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On the face of it, publicly-listed EHR/VBC vendors performed well in the latest reporting period. Quarterly year-on-year (y-o-y) and year-to-date (YTD) revenues confirm that the vast majority are riding the crest of the post-Covid healthcare investment wave across Europe and the US. While barriers to sustained revenue growth exist, these are generally good times to be an EHR/VBC vendor in these two key markets.
Revenue Performance for Select EHR/VBC-Related Business Lines/Vendors
Revenue Change – Local Currencies
Source: Signify Research, Vendor Investor Relations
Note: Oracle Cerner’s financials are not like for like in terms of reporting periods, as reporting periods differ by one month compared to pre-acquisition periods. EMIS Health revenues are for 1H, not 1-3Q
The Signify View
Almost across the board, EHR and VBC vendors in Europe and the US reported higher revenues than in the same quarter a year ago. In some cases, gains have been strong: CPSI (serving US inpatient EHR), Health Catalyst (US VBC-focused) and Tietoevry (serving European hospital IT EHR) with 18%, 11% and 10% growth respectively (in local currencies).
The majority of gains have been healthy, if unspectacular. For example, Nexus (9% growth), CompuGroup Medical’s (CGM) Hospital Information Systems (HIS) business (7%) and NextGen (also 7%).
Notably, of all business units we display here, only Oracle Cerner’s healthcare business, EMIS Group’s EMIS Health business and CPSI’s System Sales and Support business saw revenues dip (in terms of both y-o-y and YTD performance). Note, EMIS Health reports only half-year results and these relate to the first half of 2022.
Riding the Wave: Hospital IT EHR (Europe)
The most striking quarterly y-o-y results were from Tietoevry Care, the healthcare unit of the Nordic software giant (10% revenue growth), and Nexus (9% growth). Nexus’ YTD growth (first three quarters of 2022) was similarly impressive, at 10%. Tietoevry’s YTD growth, by contrast, was a much more modest 2%.
CGM’s HIS business completes the picture here. Its y-o-y quarterly revenues rose 7% and its YTD revenues jumped 13%.
The positive results above broadly reflect the impact that post-Covid recovery programmes – such as the EU Recovery and Resilience Plan – are having on hospital IT and digitisation spending. One example is Germany’s €4.3B, four-year hospital digital transformation project (KHZG), launched in October 2020 (see our recent Insight on this here) and similar hospital IT upgrade schemes in France, Italy, the UK and the Netherlands.
Tietoevry Care’s results make for interesting reading. Its revenues are up despite Epic and Oracle Cerner’s move into its core Finnish and Swedish markets. Compared to these multibillion-dollar vendors, Tietoevry’s healthcare business is relatively small. As hospital IT procurement further consolidates around large vendors like Epic and Oracle Cerner, it will become increasingly challenging for Tietoevry to maintain its position. However, it does have significant advantages over larger international vendors: highly-localised solutions and a long history serving its Nordic customer base. Product development is key to fending off the threat from Epic and Oracle Cerner, particularly in VBC. Many contracts being won by these companies in the Nordics include IT to support integrated care and VBC (e g Oracle Cerner’s HealtheIntent) and so it is essential that Tietoevry develops its solutions further in these areas to maintain its leadership position.
Nexus is on comparatively firmer ground. The bulk of its revenues come from Germany, where KHZG contracts will drive the hospital IT EHR market until 2024/25, although it is less well positioned than CGM and Dedalus on this.
Nexus’ strongest revenue growth, however, comes from Benelux, where it is a second-tier vendor in terms of market share, along with Epic and Cerner. As in Germany, the Netherlands is undertaking widespread hospital IT system upgrades, and Nexus is well placed to secure contracts. Dutch software firm ChipSoft is the big incumbent in its home country, and Nexus’ revenue growth in this market is despite its inability, to date, to seriously erode ChipSoft’s share.
For CGM HIS business, the picture is different. It’s headline 13% YTD revenue spike can be partly attributed to several acquisitions the company has made (e. g. several EHR solutions from Oracle Cerner that have boosted CGM’s position in Germany, France and Spain and more recently Visus Group and KMS). Organic growth for HIS is still important, however and stood at 6% for YTD and for the last quarter. Again, this relates to revenue upsides from KHZG funding.
Mixed Bag: Primary Care EHR Vendors (Europe)
Compared to the buoyant European hospital IT EHR market, the revenue landscape for listed primary care EHR vendors is more mixed.
The software and services business of French company Cedegim, the unit which serves primary care EHR, reported healthy 5% y-o-y growth on the quarter, and 4% YTD growth (first three quarters of 2022). On the other hand, EMIS Health (the company’s more EHR-focused unit) of UK-focused vendor EMIS Group saw both its y-o-y and YTD revenues contract 6% in the latest reporting period, although its overall business did grow across these periods.
Cedegim continues to perform well across its core markets (France, UK, Belgium, Spain and Italy (where they have a primary care joint venture with Dedalus)). Like its hospital EHR counterparts, Cedegim is taking advantage of EU Recovery and Resilience Plan-led healthcare infrastructure investment programmes. In France this includes MaSante (MyHealth) 2022, where Cedegim is supporting upgrades to primary care EHR software. Equasens, which operates in similar markets to Cegedim, has also performed well, but in its case largely via acquisition.
The 6% contraction in revenues of EMIS Health over the first half of 2022 reflects an overall reduction in primary care EHR spend in the UK compared to 2021 (when Covid-related IT demand peaked), rather than any loss of market share.
CGM’s AIS revenue growth can best be described as mediocre, certainly in terms of quarterly y-o-y growth, which was just 1%.
