Tag Archives: Oracle

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. 

Signify Premium Insight: Respite for Oracle Cerner with $365M Nova Scotia EHR Deal

Good news has been in relatively short supply for Oracle Cerner over the past year. The EHR giant continues to yield share (chiefly to Epic) in the US; it is mired in a problematic $18B EHR implementation for the US Veterans’ Association (VA); and must grapple with German multinational SAP’s decision to cease technical support for its i.s.h.med solution in 2030. 

Last week’s announcement, then, that its Canadian division has landed a $365M deal to design, build and maintain an integrated electronic care record in Nova Scotia is very welcome.  

Rollout of the One Person One Record (OPOS) project will begin within two years, and will initially focus on hospitals, mental health and addiction facilities. By the end of the 10-year contract, Oracle Cerner says more than 26,000 healthcare professionals across the province will have access to real-time patient information. 

The Signify View 

One of the largest public sector procurements in Nova Scotian history, this is also a substantial win for Oracle Cerner, and the latest in a series of high value, province-wide contracts being implemented across Canada by mostly international EHR vendors. The Nova Scotia deal will impact the country’s wider competitive vendor landscape; Oracle Cerner can wrest back some revenue share from Epic in what is its second-largest market (after the US). At the other end of the spectrum, the news is another blow for Altera (formerly Allscripts), which was the other final bidder against Oracle Cerner for Nova Scotia, as it continues to haemorrhage share in key markets, including Canada. 

Not Before Time 

The OPOR contract award has been a long time coming. Tenders were issued in 2015 and six vendors – Allscripts, (Oracle) Cerner, Epic, MEDITECH, Evident and Harris Healthcare – submitted proposals in early 2017. Epic and Harris Healthcare failed to make the cut, and then in June 2017 the field was further narrowed to Allscripts and Cerner. Covid further delayed the contract award. 

OPOR will replace the three existing hospital IT systems in Nova Scotia with a single, integrated core clinical information system. Oracle Cerner says the project will give health professionals at any Nova Scotia Health or IWK Health acute facility real-time information on patients, which will be fully shareable across the health system. It adds that the system will enable lab tests and other diagnostic results to be uploaded to the system immediately, and it will also connect paramedics, continuing care staff and mental health services. Voice recognition software will also, it says, be integrated into physician workflows. 

OPOR will also have a population health management (PHM) component. Once fully implemented, anyone in Nova Scotia will be able to access Oracle Cerner’s interoperable patient portal, which will integrate patients’ biomedical devices.  

Competitive Landscape: Winners and Losers 

At $365M, the Oracle Cerner contract is substantial in the context of Nova Scotia, which has a population of around one million. The deal also continues the company’s good run in Canada, its zenith arguably coming in 2015 when it assumed a $627M electronic health record integration project in British Columbia from IBM, which had problems integrating the system with legacy hospital IT. 

Currently, Canada’s acute EHR market is dominated by MEDITECH (in terms of installed base of hospital customer) and Epic (in terms of revenues). The graphs below provide an overview of Canada’s EMR/EHR market from a revenue perspective. Oracle Cerner’s Nova Scotia deal gives it the potential to challenge Epic’s revenue position.

Source: Signify Research

Source: Signify Research

That said, the Epic juggernaut rolls on in Canada, with a $459M clinical information systems (CIS) installation to replace 1,300 information systems, which started in 2017, still in play; a hospital information systems (HIS) project for Hamilton Health Sciences, Ontario’s largest hospital network, which went live in June 2022; and another CIS go-live at 14 hospitals in Ontario’s Central East region. 

