Tag Archives: KHZG

SPI Digital Health: EHR Vendor Financials Q1 2023

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). 

Brighter Outlook 

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. 

Click here to view full public vendor financial data. 

SPI Digital Health: Epic Eyes German Debut at University Hospital, but Outcome Anything but Academic

The rumour mill was in full flow at DMEA 2023 in Berlin this week as talk revolved around Epic’s ‘imminent’ debut at a prestigious academic hospital in the German capital.  

There is plenty of substance behind the rumours. German Health Minister Dr Karl Lauterbach has, in recent weeks (including at DMEA), publicly stated his view that German hospital IT is much inferior to US hospital IT. And Dr Peter Gocke, Chief Digital Officer at Charite – Universitatsmedizin Berlin, the hospital in question, recently referred to ‘upcoming Epic upheavals in the German HIS landscape’, talking glowingly of the ability of highly integrated systems such as that offered by Epic to contribute significantly to digitisation. These words will resonate strongly in a country in the midst of a multi-billion dollar hospital digitisation programme. 

If rumours of Epic’s impending entry – which would see it replace Oracle Cerner at the Berlin hospital – are true, what will it mean for incumbent vendors in the country? And what are Epic‘s chances of success? 

The Signify View 

That one of global EHR’s biggest names is allegedly poised to debut in one of Europe’s larger hospital IT markets would always attract attention. But Epic will not suddenly start rampaging through the 2,000-plus German hospitals in the market. There are many forces at play in German hospital IT, few of them in Epic’s favour at present.  

With vendor attention trained on the German Hospital Futures Act (KHZG), the more interesting angle here is not Epic, but rather Oracle Cerner’s increasingly precarious position in Germany, and the threat it faces from vendors ready to exploit any chinks in its armour. 

Chickens Come Home  

Oracle Cerner’s German predicament goes back to SAP’s decision last year to withdraw support for i.s.h.med in 2030. We wrote in this Insight in late 2022 how the decision would cause widespread concern among Oracle Cerner’s i.s.h.med customers about the future of the solution. We also stated how, unless Oracle Cerner moved quickly to reassure its customers that it had a contingency plan for i.s.h.med, then other vendors would swoop to fill the vacuum.  

Remarkably, Oracle Cerner has still not publicly stated (and DMEA would have been an ideal opportunity to do so) its intentions for i.s.h.med (although awkward private conversations will be happening with customers on possible long-term visions that would provide a solution). And, in light of this, and as Signify Research predicted, vendors are now moving in on some of Oracle Cerner’s 250-strong hospital customer base.  

But Epic, Oracle Cerner’s nemesis in the US and so many international markets, will not be a big player in this.  

Epic Extravagance 

There are a number of reasons for this. Firstly, despite being held up by German healthcare leaders as something of a ‘poster child’ of hospital IT, Epic is expensive. A survey conducted by DigitalRadar shows German hospitals allocate just 2.4% of their annual operating costs for IT spending, compared with around 8% in the US.  

Epic is therefore an extravagance afforded by a select few in Germany – prestige facilities like Charite – Universitatsmedizin Berlin for example – and very large hospitals and associations. In time, market leaders like Dedalus and Oracle Cerner might lose the occasional bigger, better-resourced academic hospital to Epic, and likely must also begrudgingly accept losing sites that make up the long-tail of their customer bases.

The Health Minister’s recent comments about German hospital IT infrastructure did not go down well among vendors in the country, however. They argue that they would love to be able to sell more sophisticated solutions like Epic’s into German hospitals if only the hospitals had the budgets of their American counterparts. 

Another reason why Epic will struggle to make headway in Germany is the fact that KHZG has been such a strong focus of German hospital IT development and investment over the past few years. Vendors have spent years aligning with the various technical criteria needed to fulfil the 11 IT pillars around which KHZG funding is allocated. Much KHZG money will be spent in the next two years, and Epic has missed the boat. 

Commentators often also refer to the fact that Epic already has one, and soon to be two, German-language customers via contracts in Switzerland, and that it would therefore be a relatively quick step to localise EpicCare for Germany. However, the regulatory environment in Germany is vastly different to that in Switzerland and the localisation effort to achieve a workable solution should not be underestimated. Epic will be cognisant of this, having rushed localisation in other European countries (e g Denmark and the UK) over the last 10 years, and subsequently faced significant backlash from those local customers.    

Exploiting Weaknesses 

As stated, the incumbent vendors (see Figure below) will be concerned less about Epic and will be more interested in how they can capture some of the 250 i.s.h.med contracts from Oracle Cerner. Some are manoeuvering into position. CompuGroup Medical (CGM), which acquired parts of Cerner’s (pre-Oracle acquisition) healthcare IT business in early 2020, has some 550 hospitals across its Clinical and Medico (ex-Cerner) product lines. At DMEA this week it launched the third-generation iteration of its Clinical product line. One component specifically targets workforce management and billing (the SAP element of i.s.h.med) and will be targeted at existing i.s.h.med customers.  

Dedalus (the market’s dominant player), Meierhofer, Telekom and others also offer competitively-priced EHR solutions that will interest a customer base rapidly losing faith in i.s.h.med. 

