VA EHR contract delay hits Cerner's revenue

Cerner CFO Mark Marc Naughton says the electronic health record vendor has broad support for the modernization project and will be ready to go once the contract is signed.
By Mike Miliard
11:39 AM
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cerner VA EHR

The ongoing uncertainty about the status of Cerner's EHR contract with the U.S. Department of Veterans Affairs is beginning to have an impact on the company's balance sheet. 

Cerner executives discussed its first quarter 2018 numbers on a conference call on Wednesday. The vendor's bookings were $1.4 billion – up 12 percent compared to the same period in 2017. Revenue increased too, but not as much as analysts had hoped: $1.3 billion, up just 3 percent from the previous Q1.

The company's first quarter operating cash flow was $409.0 million. Net earnings for Q1 2018 were down, slightly: $160.0 million, compared with $173.2 million in 2017. Adjusted Net Earnings were $193.9 million, compared with $197.8 million in 2017.

"Our mixed results and revised outlook reflect the delay of a large contract and a less predictable end market," said Cerner President Zane Burke. "However, we remain optimistic about our long-term growth opportunities due to our strong market position and portfolio of solutions and tech-enabled services that align with the pressures healthcare stakeholders are facing."

The controversial dismissal of former VA Secretary David Shulkin, MD, in March has thrown the no-bid EHR modernization contract he'd awarded to Cerner into doubt.

There's money there to at least get the project – expected to exceed $16 billion – off the ground. The House Appropriations Committee on Military Construction in April voted to earmark some $1.2 billion for the EHR for fiscal year 2019 and (without mentioning Cerner by name) said VA must adopt the system that's being rolled out by the Department of Defense.

But ongoing disarray at the VA – most notably the withdrawal this past week of Ronny Jackson, MD, President Trump's pick to lead the massive agency – has left the impression that the status of Cerner's contract won't be clarified any time soon.

And earlier this week, Politico reported that Bruce Moskowitz, MD, a Florida physician who sometimes socializes at Trump's Mar-a-Lago resort, had bent the ear of one of Trump's outside advisors on veterans issues, Ike Perlmutter, to say he wasn't a fan of Cerner technology from his experience with it at two nearby Tenet Healthcare facilities. Sources told Politico that VA’s Office of Information and Technology investigated the Cerner systems Moskowitz uses at the two hospitals and discovered the software to be out of date.

While the delay of the VA contract is "disappointing, we continue to believe we have broad support from key stakeholders and initial funding for the project was approved as a separate line item in the budget," said Cerner's Chief Financial Officer Marc Naughton.

Burke added that Cerner continues to be in touch with Capitol Hill, the White House, VA and others. Despite the fact that VA leadership is serving on an interim basis, and there's no clear timeline for when a new secretary might be confirmed, "all of those factions are all seemingly moving ahead."

The line item in the House's budget "is a critical item as we move forward that gives us the confidence in that side," said Burke. "But obviously, it's been very challenging for us to predict the actual completion of that contract."

As Cerner waits for the issues impeding the contract finalization to be sorted out – the hope is for a resolution during the second half of this year, officials said on the earnings call – executives are keeping an eye on the larger goal.

"We believe the VA's going to happen," said Naughton. "We're going to be absolutely prepared to deliver on that when it does."

The holdup, he emphasized, "does not change in any manner the magnitude or importance of the overall opportunity. We will be ready to deliver when it signs."

Twitter: @MikeMiliardHITN
Email the writer: mike.miliard@himssmedia.com