In the small battleground of Nova Scotia, Oracle Cerner now becomes the undisputed leading vendor. The deal does not include EHRs used by primary care physicians in Canada. Within Nova Scotia this market segment is largely dominated by Telus Health (one of the only vendors in the country to compete in both acute and primary care) and local vendor QHR.  OPOR is unlikely to have much short-term material impact on this part of Telus’ business. Telus, the former incumbent Canadian telecoms service provider, is unlike other domestic players (which serve purely primary care). It competes well against international EHR vendors on sizeable provincial contracts and other hospital contracts. In February 2021 Telus was awarded a contract to implement a province-wide electronic medical record solution for Prince Edward Island, and is joint market leader in Canada with Oracle Cerner when both ambulatory and acute care EHR revenues are considered. 

Allscripts (Altera) is clearly the big loser in the Nova Scotia announcement. It will have hoped clinching the contract would compensate for a recent erosion of share in the US and UK. That said, under its new ownership (Harris Corporation), it has the potential to regroup and enhance its position in Canada. Across the Harris portfolio (Harris Healthcare, QuadraMed and Altera brands, for example) it is well entrenched in the Canadian hospital IT market. Harris’ history of combining efforts across its various brands has been patchy, but across the organisation it has the resource and expertise to challenge Epic and Oracle Cerner, if it employs its combined strength in a more joined up, strategic manner.  

Bumps in the Road Ahead 

Oracle Cerner has ten long years to design, build and maintain a province-wide EHR for Nova Scotia. However, relatively recent history offers a salutary lesson: that replacing legacy province-wide connected care systems with second generation EHRs can be a minefield. These projects are technically demanding, have seemingly interminable rollout schedules, and often appear to fall short of objectives. IBM’s experience in British Columbia on a (technically and legally) messy EHR integration is a case in point, and so there must be concern that Oracle Cerner’s Nova Scotia project might go a similar way. The company will hope its IBM project rescue act provides valuable lessons to take into Nova Scotia. 

Nova Scotia is different in that it does not have the old integrated care platforms (known as IEHRs) which were implemented in various Canadian provinces about a decade ago. Integrating with the Orion Netcare IEHR has thrown up challenges for Epic in Alberta, which is racing against time to complete rollout by 2024. Epic’s data integration solution must also interface with many local, third-party applications, and involves developing patient- and provider-facing versions of the solution, not easy to achieve. OPOS has some similarities here too, and Oracle Cerner at least has opportunity to head off some of those challenges in advance, having seen the experience of others elsewhere.   

Furthermore, if the long-term objective of OPOR is to connect every healthcare professional in Nova Scotia, it will ultimately also need to integrate with Telus and QHR’s legacy primary care systems. Oracle Cerner does not have a primary care EHR solution for Canada, and so integration is the only option at this stage. Christy Bussey, Executive Medical Director of Nova Scotia Health, talks of how OPOR might, in future, connect further with primary care providers’ medical record systems, or might roll everything into one entity. This, again, indicates that OPOR will, initially at least, be an overlay to GPs’ Telus and QHR systems. 

New Order  

Oracle Cerner is an experienced hand in Canada, and if anyone is able to deliver a truly connected, second generation, province-wide health system to replace IEHRs, it is this company. Where Orion were once masters of the IEHR/connected EHR universe in Canada, Oracle Cerner, Epic and MEDITECH are the present incumbents, on lucrative contracts. These deals are difficult, but Oracle Cerner at least has a back catalogue of learnings on other province-wide implementations in Canada, and similar-scale endeavours elsewhere (e g ICSs in the UK, state contracts in Australia, and via large IDN contracts in the US) to take to Nova Scotia.  

Signify Premium Insight: Clock already ticking for Oracle Cerner on i.s.h.med

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Software multinational SAP’s recent announcement that it would cease supporting Oracle Cerner’s i.s.h.med EHR solution by 2030 requires a swift and decisive response from Oracle Cerner. Even the company’s most loyal customers – and there are many – will need clarity on its plans for i.s.h.med. They will need to know whether Oracle Cerner will invest further in a solution which has served it well for several years, and which continues to secure big hospital contracts in Europe. Or they will need to know if Oracle Cerner plans to let i.s.h.med go quietly. 