Cerner Clock Ticking  

Oracle Cerner’s response has been two-fold. One, it promises that the clinical elements of i.s.h.med will be able to operate with third-party elements that could replace the functionality offered via SAP. Two, it has also a longer-term vision for its i.s.h.med, Soarian and Millennium EHR products under the broader Oracle Cloud Infrastructure (OCI) umbrella.  

According to the company, OCI is ‘a set of complementary cloud services that can run a range of applications and services in a highly available hosted environment’. But it is unclear when this more modular solution will launch. Elements of this solution will start to be available over the next 12 months, but at what point a solution that could be leveraged by its i.s.h.med customers becomes available is still unclear. And time is not on Oracle Cerner’s side in this market – its i.s.h.med customers are looking for clear guidance now.  

Nor is Epic’s timing necessarily good in Germany should the Berlin contract come to pass. Given vendors’ positioning around KHZG, Epic will not be able to disrupt such an established ecosystem. It could be years before it can.  

Despite relative success on large regional contracts in various geographies, Epic’s track record on one-off deployments isn’t great either. There are several examples of Epic deployments that have run into dead ends as the firm struggled to localise workflows. 

Charite – Universitatsmedizin Berlin is not yet a done deal – no formal tender has been issued – but the signs are that Epic is in the box seat. According to insiders, preliminary documents (where vendors register interest in tendering) include specifications weighted in Epic’s favour, and exclude specification that would rule Epic out 

Any Berlin contract, then, would be quite valuable for Epic financially, as well as being good PR. While the optics are far less positive for Oracle Cerner, at least KHZG funding rules dictate that providers cannot use the money to strip out and replace legacy EHR systems, and so i.s.h.med at least has a stay of execution.  

But over the next 12 to 24 months the potential move away from i.s.h.med will be watched closely, and it remains to be seen the extent to which OCI will be Oracle Cerner’s saviour in German IT. 

SPI Digital Health: Signify Research’s Top Five Predictions for DMEA2023

For many years the annual DMEA meeting in Berlin was very much a German affair; however, more recently the show has become Europe’s leading pan-continent digital health IT conference and exhibition. Whilst the agenda at DMEA2023, which will take place from 25 to 27 April, will still have a German bias, issues discussed, and products showcased, increasingly impact healthcare IT development across Europe. Here’s our take on the leading themes.   

KHZG: Funding Translating into Contracts  

Two years after coming into force, Germany’s Hospital Futures Act (KHZG) is slowly delivering on its goals to digitalise the nation’s hospital network. However, it is taking time for government funding to trickle down to IT vendors.  

Two vendors that Signify Research has historically forecast would benefit considerably from KHZG were CompuGroup Medical (CGM) and Dedalus. Whilst both vendors’ business in related markets grew in 2022 (CGM’s Hospital Information Systems group grew 7% and Dedalus’ DACH business is estimated to have grown ‘in the teens’), much more is to come. 

To an extent the fund allocation process has resulted in the bulk of the impact being back-loaded towards the end of the funding period (2021-2024). First, hospitals had to apply for funding by pillar. After being allocated funding, IT tendering began, with IT contract awards coming last. This impact was first felt in 2022, with more substantial effects being seen in 2023.  

Another reason why the impact has been slower for larger generalist hospital IT vendors is that initial activity was focused on KHZG’s ‘easier’ elements. Funding has been allocated by pillar, across 11 pillars (detailed below), with the initial focus on pillars where overheads, in terms of implementation, were lower. For example, the below shows that Digital Care and Treatment Documentation (mainly comprising dictation solutions) was the most funded pillar, followed by Patient Portals. More complex and costly areas in terms of implementation, such as Emergency Room IT and Process Digitalisation, ranked lower. Expect more to come in terms of more complex pillars over the latter half of the funding period.  

Source: November 2022 German hospital digital maturity assessment co-ordinated by Digital Radar (DR)

Many IT contracts to service this funding will now move towards contract allocation. Expect IT vendors at DMEA to position themselves as go-to-vendors for specific pillars, with a handful, such as CGM and Dedalus, positioning themselves as best equipped to support a multitude of pillars.    

Record European Government Investment in Digital Health IT  

Germany is not alone in allocating significant new public funding for healthcare IT projects in recent years. For many EU countries the post-COVID EU Recovery and Resilience programme was a key vehicle for revitalising and increasing the digital maturity of healthcare IT in general, with large amounts of public money allocated to projects. In specific countries new, well-funded projects were announced during COVID (some linked to the EU programme, some not) to upscale the sophistication of IT in European hospitals and elsewhere in the healthcare ecosystem. 

Examples include Gara Sanità Digitale (Italy), Ma Santé 2022 (France) and Le programme HOP’EN (France). DMEA has historically been DACH-focused, but in recent years is becoming Europe’s largest cross-continent digital health show. Vendors positioning themselves as able to deliver the IT required to secure contracts in countries where funding has been ramped up, will be a key feature of the show.   

