Cerner’s $10 billion, no-bid VA contract finally signed despite critical report

Cerner is the largest private employer in the Kansas City area.
Cerner is the largest private employer in the Kansas City area.

Cerner finally has Uncle Sam's signature on its multibillion-dollar no-bid contract to update the U.S. Department of Veterans Affairs' health records system after nearly a year of waiting and despite a highly critical report about a related project.

The announcement was made Thursday by Veterans Affairs Acting Secretary Robert Wilkie.

The signing comes despite problems during the early use of the health care information system that Cerner and other companies are providing the U. S. Department of Defense. Cerner, based in North Kansas City, won the VA contract without going through a normal bidding process because it was part of the team that won bidding for the larger defense contract.

Misgivings about the Defense Department system's early operations at a few pilot locations were deep enough for a Pentagon report to conclude recently that it is "neither operationally effective nor operationally suitable," according to a Politco report.

Politico said officials at Cerner and Leidos Health, which is the leading partner on the Department of Defense project, characterized problems as similar to those on large commercial projects and said the pilot programs were designed to ferret them out to be fixed.

In his announcement, Wilkie said Veterans Affairs is "collaborating closely" with the Defense Department sites using their new system "to ensure lessons learned" will be shared throughout both networks of health care operations.

Cerner, in its own statement, said the contract would allow it to provide "seamless care" across the VA and Defense Department networks as well as beyond.

"We expect this program to be a positive catalyst for interoperability across the public and private health care sectors, and we look forward to moving quickly with organizations across the industry to deliver on the promise of this mission,” Cerner's statement said.

Company officials declined to comment on the contract signing, but executives are expected to talk about it Friday morning during the company's annual shareholders meeting. The session is being webcast.

In a blog, Cerner CEO Brent Shafer said Veterans Affairs would benefit financially from the new system's ability to connect beyond VA centers, given advances in technology and "the cost of maintaining expensive, decentralized systems" that he said was unsustainable.

U.S. Sen. Jerry Moran, a Kansas Republican on the Senate's Veterans Affairs Committee, said the system would improve health care for veterans.

“I applaud the VA for choosing to fully integrate the health records for our nation’s heroes through Cerner’s EHR system, which will ease the transition to civilian life for our veterans and reduce the unnecessary burdens they face when it comes to receiving care," Moran said in a statement.

The Trump administration had chosen Cerner for the VA contract in June 2017 and cited benefits of having the same system as the Defense Department.

That nod from then-VA Secretary David Shulkin came before the government and Cerner had negotiated a price. Analysts have since evaluated the contract as worth $10 billion in revenue over 10 years to Cerner.

"This is one of the largest IT contracts in the federal government, with a ceiling of $10 billion over 10 years," Wilkie said. "And with a contract of that size, you can understand why former Secretary Shulkin and I took some extra time to do our due diligence and make sure the contract does what the president wanted."

Wilkie said that "without doubt" the contract will "do right by both veterans and taxpayers."

Shulkin was pushed out of office in late March amid challenges from the VA's inspector general over the secretary's acceptance of Wimbledon tickets during a 2017 trip to Europe and other concerns.

Early this month, Cerner cited the delay in signing the VA contract for reducing its own estimate of company revenues for 2018. Executives also told analysts to expect the company to get the deal signed but not until the second half of the year.

"The absence of permanent leadership at the VA limits visibility on when that deal will close as well as final terms," analyst David M. Grossman at Stifel Nicolaus & Co. Inc. told clients in a report May 2.

Cerner is the area's largest private employer.

The announcement came after the stock market's close on Thursday.

Cerner said former Philips North America executive Brent Shafer will become its CEO on Feb. 1. He fills the vacancy created when co-founder Neal Patterson died last year.

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