Is Cerner an Acquisition Target for Microsoft and Google?

Thanks for my friend Shereese Maynard for pointing out this article that suggests Cerner might be an acquisition target soon.  The article makes the salacious statement that “Cerner is a wounded gazelle, and the lions are hungry.”

For those keeping track at home, we’ve been through this before when Jim Cramer suggested that Apple Should Acquire Epic.  Of course, Cramer said they “should” and the latest article says they “might be.”  Both indicate a hedge which suggests they’re just pontificating and not really actually reporting on something they’ve found that would indicate this is near.  When you remember that their business is about attracting eyeballs, then you at least read articles like these with that perspective.

As we cover the industry so deeply, I thought it might be worth taking a look at their arguments to see if they have any validity.  Certainly, this will be of interest to those who currently use Cerner.

Core to the author (Dana Blankenhorn) of the article’s argument is that cloud companies are looking to roll up “the old enterprise software market by bringing preexisting industries into the cloud” and that healthcare is one of those industries.  Along with that over arching concept is the fact that the CEO of Cerner is retiring and Cerner has done has had a good year, but not a great year with the most recent quarter showing less revenue than a year ago.

If you’ve been to any major health IT conference in the past couple years, you realize that the battle for the cloud is a major thing in healthcare.  Amazon, Google, and Microsoft are pouring money into the market as they chase the large healthcare cloud contracts that are out there.  While switching clouds is not impossible, it’s not very likely.  Getting a large client on your cloud is likely going to be a long term big win for each of these cloud companies as the need for more space, processing power, etc in healthcare it only going to continue to increase while the cost of operating these clouds approaches zero at scale.  That’s a good business to be in so it makes sense that all of these organizations want to get into the healthcare cloud.

The core question here is would an acquisition of Cerner help someone like Microsoft or Google get into that business?  The article points out that Cerner already has a relationship with Amazon’s AWS cloud solution.  It reasons that Microsoft or Google buying Cerner would deal a big blow to that Amazon AWS business as they move Cerner cloud users to a new cloud.  How much of a technical lift this would be for Cerner to move to a new cloud, I’m not sure.  However, from an end user perspective, I don’t think it would cause many issues.

I should also note that I agree with the article that Cerner would not be a great fit for Amazon which really doesn’t have an enterprise business like Cerner represents.  I just don’t see Amazon having any interest in acquiring Cerner.  Sure, they’ll partner on the cloud side of things, with their telehealth solution, potentially access to the Cerner data, but from a company stand point I don’t see Amazon as a good fit.

Are Microsoft and Google a better fit?  Microsoft does seem like the obvious choice.  Although, the value isn’t likely as high for Microsoft as Google since every healthcare organization is already a customer of Microsoft.  However, the Enterprise Software does fit with Microsoft better than Google even though Google has made strides on the Enterprise side in recent years. Google and Microsoft would both love the data that Cerner has available, but as we’ve seen in many recent news stories, their use of that data would be quite restricted.

For Microsoft, the acquisition of Cerner could actually damage the recent acquisition they made of Nuance.  Nuance’s big promise is in their DAX product which helps to automate clinical documentation.  Acquiring Cerner would give them a fast track to implementing the DAX solution across a wide EHR user base more quickly.  However, it would also mean that they probably wouldn’t be able to sell that solution to the 300+ other EHR vendors out there including Cerner’s main rivals Epic and MEDITECH.

Acquiring Cerner would mean that Microsoft thinks that the combination of Nuance’s DAX product together with Cerner’s EHR would be game changer enough that they could really gain EHR market share from rivals.  Ask any Epic user and you’ll find out that Cerner even with an ambient clinical voice solution still probably isn’t enough to cause them to switch to Cerner from Epic.  First, because Epic would just get in bed with 3M/M*Modal to implement their solution or Epic has hinted at their own EHR AI assistant being 2 years out.

For either Microsoft or Google, the real question is whether the cloud business they’d build in healthcare would be enough reason to acquire Cerner.  The good news is that Cerner is in a business that isn’t going anywhere.  Sure, some are leaving Cerner for Epic (generally after an acquisition), but most of the large Cerner deployments aren’t looking to switch software and won’t for a long time to come.  There are opportunities for EHR growth internationally, but the real growth I see for EHR vendors is what they can do with the data and add on features that they offer.  Microsoft and Google would have those connections and are heavily investing in those areas, so purchase of Cerner would make sense from that perspective.

The author of the article also suggested the following:

Whichever cloud giant loses might go after closely-held Epic Corporation (OTCMKTS:EPOR), no relation to the game company, to get a stake in the electronic health record market. There are also McKesson (NYSE:MCK) and privately held Meditech.

To be honest, this paragraph makes the person writing the article lose credibility around the EHR space.  First, McKesson doesn’t look anything like Cerner, Epic, or MEDITECH today.  I might have missed one, but I think McKesson has divested of all of its EHR assets.  As I addressed in the previous Apple to buy Epic article, the idea of Epic selling is pretty laughable.  At least while Judy is still around.  The same feeling is largely true for MEDITECH as well.  Although, the original MEDITECH Founders and long time CEO are starting the transition to new leadership which may have other ideas.  However, the MEDITECH culture is strong, so I wouldn’t bet on it.

All of this to say, Cerner really is the crown jewel of EHR acquisition targets.  At least Cerner might be open to the conversation where you’d be lucky to get a conversation with Epic and MEDITECH.  As mentioned above, Cerner’s now heading towards its 2nd CEO past the original founder and so they may be open to the discussion.

What’s interesting about this deal is that it likely wouldn’t be a good one for the end user.   Does anyone think Cerner would be dramatically better for its end users because of what Microsoft or Google could bring to the table?  I don’t think so and it could be worse if Microsoft and Google choose not to invest in it going forward and just decides to cut costs and live off the cloud revenues.

Where does this leave us?  It’s fun to think about Microsoft and Google acquiring Cerner, but I think it’s pretty unlikely.  While this would help one cloud company take a swipe at Amazon on the cloud business side, it would also probably alienate them from providing cloud services and other EHR vendors in the market.  Plus, Microsoft, Google, and Amazon can still increase their healthcare cloud business and gain access to EHR data even without an acquisition.

What do you think of this?  Do you think an acquisition like this makes sense?  Would you like for Cerner or your EHR vendor to be acquired by one of the Big Tech companies?  Let us know your thoughts in the comments and on Twitter (@hcittoday).