What will DoD-Cerner mean for EHR ROI?

IDC report sees 'a new benchmark' emerging
By Mike Miliard
10:36 AM

The landmark Department of Defense contract awarded to Cerner and Leidos will have a big effect on how private-sector health systems gauge the worth of electronic health record systems, a new report from IDC Health Insights suggests.

IDC says the contract award will be a bellwether: ending a long period, largely driven by federal meaningful use incentives, of "open-ended and premium pricing" for EHR systems. From here on in, the report argues, most IT investments will be driven by considered calculation of business value.

"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," writes Judy Hanover, research director at IDC Health Insights.

Price was a key differentiator when it came to DoD's decision-making, the Pentagon's Under Secretary for Acquisition, Technology and Logistics Frank Kendall said when the winner was announced July 30: "We feel comfortable that we made a good source selection," he explained. "Costs are coming in lower than our estimates."

He added: "Competition has worked for us."

Indeed, the decade-long contract's $4.3 billion price tag surprised many who expected the asking price to be much higher. Including, apparently, Epic: IDC calculate's that the Epic/IBM team's proposal exceeded $11 billion over 10 years.

Hanover's take? "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," she writes. "It's simply not clear to most buyers that the difference in functionality, customer experience, ROI and (total cost of ownership) support the pricing premium that Epic demands in most implementations."

As such, IDC expects Epic will soon cede some competitive advantage in the private sector to Cerner, especially among midsize and large provider systems with less money to throw around.

Another feather in Cerner's cap is its perceived openness to data sharing and intereroperability, at least when compared with its rival.

Assistant Secretary of Defense for Health Affairs Jonathan Woodson, MD, said the sheer size of DoD's new partnership with Cerner and Leidos should help "force the private sector to be able to exchange information in a very efficient way, in a very timely way."

The deal "allows us to pivot toward the future," he said, "but also forces others to pivot toward the future."

Hanover agrees that such a boost to interoperability will have ripple effects across the industry in the years to come, as more and more health systems recognize the importance of data sharing to gaining efficiencies as value-based care evolves.

DoD's choice of Cerner "represents a move toward open systems and interoperability," she writes. "In the future, among domestic provider organizations (both for profit and nonprofit), open architecture will become increasingly important -- especially as industry consolidation continues apace."

Access IDC's full report here.

See also:

DoD EHR choice to be a market shaper

7 things DoD sought in Cerner EHR

Cerner data sharing may have been difference-maker