Re-evaluating Oracle’s acquisition of Cerner – in a positive light

Many questions surrounded Oracle’s move, but renewed commitment and abundant resources could be the best thing for Cerner and its customers.

Oracle seems committed to bringing resources to achieve a series of healthcare goals for Cerner.

Editor’s Note: HDM looks for informed observations of technology providers for the healthcare industry. We highly value the insights of John Moore at Chilmark Research. This is one of a series of analyses Chilmark released late last year on leading tech providers. View additional analyses on MEDITECH and Athena

First, let me begin by stating that I have had doubts about Oracle’s acquisition of Cerner. However, after attending the Oracle Cerner Health Conference, those doubts have eased.

After speaking to several Oracle executives at the conference overseeing the Oracle-Cerner transition, I am now far more bullish on this acquisition. In fact, this is probably the best outcome for Cerner.

Cerner was drifting

After the passing of former CEO and co-founder Neil Patterson, the Cerner board went outside the company to recruit Brent Shafer. While Brent was formerly head of North American operations for Philips, he had never actually run a company, let alone a software company the size of Cerner. This inexperience was apparent almost immediately.

Early in his tenure, Shafer gave away several board seats to an activist investor who had bought an extremely low percentage of Cerner shares – Patterson likely would have told that activist investor to go pound sand.

Shafer’s struggle to lead was also felt across mid-level and upper management at Cerner, and it led to an exodus of extremely talented individuals who had deep institutional knowledge of the company and its products.

Before Shafer’s hire, the company took on the massive Department of Defense and Veterans Administration EHR modernization project, which Cerner won in 2017. This project has become all-consuming for Cerner and its internal resources. Unfortunately, the company’s need to support the federal project has left its traditional base of hospital systems high and dry – not only in fixing known problems, but also in making critical advances to improve its product offerings, especially its revenue cycle management (RCM) capabilities.

While Cerner does have a new RCM in RevElate that is expected to be generally available early this year, it’s been quite the wait. Cerner’s RCM has been a known problem for as long as I’ve known the company, and only now, well over a decade later, are they introducing a substantial (and hopefully broadly adopted) upgrade.

Then, Cerner appointed David Feinberg as its next CEO. Now, he is a fine, warm person, and he did leadership stints at both UCLA and Geisinger, but he has no experience (unless you count his short tenure at Google Health) running a publicly traded software company of the depth and breadth of Cerner. He is a good figurehead for the company.

Enter Oracle

Within months of Feinberg taking the helm at Cerner, Oracle swooped in to acquire the company.

This was not a widely welcomed acquisition by Oracle’s investors, who preferred that money be better spent on Oracle’s nascent cloud capabilities – Oracle Cloud Infrastructure (OCI). Oracle founder and CTO Larry Ellison had long sought Cerner – in the past, Patterson had not been interested – and made the move, contending that it would create a compelling value proposition by verticalizing OCI to serve the healthcare sector.

I have been very circumspect of this acquisition. Having been an industry analyst now for more than 25 years, I know Oracle and how it operates fairly well. Past enterprise acquisitions that Oracle has made have quite a checkered history; existing clients of those acquired enterprise solutions were often treated poorly and suffered from a lack of continuing support, slow to nonexistent improvements to the software and an increase in maintenance fees.

I feared that the same fate would befall Cerner, a company for which I have deep respect, despite its recent shortcomings.

But the game plan to which I was introduced by Oracle executives at OCHC turned that fear into hope. Finally, Cerner would get what it needed, as long as Oracle executes on its proposed plan.

The plans for Cerner

During OCHC, I met with several Oracle executives, including Mike Sicilia, Oracle’s executive vice president of global business units, and Don Johnson, who was brought out of his recent retirement to be the chief technology officer for Oracle-Cerner. Both executives made it clear that this acquisition was extremely important to Ellison – who may see this as his last, great act.

The calling to serve society through Cerner was also a calling that brought Johnson back to work. Johnson worked many years at Amazon, helping to build AWS. He was then recruited to Oracle to build OCI. He’s referred to internally as simply “the cloud guy.”

Johnson’s priorities for Oracle-Cerner are simple, yet profound, for what has been a rudderless company for several years.

