WASHINGTON- The Pentagon will announce the winner of a highly sought after contract to modernize the military’s electronic health records by the end of this month – a decision with big implications both for the military and for Kansas City-based Cerner Corp.
Cerner, a health information technology company and one of the largest and fastest-growing employers in the Kansas City region, is among three finalists for a 10-year, multibillion-dollar contract.
Cerner develops health information technology systems for hospitals and medical offices that allow the digital storage and sharing of patient records among facilities. The company also is working to analyze the accumulated data to help predict health outcomes and indicate best practices for care.
Winning the contract would be a huge coup for Cerner. The hotly contested Defense Healthcare Management System Modernization contract, known as DHMSM, has been nicknamed “dim sum” by industry insiders. The military estimates the project’s lifecycle costs at $10.5 billion over 16 years.
One health technology website called it “among the most coveted health IT contracts in history.”
But such a high-profile prize also carries risks.
“It would be the biggest contract the company has ever signed from a revenue perspective,” said Sean Wieland, a research analyst with Piper Jaffray, a leading investment bank and asset management firm.
Certainly it would boost Cerner’s value on the stock market, where it closed Thursday at $71.30 per share.
The U.S. government is not a high-price payer of services, however, so the contract likely would not be the company’s most profitable, Wieland said.
“And a contract of that size,” he said, “could potentially change the culture of the company, as they would become a big government contractor.”
At the annual shareholders meeting at the company’s Kansas City headquarters in May, company CEO Neal Patterson said Cerner had decided to bid on the Department of Defense health IT system “somewhat against some sage advice.”
He went on to quote Jack Danforth, a Cerner board member and former U.S. senator from Missouri, saying, “His counsel is, always be careful dealing with an entity that actually makes the laws, has armies and runs the court system and has law enforcement, ’cause you may be outgunned and they’ll probably tell you you can’t own your own guns.”
Then he chuckled and called on the next question.
Despite Patterson’s levity, his words hint at the challenges facing the contract’s winner. The award winner will be responsible for upgrading the disparate digital medical records of 9.5 million active-duty service members and their families, as well as some veterans, retirees, survivors and members of the Guard and Reserve forces and their dependents. The overhaul will affect 56 hospitals and hundreds of medical and dental clinics in 16 countries.
It’s a mammoth task fraught with potential pitfalls. The project is sure to draw intense public scrutiny and will be subject to congressional oversight. Any cost overruns, delays or glitches could prompt inquires and hearings on Capitol Hill.
Already the watchdog Government Accountability Office has put the Pentagon’s health records modernization project on its list of high-risk government initiatives.
The federal government has spent billions on failed IT investments, the GAO warned, including the military’s beleaguered Expeditionary Combat Support System, a software project that was shelved in 2012 after wasting more than a billion dollars over five years.
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