Cerner assesses financial hit from delay of VA EHR contract
Cerner is feeling the financial effects of the delayed $10 billion Department of Veterans Affairs electronic health record modernization contract, according to company executives.
The vendor on Wednesday announced results for its first quarter that ended March 31. While the results included strong bookings and cash flow as well as earnings in line with analysts’ expectations, Cerner President Zane Burke said revenue was below expected levels—he blamed the company’s “mixed results and revised outlook” in part on the delay of the VA’s EHR contract.
The VA has been trying for nearly a year to negotiate a $10 billion contract with Cerner—the pact has yet to be signed by the two parties.
Cerner bookings in the first quarter were nearly $1.4 billion, an increase of 12 percent compared with $1.25 billion for the same quarter last year. In addition, revenue for the first three months of 2018 was $1.29 billion, up 3 percent compared with $1.260 billion in the same quarter in 2017.
Marc Naughton, Cerner’s chief financial officer, said on Wednesday’s earnings conference call that “the slow start to the year and ongoing uncertainty into the timing and the execution of the VA contract has led us to revise our full year revenue and (earnings per share) outlook.”
According to Naughton, Cerner currently expects 2018 revenue to total $5.36 billion to $5.45 billion, down from a range of $5.45 billion to $5.65 billion that the company had predicted at the start of the year. He added that the company expects full year 2018 adjusted diluted earnings of between $2.45 and $2.55 per share, down from a range of $2.57 to $2.73 that it had predicted earlier.
Nonetheless, Naughton told analysts that Cerner is “still confident” that the company will sign an agreement with the VA. “We are now anticipating it will be in the second half of the year,” he added. The federal agency insists that finalizing a decision on its EHR modernization is a near-term priority.
Burke noted that while the ongoing delay in the signing of the VA contract is disappointing, the company continues to have “broad support from key stakeholders,” and he pointed to the fact that the House Appropriations Committee recently released the Fiscal Year 2019 Military Construction, Veterans Affairs and Related Agencies Appropriations bill, which included $1.2 billion for the Cerner EHR system.
“We still expect to sign the contract; it’s just difficult to predict exactly when,” Burke added. “The delay does not change in any manner the magnitude or importance of the overall opportunity.”
In June 2017, then-VA Secretary David Shulkin announced his decision to award a sole-source contract to Cerner to replace the legacy Veterans Health Information Systems and Technology Architecture with a single common EHR system with the Department of Defense based on Cerner’s Millennium platform. However, President Trump’s recent firing of Shulkin and the resignation of the VA’s acting chief information officer Scott Blackburn has cast doubt on the agency’s EHR efforts.
“This would be a different conversation had the VA secretary been in place at the end of the first quarter,” observed Burke. “I think we’d be having a different conversation about the outlook of the year.”
Despite the VA’s leadership vacancies, Burke insisted that Cerner remains “linked to the Hill, the White House and the agency” and that “all of those factions are all seemingly moving ahead” with the EHR modernization contract.
At the same time, Naughton acknowledged that if the VA does not sign an EHR contract with Cerner later in 2018, “that would have an impact” on the company’s guidance on its future financial performance.