Oracle’s recent acquisition of Cerner adds a new, potentially uncomfortable, dynamic to the equation. Oracle and SAP are fierce rivals in enterprise resource planning (ERP).  

The Signify View 

SAP’s decision to step away from i.s.h.med comes as Oracle Cerner grapples with several other challenges in its business. In EHR, chief among them is how to arrest a steady loss of US market share to Epic. More pressingly is how to fix problems with its flagship Millennium EHR solution on a multi-billion dollar contract for the US Veterans Association (VA). We have written recently about the challenges facing Oracle Cerner (see this Insight) around these key areas, and the reputational and revenue risks they pose. 

On a broader level, the Oracle Cerner relationship is still bedding down and integrating following the acquisition earlier this year. And strategically, the company must address its wider plans for cross-selling, and how to position itself in ERP (where it is a direct competitor with SAP). 

But i.s.h.med is a successful and highly regarded product for Oracle Cerner with a strong, substantial and loyal international customer base. It is a bright spot in a challenging environment. The company will not want to relinquish that hard-won position.  

Positivity and Defiance  

That said, Oracle Cerner is in defiant mode, and the mood music around i.s.h.med remains overwhelmingly upbeat. Executives insist the company is committed to a solution that it has spent so much time and money developing over the years. It may sit behind Millennium in Oracle Cerner’s EHR solution pecking order, but i.s.h.med has established a solid international niche – portable and easily integrated into local hospital environments as a key selling point. 

Oracle Cerner recently completed a new i.s.h.med installation for Swiss hospital group AMEOS, one of its long-standing customers, in a hospital in Germany. The European country is fertile territory for i.s.h.med, which has an installed base of around 250 hospitals there, by far its biggest market. Cerner insists the last year has been strong for the product in Germany. 

German Hospital Information System requirements, particularly in relation to the core EHR, are typically less demanding than in other European countries, and an administration-focused solution like i.s.h.med aligns more closely these requirements in Germany compared to Millennium. 

There is still a lot of upside potential in Germany for i.s.h.med (as well as, to a lesser degree, in other countries in Europe and even the Middle East). We wrote in a recent Insight (see here) about the country’s 4.3B hospital digitisation initiative, in which EHR vendors must meet specific criteria on product development and functionality in order to address the needs of each of the 11 pillars of the initiative. Cerner has invested in developing i.s.h.med so that it meets the funding criteria for some of the 11 pillars, and the results of this will be felt over the next couple of years. 

Given the positive prognosis for i.s.h.med, is there any reason why Oracle Cerner would not see a future, and continue investing, in the product? 

Elephant in the Room 

Well, maybe. Oracle’s acquisition of Cerner in 2022 has brought the company into direct working contact with its ERP rival SAP. This will be uncomfortable and possibly untenable, for both multinationals. It is hard to envisage a situation where Oracle Cerner and SAP could harmoniously co-exist around i.s.h.med for the next seven-plus years.  

In that sense, Oracle Cerner is likely to already have planned to remove SAP from the i.s.h.med equation at some point well in advance of the SAP 2030 end-of-support date, even if the specifics of how this would be done were some way from being established. And, although Cerner people have not said as much, it might anyway see a future where i.s.h.med leverages Oracle, rather than SAP, technology. Seen through that lens, SAP’s decision to walk was likely just slightly ahead of Oracle Cerner itself announcing an i.s.h.med future without SAP. 

Waiting to Pounce 

For every day that Oracle Cerner mulls over what to do with i.s.h.med, and for every time an EHR request for proposal (RFP) now comes from a hospital in territories where the technology is used, Oracle Cerner’s position will weaken slightly. It will slowly cede the initiative to its EHR competitors.  

