Oracle Corporation has agreed to acquire a large Electronic Health Records (EHR) company, Cerner Corporation, in a transaction worth $28.3 Billion.
Oracle already has a significant presence in healthcare but adding Cerner, which essentially runs an ERP-style software system for healthcare delivery networks, gives Oracle a much larger wallet-share inside healthcare related customers. This would also enable greater account control as it adds more industry-specific applications to its already widely entrenched technology platform.
If fully executed, this move will likely give Oracle a better market message around industry clouds, especially those designed for healthcare customers. Cerner software is still largely run on-premise, rather than in the cloud, as Cerner has lagged the market in its digital transformation and cloud migration efforts which only account for about 25% of its business today. Many customers also pay Cerner considerable professional services fees, which is somewhat antithetical for a modern technology company.
A few things to expect as customers...
The transaction will likely accelerate Cerner’s migration to the cloud that had started with an AWS partnership launched in 2019. Clients should be prepared for some disruption as Oracle will undoubtedly look to shift away from AWS and migrate Cerner’s EHR to Oracle’s cloud. Additionally, Cerner customers can now expect more application cross-selling from within the sales and marketing ranks.
Existing Oracle customers may see increasing pressures to migrate to its Health Cloud. The competition in this space is heating up with recent transactions by rivals such as Microsoft’s purchase of Nuance Communications for almost $20B USD in 2021, to further leverage Nuance’s advanced speech and Artificial Intelligence technology in the healthcare industry.
Customers of both:
We have seen firsthand with Oracle acquisitions, that both companies (Oracle and the acquired) can suffer a ‘brain drain’. Given Cerner’s heavy use of professional services, this acquisition could lead to risk around the talent supporting customers as turnover will most assuredly rise resulting in loss of experience and intellectual capital available for customers.
Since the days of "Meaningful Use" incentives, Cerner has been fairly stagnant and continuing to struggle in its attempts to reinvigorate organic revenue growth. With the addition of CEO David Feinberg in August 2021 and CFO Mark Erceg prior to that, it's clear the company has shifted its focus away from organic growth and towards a faster path of monetization through acquisition. This path will pay Cerner investors about a 20% premium.
Look for Oracle to quickly absorb this premium through the "Red-Washing" of their contracts with:
- Higher prices
- New audit demands
- New interpretations of existing contractual provisions
- Manufacturing of new requirements (pro tip: that end up costing you more money)
In summary, this is Oracle’s largest acquisition ever and further evidence of their desire to buy their way into markets and Cloud. With this acquisition, Oracle will likely accomplish both in the long run, but as we have seen in the past, it will be at your expense (literally and figuratively). If you are in the healthcare industry, we recommend discussing all options with the NET(net) subject matter experts before venturing into new agreements, upgrades, or contemplating agreeing to any “incentives” from either company as they run the risk of hindering your own transformation and cost containment efforts.
For more information, see our healthcare page and download our whitepaper the: Top 12 Reasons Why: Healthcare Providers Pay WAY TOO Much for IT.
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