What will the Oracle-Cerner acquisition announced on Monday mean for the companies, their clients and for healthcare in general? That’s still to be seen, but one thing is for sure: It’s a big deal.
As CNBC noted, the $28.3 billion Oracle paid for the health IT giant is “monumental” – three times as pricey as the company’s next-biggest deal, its 2005 acquisition of PeopleSoft for $10.3 billion.
Indeed, it’s “up there with the largest software deals ever”: only slightly smaller than IBM’s mammoth $34 billion acquisition of Red Hat in 2018 and bigger than Microsoft’s $20 billion acquisition of Nuance earlier this year.
But there are good reasons for that sort of sizable investment.
“The future of enterprise software is being able to engage with industry segments,” as IDC analyst Bob Parker told The New York Times. “And this puts Oracle deeply into a key part of the healthcare business.”
Oracle is clearly very interested in Cerner’s cloud business, given the EHR vendor’s expansive relationship with Amazon Web Services, CNBC points out, and its Project Apollo initiative, built on AWS infrastructure.
“Oracle was a late entrant to the cloud-infrastructure business, and it trails AWS, Microsoft and Google in terms of market share,” writes Ari Levy. “Far from conceding defeat, [Larry] Ellison uses every opportunity to tout Oracle’s cloud capabilities, occasionally at the expense of AWS. There’s every reason to believe that Ellison sees Oracle’s cloud as the eventual home for a good chunk of Cerner’s future migration.”
Forrester senior analyst Natalie Schibell, meanwhile, sees potential for success, but it will be decided by how well Oracle is able to manage this “cloud-first strategy for harnessing the power of data that sits outside of the electronic health record.”
As she noted in a statement sent to Healthcare IT News, “an Oracle-Cerner deal would require Oracle to push the throttle on Cerner’s move to the cloud to drive a new paradigm of data-driven healthcare.”
Oracle will have its work cut out for it as it adjusts to a complex healthcare market with which it has limited experience.
“With ONC Final Rule in effect, 2022 will be the year for big data analytics to mature clinical decision support and personalization,” said Schibell. “The rise of consumerism and value-based care will result in a surge of data from consumer wearables and remote patient monitoring devices. Electronic health record platforms must support AI and ML to analyze external clinical data sources, balance resources, contain costs, reduce waste and optimize clinical workflows.
“Oracle will need to equip the electronic health record for greater utilization of virtual care, including the shift of acute care into the home,” she added. “A forward-thinking cloud strategy must underpin data-sharing with interoperable data that is maintained on a longitudinal care record and exchanged securely.
“Leveraging the power of data is just as important as keeping it secure. As Oracle attempts to make a bigger footprint in the health care sector, its investment in cybersecurity must also exponentially grow.”
“The fact remains that healthcare is one of many industry sectors that big tech firms serve, and it remains to be seen how much management attention will go into building out the EHR footprint that Cerner brings into the mix,” said Paddy Padmanabhan, founder and CEO of Damo Consulting, in a statement.
“The obvious question is whether the deal is just about juicing the cloud computing business for Oracle. It’s worth noting that Google and Apple had major setbacks recently in the healthcare space, so success isn’t foretold.”
In a subsequent interview with HIMSS TV Padmanabhan said he’s taking a wait-and-see approach. Watch it here, and embedded below.
“I’ve been talking to some of our clients and some of my connections in the industry as well, and there are several things to unpack from this,” he said.
“One of the things is Cerner is in the middle of a migration with AWS. Is that now going to stop, and is that now going to shift over to Oracle? And what does that mean for Cerner as an organization and the amount of resources, and bandwidth, and everything else that they’re going to have to devote to that exercise, should that come to pass? And will that mean a loss of focus on their customers?
“The other thing, of course, is what new products and services is Oracle going to try and sell to certain customers,” he added. “The press release was very clear about at least one thing that Oracle seems to be very keen on, and that is to try and sell their voice recognition software [Voice Digital Assistant], which Oracle thinks is going to make a big difference in reducing the burden among physicians. And that was everywhere, it was mentioned more than once in the press release.
“So customers are going to be expected to look at other traditional Oracle products and consider them on top of the Cerner platform. They’re going to have some choices in front of them, especially if they’re using a different software,” he said.