  • In the short-term: Address basic operational issues associated with Cerner’s suite of solutions, including improving resiliency and usability. Executives also plan to leverage some of Oracle’s existing assets to improve back-office functionality, including labor and RCM.
  • Mid-term (the next 18 to 24 months): Get Cerner’s full solution suite up on OCI and convert it into a SaaS operating/revenue model. We will likely see tighter linkages between the Cerner suite and those of other Oracle enterprise solutions, including human capital management (HCM), enterprise resource planning (ERP) and supply chain management (SCM).
  • Long-term vision: Have the Cerner suite running in a browser-like environment to further improve usability and search functions. Ultimately, Oracle wants to have a healthcare PaaS/SaaS solution, leveraging APIs along with third-party solutions to create a dynamic healthcare IT platform.
  • While those are lofty goals, but Johnson seems to be the type of person who knows exactly how to tackle them, and Oracle is a massive company with the resources to support him. For example, during that briefing, Johnson made the offhand remark that he has 1,000 AI specialists dedicated to this effort.

    Market goals

    Sicilia, the business leader and face of the new Oracle-Cerner, clearly stated the priorities for the organization going forward. Surprisingly, going head-to-head with Epic in the U.S. is not one of them. They will certainly strive to maintain their existing base of customers, expanding client revenue by offering a complete enterprise software solution suite (EHR, ERP, HCM and SCM).

    However, their primary focus is to target global greenfield opportunities. Of the U.S.-based EHR companies, Cerner has the largest international presence, much of it coming from Cerner’s acquisition of Siemens’s health IT group several years ago. Today, Cerner has a presence in 30 countries. Oracle obviously sees a huge opportunity to tap.

    And why not? The US market is fully tapped out with growth only possible by taking market share from an incumbent vendor, which is rarely easy. The international market is the path of least resistance.

    In addition to already having a presence in nearly every country, Oracle has a world-class sales organization to take Cerner to market. Oracle also has a card up its sleeve which no other EHR vendor can match – Sovereign Cloud.

    Sovereign Cloud is a full data center (Infrastructure as a Service – IaaS) that can be set up in any country. The Sovereign Cloud adheres to all rights, rules and regulations of the host nation and will support all of Oracle’s vertical industry market plays, including healthcare. Having such a capability to serve the healthcare sector is extremely important, because most countries have strict data privacy regulations for patient health information – typically, any such information has to be stored within the country’s borders.

    It won’t be easy

    Oracle’s plans for Cerner are quite logical and welcomed. It is good to see strong leadership take the reins of Cerner, and although that leadership is new to healthcare, it is a refreshing change for a company that struggled with leadership gaps for years. If anyone can return Cerner to its former glory, I believe this Oracle executive team has what it takes.

    That’s not to say it will be easy.

    First, Oracle needs to ensure that the DoD/VA project hits target deadlines and is executed flawlessly. Granted, this is a huge and highly visible project that would bring any EHR vendor to its knees. Regardless, Cerner – now Oracle – owns it. Oracle has plenty of experience working with the federal government, and that should buy it some time.

    Second, Oracle needs to change the narrative of Cerner and what it can deliver to market. It needs to minimize future defections of clients to Epic by delivering a compelling offering and the services to support it. The forthcoming launch of Cerner’s new RCM, RevElate, and client feedback will speak volumes on this point.

    Third, Cerner has lost most of its institutional knowledge, and morale across the employee base needs a strong shot in the arm. Combining the previously outlined aggressive product development roadmap with a strong leadership team should help, as Oracle needs that healthcare expertise to achieve its stated goals for Cerner.

    Over my 25-plus years as an industry analyst, I have had many an opportunity to view Oracle in action. It has been a company known for ruthless tactics in search of financial gains. It may be just business, but at what point does it tip into morally questionable behavior? That is something I have struggled with in assessing this company’s actions.

    After spending several days at OCHC, I have a more nuanced view of the company. When it comes to entering the provider/healthcare orbit, Oracle and its executive team are genuinely sincere in their desire to make a positive contribution to this critical sector that affects just about every single person on the planet. They recognize their ignorance of this sector and are willing to listen to others who have greater expertise. This is nearly always a good sign.

    Oracle certainly has the resources at its disposal to right the listing Cerner ship. These resources can both leverage several Oracle-developed technologies – such as Apex and Redwood – that can re-imagine the entire data, EHR, and provider/patient interface, all in a SaaS environment. There are few other companies in the market capable of this feat.

    I am now feeling much more bullish for this combined entity. it is the best possible outcome for a floundering Cerner.

    Looking to 2030 and beyond, do not be surprised when it re-enters the U.S. market with a vengeance, after Oracle reinvigorates and remakes the entire Cerner platform into a highly compelling, infinitely scalable SaaS solution. Epic take heed.

    John Moore is founder and managing partner of Chilmark Research..

    This is one of a series of analyses Chilmark released late last year on leading tech providers. View additional analyses on MEDITECH and Athena


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