For all Cerner’s bullish (and largely justified) proclamations on i.s.h.med, its competitors are framing their counter arguments. EHR rival CompuGroup Medical (CGM) – to whom Cerner recently sold its Medico EHR line with the loss of 250 German hospitals – detects a nervousness among i.s.h.med’s existing German customers. There are rumours that some of them have explored the possibility of using Hospital Futures Act (KHZG) funding to purchase a replacement for i.s.h.med, although their efforts to date have been unsuccessful. If true, it does, however, send a strong message that loyalty to i.s.h.med will count for little unless Oracle Cerner can provide a clear road map for the product soon, and fend off the competitive arguments. 

CGM will be one of several EHR vendors waiting to swoop should Oracle Cerner blink on i.s.h.med, and is already forging close ties with SAP. It signed an agreement with SAP shortly after SAP said it would be exiting i.s.h.med, and CGM has its own ambitions to secure a greater slice of the German hospital EHR pie, especially through KHZG. Rival vendors are already lining up counter arguments to try to persuade some of Cerner’s customers to make the switch from i.s.h.med. It is not hard to imagine both CGM, Dedalus and others rubbing their hands at the idea of any uncertainty around i.s.h.med. 

Challenge, but no Crisis 

SAP technology will stop supporting i.s.h.med in seven or so years. Oracle Cerner does not, however, have the luxury of time to decide which direction it wishes to take its tier-2 solution. 

Its customers are already asking what next for i.s.h.med, and its competitors are waiting to take advantage of the uncertainty. As it tries to address the immediate difficulties around Millennium on big US public contracts (which is a huge drain) and as it searches for ways to wrestle back some EHR market share from Epic, Oracle Cerner will be strongly advised not to drop the ball on i.s.h.med. 

For a company of Oracle Cerner’s resources and reach, the current situation is certainly a challenge, but it is not a crisis. 

Signify Premium Insight: IBM Watson’s Path From Jeopardy to Jettison

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IBM proved right well publicised industry rumours last week in announcing that it is selling its healthcare data and analytics assets, which currently fall under the Watson Health business.

The assets have been purchased by investment firm Francisco Partners, and include extensive data sets, products, and image software offerings, including the Merge product line and imaging AI products. Financial details of the deal have not been disclosed, although Bloomberg places the value of the sale at more than $1bn.

The deal is expected to close in the second half of 2022. Existing customers will continue to be served by the new independent company, while the current management team is also expected to remain in place.

The Signify View

The news that IBM is pulling out of healthcare might, at first, seem incongruous given that other recent stories have seen tech companies doing the opposite. Last April Microsoft acquired radiology transcription specialist Nuance for almost $20bn, while more recently Oracle announced it was buying up EHR vendor Cerner for close to $30bn. Other rumours, meanwhile, such as those suggesting that Amazon is looking to establish a presence in healthcare with an acquisition, potentially of M*Modal, also contribute to the overall sense that healthcare presents a significant opportunity for tech vendors.

IBM’s divestiture, however, brings its strategy more closely in alignment with its peers than news of a sale would suggest. What has changed is that, like Microsoft, Oracle and others, IBM is no longer trying to capitalise on departmental healthcare, and is seeking to derive revenues instead from the provision of cloud architecture and technical support for AI development, a path that promises a  larger return on investment. As highlighted in our previous Premium Insights, Microsoft’s move on Nuance, and Oracle’s move for Cerner, are deals which, in essence, give the technology firms an expanded customer base in which to sell their core cloud products. IBM will now be able to bring the same focus to the healthcare market as its cloud competitors, providing the architecture and environment for healthcare-specific vendors to develop cloud-based products, without developing and selling imaging IT products itself.

Solving Problems With Spending

This indirect approach to healthcare, which sees the industry simply become one of a number of potentially lucrative markets for IBM’s broader cloud offering, does however represent a marked shift in strategy. In 2015, when IBM launched Watson Health, it almost immediately began buying up companies, including Phytel, Explorsys, Merge Healthcare and finally, Truven Health Analytics, during its first year of operation. Overall, reports suggest IBM spent around $4bn in establishing the new unit, which is, at present, bringing in around $1bn in annual revenue. A figure that shows no significant change compared to the combined revenues of the constituent vendors when they were acquired.