Vendor Consolidation – Local Champions to Regional Heavyweights 

More than 500 vendors, from international heavyweights to start-ups, will exhibit at DMEA, a sign of a healthy, competitive ecosystem of IT and device companies addressing the European healthcare technology market. However, the backdrop to this is the recent emergence of several pan-European heavyweights, specifically in relation to hospital IT.  

CGM has, for many years, been relatively large, serving many European (and global) geographies; however, 2021 saw it breach the €1Bn threshold for the first time, and €1.1B in 2022. It has grown partly organically but also via ambitious acquisitions, most recently of Medicus, VISUS, New Line and eMDs. Its 2020 acquisition of several product lines from Cerner (now Oracle Cerner) also significantly boosted its hospital business.    

Dedalus has also rapidly expanded its business and footprint. As well as being the DACH region’s dominant vendor, it also enjoys tier 1 status in Italy, France and the UK, often in both inpatient and outpatient/primary care markets. This has largely been achieved via acquisitions.  

Many of Europe’s once single-country-focused vendors, such as TietoEVRY, Mesalvo (the merger of iSolutions and Meona), Cegedim and Cambio have attempted to scale internationally, sometimes organically, but more often via M&A. Further, the two dominant US inpatient health IT vendors, Oracle Cerner and Epic, now also hold a substantial presence across Europe.  

A key debating point at DMEA is whether Europe is heading in the same direction as North America, where most large digital health IT contracts (particularly inpatient EHR/HIS) are mopped up by a small number of incumbent vendors with the scale and resources to address increasingly demanding tender requirements.  

Signify Research’s view is that this will not happen. There will be increased consolidation, benefitting the likes of CGM, Dedalus and Epic, but at a slow pace. However, the specific geographic nuances of each country, the fact that European EHR and Clinician Information System (CIS) markets are still relatively independent, and the entrenched position of many leading local vendors (think Maincare (France), SystemC (the UK), Ines (Switzerland), Engineering (Italy)) will result in a healthy, and relatively fragmented, competitive ecosystem for the foreseeable future. The plethora of vendors that have already benefited from KHZG funding adds weight to this argument.  

New Models of Care Leveraging Integrated Data 

“New perspectives on health data use and analysis”, one of the key themes on the DMEA congress agenda, underlines the drive to develop connected healthcare ecosystems in many European countries. This has been a focus of German healthcare IT investment over recent years in the form of Gematik Telematikinfrastruktur (TI), a programme to connect the multitude of IT systems used across the healthcare network.  

However, whilst successful IT-wise, the programme has not ultimately changed how healthcare is organised and provided across Germany. There are examples in other European countries where data connection/integration programmes were a component of a broader reorganisation of healthcare towards a more integrated, holistic, predictive (as opposed to reactive) system. These include the creation of Integrated Care Systems in the UK, and Territorial Professional Health Communities (CPTS) and GHTs in France. To some extent these programmes mirrored US Value-Based Care/ACO programmes, although all have been slow to deliver on their promise.  

A key theme at DMEA will be how to accelerate the integrated care agenda across Europe, which models offer the best opportunity to tackle the increasing burden of healthcare provision across the region and, specifically, how this is implemented in DMEA’s home territories of Germany, Austria and Switzerland.   

Scaling Digital Therapeutics and Remote Patient Monitoring 

In November 2019 the German Bundesministerium für Gesundheit (Federal Ministry for Health) launched, with great fanfare, the Digital Healthcare Act (DVG).  Core to this was €200M($240M) annual funding to 2024 for Digitalen Gesundheitsanwendungen (DiGA) apps. These were digital apps prescribed by healthcare providers to support the management of a range of medical conditions from depression, panic attacks, obesity, anxiety, and osteoarthritis. Solutions could range from patient-focused decision support software, apps to manage medication dosage or solutions to monitor and collect data on patients related to therapy or condition. 

The launch was initially plagued by challenges, from delays in testing and authorising solutions on the official DiGa app register, to a lack of engagement from physicians in prescribing solutions to patients. In subsequent years, there has been some progress, but the programme is still far from delivering on the original fanfare.   

The DiGa experience is representative of many digital therapeutics and remote patient monitoring (RPM) programmes across the continent. For many countries, including Germany, making the step from small, regional trials tied to specific pilot programmes to scaled solutions addressing large sections of the population managing chronic conditions and mental illness remains an unmet challenge. Patients managing chronic conditions and mental illnesses are some of the most expensive cohorts in terms of healthcare provision. Grasping the opportunity that digital health offers to limit these costs must be prioritised.   

Europe has, largely, still not passed the latency inflection point in the product life cycle for both digital therapeutics and RPM, unlike the US which is now clearly growing owing to clearer funding mechanisms and a more holistic spending viewpoint via VBC. Much discussion at DMEA will relate to what is needed to move the dial on this topic across Europe.   

DMEA’s coverage will be broad, and these themes represent what we believe will the leading topics. A range of other issues will be addressed, from cloud migration, virtual care post-COVID, to the increasing influence of big tech in Europe’s health IT markets. In general Europe has lagged the US in healthcare digitisation. DMEA will be a bellwether as to whether the post-COVID influx of IT funding is narrowing this gap.