Although high inflation continues to cast its shadow over health systems, hospitals and primary care practices in the US and Europe, Middle East and Africa (EMEA) markets, Q1 2023 financial results provide evidence that major hospital IT initiatives are positively impacting vendors.
The latest figures also offer two further takeaways: one, that lacklustre growth among the three listed vendors we track belies an otherwise healthy US inpatient EHR market; and that the revenue gap between tier-1 and tier-2/tier-3 primary care vendors in the US continues to widen, likely irreversibly.
Revenue Performance for Select Public EHR Business Lines/Vendors
Source: Signify Research
Inpatient US: Revenues Modest, but Don’t Tell Wider Story
Of the three companies we track in terms of public financials, revenues fell on average 3% over 12 months, and there was zero year-on-year (y-oy) growth in the last quarter.
Altera, which generates 95% of its revenues from the US inpatient market, saw its Q1 2023 revenue drop 5% from the from the same quarter in 2022, and 9% over a rolling 12-month period.
Oracle Cerner’s Q1 2023 revenues were up 3% on Q1 2022, but down from Q2 2022, the quarter when it broke the $1.5B revenue barrier for the first time with a sudden spike after many quarters of near-zero growth. We attributed that to the ‘Oracle effect’ following its acquisition of Cerner in 2021, but the ongoing saga of its $10B Millennium EHR solution contract for the US Department of Veterans Affairs (VA) weighs on its financial performance.
What should have been a flagship project has instead descended into a catalogue of delays, frustrations, technical problems and statements. In February this year, and in response to calls to shelve the project, Oracle Cerner issued a statement arguing that the VA should push ahead with it, and in the same month signed a contract with Accenture to provide extra EHR training for VA clinicians. However, the project took a dramatic turn for the worse last month when the VA suspended the rollout, insisting it would take as much time as necessary to fix the problems. This will be a drag on Oracle Cerner’s revenues going forward.
The rather muted quarterly revenue performance of the public companies tells only part of the story. The US inpatient EHR market is otherwise in good shape, with no shortage of fresh investment in US hospital EHRs. Larger hospital networks continue to subsume smaller facilities, playing into the hands of larger vendors who are better equipped to serve larger systems and IDNs. Epic and MEDITECH, which are private companies and do not appear in this analysis, are both gaining market share at the expense of the likes of Altera and Oracle Cerner.
In this environment, one must fear for CPSI’s long-term prospects. Its customer base is almost exclusively small hospitals. While it reported 2% y-o-y revenue growth in Q1 2023 compared to Q1 2022, it was down 2% y-o-y for the 12-month rolling total, and there must be questions over its ability to compete in the long-term.
Another emerging story in US impatient EHR is the impact of the 21st Century Cures Act. This legislation requires healthcare providers to upgrade their EHRs to be FHIR-compliant so that data can be shared with other EHRs. This will inject growth in the inpatient market, leading to a general trend of EHR solution upgrades. However, at this point, Epic and MEDITECH are the only two vendors to capitalise on this.
Primary Care US: The Good Times Roll On
It was another solid quarter for primary care vendors in the US. As with inpatient US, size is becoming increasingly important here too, and there is a growing ‘revenue rift’ between the ‘big 7’ (Epic, Oracle Cerner, NextGen, Veradigm, eClinical Works, Athena and Altera) and the long tail of tier-2 and tier-3 vendors.
The 21st Century Cures Act could be the final blow for very small players who lack the resources to develop EHR solutions that adhere to the Act’s requirements. Increasingly, providers are also looking to consolidate their IT for practice management, revenue cycle management, patient engagement, booking management and patient records into one solution, and again this presents challenges for the smaller vendors. At the same time, small primary care practices are being bought by larger networks bringing different settings under one roof, and who need a single EHR that can serve these different settings. Again, this conspires against the small vendors.
On the other hand, CompuGroup Medical (CGM), NextGen and Veradigm all posted good growth (although Veradigm’s numbers will potentially be revised). CGM reported 16% y-o-y growth for its North American operations in 2022 (this business largely comprises eMDs, its December 2020 primary care EHR acquisition). NextGen is 10% up on the rolling 12 months metric and Veradigm 5%. These, and the privately-owned larger vendors, continue to mop up the long tail of independents.
CareCloud is the clear outlier. A tier-2 vendor, it focuses exclusively on primary care. Its business picked up well in 2019 and 2020, peaked in 2021 and fell away in 2022. Its Q1 2023 revenues were down 15% on the previous quarter, and 8% over 12 months, symptomatic of the difficulties smaller vendors have in a market where resources and scale matter more than ever.
Inpatient EMEA: Trickle Down Effect Begins
The latest figures indicate that contracts serving the €3B Germany Hospital Futures Act (KHZG) initiative are finally finding their way to vendor spreadsheets. Signify Research reported from last month’s DMEA show in Berlin (read the Insight here) how vendors were waiting for revenues to flow, and this is now happening.
CGM reported 10% y-o-y growth for its inpatient HIS business in Q1 2023, but vendor performance is healthy across the board as a strong pipeline of state healthcare IT projects are implemented across EMEA. Comarch recorded 16% growth of the rolling 12 months metric, although its Medicine segment was down 15% over the same period; Nexus (focused on Germany/Austria/Switzerland and the Netherlands) was 11% up on the quarter and 13% over the rolling 12 months; and the TietoEVRY Care business line 11% on the quarter and 6% over the rolling 12 months (achieved despite losing big contracts to Epic and Oracle Cerner in the Nordics).
In upcoming quarters vendors serving KHZG contracts can expect to see further revenue spikes. A similar, albeit less well funded, scheme in Italy will also deliver revenues later this year.
Primary Care EMEA: A Mixed Bag
As in previous quarters, primary care EMEA markets are evolving on a country-by-country basis. The most striking developments are in France, where in Q1 2023 Cegedim Sante and Equasens posted 40% and 14% y-o-y growth over the same quarters in 2022 respectively. This is a direct impact from the Ma Sante 2022 investment programme.
In contrast, CGM-AIS and Cegedim-International both reported 4% quarterly growth over the same period in 2022. EMIS has not posted investor updates since the news broke that Optum was looking to acquire the business. However, its latest financial report also illustrates that its EHR focused business has struggled recently. This is explained by both Cegedim-International and EMIS Health working predominantly in the UK and the low levels of growth in primary care spending there at present.
CGM-AIS’s modest growth also reflects the relatively low levels of primary care spending growth in Germany, one of its focus markets (along with Italy, France and Eastern Europe).
In our last analysis of EHR vendor financials in March, Signify Research stated that many saw 2023 as being tougher than, or at best similar to, 2022. While the economic outlook remains challenging and inflation is still running high, there are grounds for heightened optimism in 2023, for larger vendors at least.
The fact that the funding for post-Covid recovery and resilience projects across EMEA, and new legislation in the US spearheading EHR upgrades, are not only in place but also translating into revenues, will be welcome news.