When these vendors were acquired, IBM’s vision was to revolutionise healthcare, and utilise the power of data to solve some of the biggest challenges facing healthcare. These ambitions were never realised. While the vendor has released some innovative technology and enjoyed some small successes, it ultimately failed to live up to IBM’s own, considerable hype. New initiatives, such as Watson for Oncology, failed to live up to expectations and were mothballed.  Not only was healthcare not revolutionised, but IBM seemed, in many instances, to underperform in more established product sectors relative to its competitors. The legacy Merge imaging IT business has hung on to some key customers but has struggled to grow share or win new customers in core markets in the face of stiff competition from vendors such as Visage and Sectra. In emerging technology product sectors, IBM has also faltered. When it launched its AI marketplace, for example, not only was it behind several other imaging IT vendors, it featured algorithms from just five partners. Similarly, with its Imaging AI Orchestrator platform release; with just one confirmed partner and only a small number of other potential partners, the release was relatively underwhelming compared to IBM’s AI promise.

Resultantly, instead of heralding a revolutionary new era in healthcare, Watson Health started to become a disappointing distraction, diverting attention and resources away from IBM’s other interests, even potentially impacting IBM’s reputation. Despite all the original promise and potential, when viewed in such a light it is no surprise that IBM has sought to cut its losses and shed the unit. Although arguably on a more significant scale, IBM isn’t the only technology company to have failed to revolutionise healthcare, with Microsoft, Google and others also having to renege on earlier promises and pull back from well-publicised healthcare investments spectacularly.

Where Next?

As well as highlighting IBM’s strategy, the sale also raises questions as to the future of the divested assets. In this regard, Francisco Partners has several options. One scenario would see the new owner try to succeed where IBM hasn’t. This is unlikely, although Watson Health’s new-found distance from one of technology’s longest-established giants may offer it a new level of agility and freedom to focus, while Francisco Partners may be keen to invest into it. A second option could see Francisco Partners maintaining the vendor as essentially a managed asset. Watson Health’s constituent vendors were, after all, individually successful before they were combined, Francisco Partners may choose to streamline where possible, but otherwise allow its new acquisition to continue delivering revenues, safe in the knowledge that it is relatively secure investment in a stable and saturated market.

A third, more active option, would see Francisco Partners paring off the imaging IT part of the business, which was formerly Merge Healthcare. Not only does this segment sit apart from the rest of the divested assets, Watson Health’s imaging IT business could be an attractive proposition for the right buyer. As well as a market share of around 7% in the US radiology IT market in 2020 (and just under 4% globally), the unit brings a fully featured enterprise imaging solution to a new owner, with platforms to target acute care, outpatient imaging sites, a cardiology solution, the recently released workflow orchestration solution, AI capability and a large amount of valuable data.

Several vendors could be interested in such a package. Intelerad would be among the obvious candidates, with the additional market share taking the vendor straight into the top five of imaging IT vendors in the US. IBM’s technology would also strengthen Intelerad’s offering, creating an opportunity for Intelerad  to retire or replace its legacy PACS component and bolster its larger data management capability, one of Intelerad’s present omissions. Intelerad is also in the midst of a particularly aggressive acquisitive run, having recently purchased Ambra, Insignia Medical Systems, and Lumedx among others. Moreover, IBM has a substantial customer base in the large acute hospital market, an area for which Intelerad has been actively pursuing. With the might of its private equity owners HG Capital, and an obvious appetite for acquisition, Intelerad could be a good match.