The obvious one that comes to mind, he said, is Nuance.
“Are they going to have to shift over to some Oracle-owned voice recognition technology? And how good is it, really? Because when we talk about voice-recognition technology, Oracle is not the first name that comes to mind,” he said.
“This one’s pretty monumental”
Believe it or not, however, the synergies between Oracle and Cerner are apparent enough that a merger of some sort has been discussed for years – at least 13 years, in fact. John Moore, founder and managing partner of Chilmark Research penned a blog post, way back in June 2008, titled, “Oracle + Cerner = Opportunity?“
Much of what I said back then, holds true today.https://t.co/r4QDa0lc0i
— John Moore (@john_chilmark) December 22, 2021
Of course, in 2008, Cerner’s founding CEO Neal Patterson was still captain of the ship, and Moore says it’s unlikely he would have gone for such a deal. “He was a visionary,” said Moore in an interview with Healthcare IT News. “And he had a firm hand on the tiller.”
After Patterson’s death from cancer in 2017, however, Moore says the idea of an acquisition became much more likely: “It was just a matter of when, and who would come up with something.”
And Oracle was a logical suitor, he said: “They’re trying to get this public cloud business going. They and IBM have really been slow to act on this, and Microsoft, Amazon, and to a lesser extent, Google have really capitalized on that because that’s where the trend is.”
Moore recalls a recent earnings call, where Larry Ellison said “financial services and healthcare were going to be important industries for their public cloud,” he said. “And I think acquiring Cerner allows that capability, to become more industry-specific with the public cloud services that they’re going to be offering, and they may do something similar in the financial realm, to build out that.”
This deal is “an example of kind of starting with an existing customer base and a platform, a la Cerner, to build from,” he explained. “Whereas, for example, at Amazon/AWS, they’ve got Anthem building their AWS platform, Anthem built Health OS. So that’s worked out pretty well. Humana and Epic’s partnership, they’re using AWS as well as kind of the go-between. So it’s an interesting market right now, as everything transitions to cloud environments. That’s the next battleground.”
As for Cerner clients, Moore surmises that their reaction to the deal is largely in line with that of other observers: Wait and see. But he says most of them will certainly be hoping to avoid big and potentially disruptive cloud transitions in an already busy data-management environment.
“It depends on where I’m at with Cerner in terms of the deployment of their solutions in a cloud environment versus not,” he said. “If I was a Cerner client using HealtheIntent, which is live on AWS, I would say, ‘Don’t mess with that. Just leave it. We’re using those tools. We’re using HealtheIntent in that capacity, and we’ve loaded our data into AWS. Don’t screw around with that.’
“I don’t think they’ve gotten very far on the AWS Millennium transition, so I believe there’ll be less concern amongst the client base with regards to Millennium, but I think over time it will eventually transition everything over to Oracle. But how does Cerner manage that transition?
“And I think if I were a customer, I’d say, it’s Oracle. You’ve got a lot of experience in the fintech arena. Get this [revenue cycle management] thing fixed once and for all. RevElate is something that a lot of people have hope for,” Moore said.
And what are Judy Faulkner and her team at Epic thinking right now?
“I’m pretty sure they’re having very mixed feelings about it. I believe that Judy would probably be feeling like, ‘I’m glad I put together the trust I have, to keep Epic independent,'” said Moore.
“I think in another way, certainly, they’ll be cheering it because it’s going to create a bit of confusion in the Cerner client base and may result in further decline in Cerner’s market share,” he added. “But if I was Epic, I’d also be a little worried about, ‘With Oracle’s breadth and depth internationally, are we going to have a harder time getting accounts overseas?’ Because that’s where the growth market is for EHRs, at least.
“There also may be a little bit of a sadness, in that it’s kind of an end of an era,” he said, in terms of competition.
Epic, he said, has “always been very customer-focused, but keeping that drive alive, to continue to out-innovate, beyond what competitors are doing, or anyone else, to serve their client base, because now there’s no strong competitors there,” may be challenging.
One thing is sure – this is still “very much a developing story,” said Moore.
“It’s going to be a while before we figure out exactly what’s going on here. But I think the repercussions to the broader industry are pretty significant compared to a lot of other big acquisitions we’ve seen in the past decade or so. This one’s pretty monumental.”