5% YTD growth is attributed almost exclusively to acquisitions (it bought French primary EHR vendor Altantide at the end of Q1 2021), as organic growth was 0%. Organic revenues in the last quarter fell 4% y-o-y, as the Covid IT support boost that a lot of primary/ambulatory EHR vendor businesses benefitted from in 2021 tailed off.
Steady if Unspectacular: Ambulatory Information Systems (US)
Overall, in terms of public companies this segment is dominated by Allscripts’ independent practice primary care EHR and life sciences business, along with NextGen Healthcare. The other non-public vendors that make up the big six in this sector being Epic, Oracle Cerner, athenahealth and eClinicalWorks. NextGen reported 7% y-o-y quarterly growth, and 6% YTD growth, in the latest period. Allscripts posted 5% y-o-y and 6% YTD growth. Both sets of results were similar, solid and at growth rates higher than we have historically seen.
Allscripts’ solid growth here follows the 2021 split of its hospital EHR, VBC and international business into Altera Health. Allscripts’ growth now relates solely to its independent practice primary care EHR and life sciences business.
Allscripts, NextGen and the private players must confront the reality that the US ambulatory/primary care market is saturated. All providers have systems in place, and new revenue opportunities are limited to increasing the range of modules taken by each customer and eroding competitor market share.
NextGen and Allscripts have both responded to this reality, developing patient-facing telehealth, VBC and revenue-cycle modules (helping practices use EHR to maximise reimbursement from vendors). These new modules are helping generate new revenues for these two companies, and this strategy is also being employed among other big US vendors. These large vendors continue to gain market share at the expense of small, independent tier 2 and 3 vendors who lack the money and muscle to invest in R&D and product development.
This is a key challenge facing CGM in the US. While acquiring eMDs provided CGM with a US footprint, the AIS EHR competitive landscape is sharper in the US, where eMDs is a tier 2 vendor in terms of market share. Breaking into that elite tier 1 group will be hard without significant investment in new product development.
For US vendors that are predominantly only focused on ambulatory EHR markets, the biggest threat is their shrinking total available market (TAM). As shown below, the share of physicians working in the US for independent practices is decreasing. Increasingly these physicians are working for hospital systems. The drive towards VBC is encouraging health systems and IDNs to acquire independent practices to offer services spanning a patient’s entire health journey.
As the number of independent practices decreases and the number of hospital-owned practices increases, it plays directly into the hands of larger EHR vendors that can offer solutions spanning all health settings and specialties. Epic, Oracle Cerner, Meditech and Altera Health are the only vendors that really cater to this increasing requirement. Although Altera Health’s position here was somewhat weakened when Allscripts split earlier this year into two entities.
The diagram below describes this trend and provides a hypothetical simplified example where a large IDN acquires independent hospitals, community hospitals and physician practices to grow its network (Step 2). Epic is used as an example, but the trend applies to other vendors offering a portfolio of EHR solutions addressing a wide range of care settings.
As new providers are integrated into the network, their EHR solutions are gradually migrated to a common vendor (Step 3). In the case of Epic in the US, even providers that don’t belong to the IDN, but are part of the broader ecosystem, can piggyback on the IDN’s contract with Epic (using Community Connect) to also implement a common EHR (Step 4). This has resulted in Epic being one of the most used EHR vendors for independent physician practices in the US, despite it not historically marketing heavily directly to independent physicians. It also recently announced it would sell directly to independent practices via ‘Garden Plot’.
There are some counter-trends. Particularly in the US, specialty-specific ambulatory vendors are holding ground/gaining share with providers in their specialty (e. g. Modernizing Medicine in gastro and dermatology). However, holding back this migration to EHR vendors addressing a variety of care needs will be the biggest challenge for amublatory-only EHR vendors in the US in the medium term.
Arresting the Slide: Inpatient EHR Market (US)
We wrote recently about Oracle Cerner’s financial, strategic and product challenges (see Insight here). Any anticipated boost in Cerner’s financial performance from its $23.8B acquisition by Oracle is yet to happen. Oracle CEO Safra Katz declared recently however that, as Oracle fully integrates Cerner into its business, the latter would ‘positively impact’ revenue and earnings per share growth in the coming quarters. She added that Oracle expects Cerner to perform ‘even better’ in the coming quarters as it develops new healthcare cloud services.
In terms of US inpatient EHR, the interesting story is CPSI. It reported sharp 18% revenue growth for both y-o-y quarterly and YTD periods. However, its Systems Sales and Support business unit (focused on the US inpatient EHR market) had very different fortunes. It fell 2% in the latest quarter and 4% in terms of the first three quarters of 2022.
The company’s business in the US has historically been focused on smaller community hospitals. However, its TAM here is shrinking (see below) as IDNs and health systems acquire these independent hospitals and over time migrate to a common EHR (as discussed earlier in relation to ambulatory markets, but the trend also applies to community hospitals).
Epic, Oracle Cerner and Meditech dominate in the system-owned space in terms of EHR provision, and to a lesser extent Altera Health. Their wide range of EHR solutions spanning a health system’s complete EHR and VBC needs makes it increasingly difficult for companies such as CPSI to compete. In a similar vein to the ambulatory EHR vendors, the greatest medium-term challenge for inpatient only EHR vendors, particularly those that largely serve only independent hospitals, will be stemming this migration.
No Time to Rest on Laurels
Almost across the board, EHR and VBC vendor revenues are in good shape. Multibillion-Euro EHR investment schemes in Europe, along with the shift to VBC in the US, continue to underpin growth.
These dynamics comfortably mask the everyday challenges facing hospitals and ambulatory and primary care providers: staff shortages, inflation, soaring energy costs and logistics and supply chain issues. For now, at least.
And while overall revenues are healthy, Oracle Cerner is a warning to other vendors that acquisitions are not always the key to short-term revenue joy. EHR vendors may rarely have had it so good, but this is no time to rest on their laurels.
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