around the globe. The DoD was very proud of the new $1.2 billion AHLTA back in 2005, but in time it became fondly known as an acronym for “Ah Hell, Let's Try Again”. Nevertheless, SAIC kept raking in support and development contracts for AHLTA, since according to the DoD, SAIC “is the only vendor capable of supporting functional and technical system changes due to their unique experience and familiarity with the system”.
After CHCS and AHLTA, now comes DHMSM, and there is absolutely no reason to believe that the DoD changed its opinion regarding SAIC’s unique capabilities. Spending billions of dollars on one failed solution after another does not seem to be a problem for defense contractors, or government contractors in general, and in all fairness SAIC does have decades of experience in the unique deployment needs of the military, which are vastly different than your typical posh academic center in the homeland. Perhaps throwing a decent commercial EHR in the mix will finally break the perpetual cycle of failure the DoD has become accustomed to paying for. One can only hope.
The more interesting question for non-military HIT is how the DHMSM contract will affect the orders of magnitude larger commercial EHR market. Will Cerner leapfrog Epic and become the EHR of choice for large health systems? Will Cerner be so bogged down in military work that it will start losing ground in the private market? Will Epic repent and submit itself to the Cerner led CommonWell interoperability (data collection) bandwagon? Or alternatively, will Epic snap out of its self-imposed silence and mount an aggressive marketing and PR campaign? Will distant competitors somehow be able to take advantage of the turmoil and take the market by storm? Or maybe, just maybe, once the headlines die down in a few weeks, and we move to the next big thing, nothing will have changed.
The DHMSM contract is very large by comparison to private EHR contracts, but it is not as large as it looks. The initial award is for $4.3 billion over the next 10 years. Multiplying by at least 2, since after all this is a Pentagon contract custom built for SAIC, we are looking at approximately $860 million per year on average, over the next decade for SAIC, Cerner and dozens of other subcontractors. An optimistic estimate of Cerner revenue would be around $80 million per year (HIStalk estimates a more conservative, and probably more realistic, $40 million per year). To mere mortals this may seem like a lot of money, but considering that typical hospital EHR implementations run anywhere between tens to many hundreds of millions of dollars, and considering that Cerner has annual revenues of around $4 billion, the DoD contract seems like a modest contribution to an already gigantic EHR powerhouse.
Speaking of money, it does seem rather excessive to spend so many billions of dollars on a piece of software. Nobody knows how many billions will end up being spent, but we do know that $4.3 billion is the absolute minimum over the next 10 years. Is that a lot? The DoD has 55 hospitals and more than 600 clinics, and it has aircraft carriers, submarines, helicopters and all sorts of personnel carrying vehicles where the EHR will need to be used, not to mention remote caves in foreign lands, and theaters of full blown war. Neither Cerner nor any existing EHR, including VistA, has those capabilities out of the box. Certainly lots of new code will need to be written by Cerner, but the bulk of the money will go to integration and deployment. That money is SAIC money and is independent of EHR choice (this is a good place to go back and read that Vanity Fair article).
There is however no doubt that the DoD contract is a huge marketing win for Cerner, and this is amplified by the fact that Epic does little to no public marketing of its own. The Cerner award will also have beneficial effects on the CommonWell data exchange platform. The already significant influence Cerner exerts on government agencies, such as ONC, will likely increase and that’s a very good thing for Cerner’s commercial business. More important though is Cerner’s foot in the door at the Department of Veteran Affairs (VA), just in case they decide (or are forced to decide) to keep up with the DoD and replace their VistA EHR.
So far the experts and the media have been kind to Cerner, and will continue to be so as long as the DHMSM project moves successfully through its milestones. However, as a subcontractor, Cerner has limited control over the project as a whole, and considering that in the world of SAIC, success is defined as extracting the largest possible annuities from the government, whether its deliverables are fit for purpose or not so much, Cerner is running a significant risk of having its otherwise respectable reputation tarnished through no fault of its own. Not sure why, but my feeling is that Cerner has a much better chance of surviving inside the shadowy defense contractor culture than Epic would have ever had, so things may turn out just fine.
Health care nowadays is like the ticker tape of a hyperactive stock market gone mad. Everything is huge, disruptive and transformative for a few days until the next seismic shock rolls in. Since nothing means anything in particular, everything means exactly what each expert wishes it would mean. For some the DHMSM exemplifies the triumph of interoperability and the demise of information blockers. For others it is clear proof that the future belongs to platforms and substitutable modules. Many are just thrilled to see a previously unbeatable contender take one squarely on the chin. And a few feel personally persecuted because a big iron EHR vendor was selected instead of something from the app store. Truth is that the DHMSM means very little to anybody in the EHR industry, other than Cerner of course.