Cerner is eager to start on a massive upgrade of the U.S. military’s health records

Cerner Corp. is confident it can handle the mammoth task of upgrading the U.S. military’s medical records — and it already has a model system ready to go, says the company’s president, Zane Burke.

“The Department of Defense (contract) is big and complex and hard, but it’s not new to Cerner to do big and complex and hard projects,” Burke said in an interview Tuesday.

The interview marked the first time a Cerner executive had spoken publicly since the Pentagon announced last week that a team that included the North Kansas City-based health information technology company had won the multibillion-dollar contract to modernize the electronic health records of military personnel, retirees and their families.

Cerner decided 12 months ago to invest in building a model system for the Pentagon so the company could offer a tested, ready product as part of its team’s bid, Burke said.

Next year, that system will go live as part of a pilot project at eight sites in the Pacific Northwest, including Madigan Army Medical Center at Joint Base Lewis-McChord in Washington state.

“This is a situation where I feel very comfortable we’ll deliver the value,” Burke said. “We’re on time, on budget, and it will be very good for our shareholders.”

The Cerner president spoke on the day the company released its second-quarter financial results, which were highlighted by record new business bookings, higher quarterly revenues but a smaller profit.

Before the release of the quarterly financial results, stock analysts had been quick to declare last week’s announcement by the Pentagon a triumph for Cerner.

Investment bank Piper Jaffray called it “the biggest win in the company’s history.” And FBR & Co. said it could help Cerner distinguish itself from competitors such as Epic Systems.

But analysts also noted concerns that such a high-profile project could distract Cerner from its core business or that Cerner might have sacrificed profit by underbidding its competitors.

One report by RBC Capital Markets estimated that the Cerner team’s bid might have been as much as 25 percent lower than the bid from IBM and Epic.

Burke declined to comment on any potential differences in the bids.

“The partnership overall proposed the best value and the lowest-risk solution,” he said.

Cerner teamed up with defense technology contractor Leidos, Accenture Federal Services and IntermountainHealthcare in its winning bid for the $4.3 billion, 10-year defense contract.

The outcome surprised many industry observers who had considered the front-runner to be another group that included IBM and Cerner’s primary rival, Wisconsin-based Epic.

The Cerner team now has a difficult mission ahead — to modernize the medical records of 9.5 million beneficiaries at 56 military hospitals and hundreds of medical and dental clinics across the globe.

The new digital system must be compatible with the Department of Veterans Affairs and health care providers in the private sector and work for military doctors stationed on aircraft carriers or in far-flung battlefields.

Burke stressed Cerner is up to the task. He noted that the company has tackled several very large projects in the last four or five years that he said were comparable in size to the Pentagon contract.

Among them are Tenet Healthcare, Health South, Dignity Health and Ascension Health, which operate dozens of acute-care hospitals, ambulatory surgery centers, academic medical centers and pediatric sites.

Far from distracting Cerner from other projects, Burke said the new defense contract will improve Cerner’s software for the company’s other clients by emphasizing security, mobility and interoperability.

Burke also touted the contract as a boon for Kansas City.

Cerner is the area’s fastest-growing large employer, and the company plans to hire 16,000 associates in Kansas City over the next 10 years.

“We’re planning on growth, and (the defense contract) is part of that growth strategy,” Burke said.

“People in Kansas City will work on this product, which is really cool when you think about the impact Kansas Citians will have on global health care and supporting the troops and the families of our troops.”

As for the second quarter that ended July 4, Cerner’s business orders reached an all-time high of $1.29 billion, up 20 percent from a year ago. It also added a record number of customers during the quarter.

Revenue climbed 32 percent to $1.13 billion from the second quarter last year. While Cerner said revenue was lower than it had projected, it said the results “did not have a material impact on profitability.”

Cerner’s net earnings were $115 million for the quarter, down from $129 million a year ago. On an adjusted basis, however, Cerner earned $183 million vs. $138.9 million a year ago.

“Cerner’s second-quarter results were solid, with lower-than-expected revenue largely overshadowed by solid earnings and record bookings,” Neal Patterson, Cerner’s chairman, chief executive and co-founder, said in the earnings statement.

This story was originally published August 4, 2015 at 3:40 PM with the headline "Cerner is eager to start on a massive upgrade of the U.S. military’s health records."