The imaging IT market in the US is one which is well-established and saturated, providing very little in the way of organic growth opportunities for vendors. With this being the case, the prospect of an additional 7% market share in the US could also appeal to other vendors. There are a limited number of potential suitors that have both the available funds to make such an acquisition, and the business strategy to acquire and integrate rather than natively build. This still leaves some big names, such as Siemens Healthineers which has been losing share in the US market, or Fujifilm, which may be attracted with the prospect of an instantly increased footprint, or even a smaller vendor, such as Mach7 Technologies, looking to boost its presence and portfolio as possible buyers should Francisco Partners decide to sell. Ultimately, the imaging IT market in the US has long been on course for further consolidation, especially as deal volumes fall, deal sizes increase and contract terms lengthen. Assuming Francisco Partners have been robust in its due diligence and market analysis ahead of the deal, it will know the IBM Merge business line could be a tempting asset for a vendor with ambitions of playing at the top table of imaging IT.

Back to Reality

The sale of Watson Health is the long-expected end to one of the most ambitious projects in imaging IT and wider healthcare. This end was, however, somewhat ingrained in the start. IBM committed to healthcare, but, like some other large tech firms, did so with the boasts and bravado that may please investors but fail to acknowledge the complexity of the healthcare market. Instead of looking at the nuance, the finer detail and clinical intricacy of healthcare, IBM purchased capability and gave itself impossibly broad targets. Making progress in healthcare is hard, it is slow, and what’s more, it isn’t necessarily all that profitable. The humbled IBM will now have a much better appreciation of that.

For the divested imaging IT unit meanwhile, although the future is uncertain, it harbours a lot of value. It has a sizeable market share, competent technology, and continuing development as illustrated by its releases at RSNA 2021. Freed from Big Blue’s orbit, the business formerly known as Merge now has the chance to focus on the detail and the nuance. It may never revolutionise healthcare, but the chance to work on smaller, more tangible problems means that its future could be bright nonetheless.

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Signify Premium Insight: Oracle Ups Microsoft’s Efforts on Journey Into Healthcare

This Insight is part of your subscription to Signify Premium Insights – Medical ImagingThis content is only available to individuals with an active account for this paid-for service and is the copyright of Signify Research. Content cannot be shared or distributed to non-subscribers or other third parties without express written consent from Signify ResearchTo view other recent Premium Insights that are part of the service please click here.

Late last December, Oracle revealed its plans to acquire EHR vendor Cerner for almost $30bn.

The deal will see the tech giant buy the healthcare firm in an all-cash tender offer of $95 a share, resulting in a total equity value of $28.3bn. The acquisition of Cerner will give Oracle a direct route into a large number of providers in the US and beyond, and marks Oracle as only the latest company with a legacy in technology to beat a path into healthcare.

Assuming it is approved by regulators, the deal is set to close in 2022, and is expected to be accretive to Oracle’s earnings right away, while Cerner will be organised as a dedicated business unit within Oracle.

The Signify View

For some years, the healthcare market has been seen as one of the key sectors into which investment from big tech companies would one day flow. There have been several instances of this happening in the past with Google, Amazon, and IBM among those that have already acted upon their designs for the sector, with varying levels of success.

More recently, however, these broader ambitions have started to become more tangible, and more serious, with the most notable move being made by Microsoft in April, when the company announced it was taking over radiology transcription specialist Nuance for $19.7bn. That deal, which so far has received antitrust approval from the U.S. Department of Justice, the Australian Competition Commission and, most recently, the European Commission, represents something of a change in strategy for Silicon Valley firms. In the past, tech firms have tended to focus on the internal development of products to sell into healthcare. Microsoft, however, bucked this trend, investing heavily into a successful healthcare company in a bid to, among other things, access a host of sales opportunities for its own cloud offering.

Oracle’s bid for Cerner lies along similar lines. Instead of investing heavily on research and development internally, and risking falling into one of the traps of moving into healthcare – a lack of pragmatic clinical expertise – Oracle has spent externally. Cerner’s latest financial results, for Q3 2021, saw revenues of $1.4bn, with an adjusted operating margin of 21.9%, and so, the vendor represents a strong revenue generator for Oracle in its own right. However, as illustrated in Signify Research’s Electronic Medical Records – Market Intelligence Service Cerner’s use in approximately 25% of acute hospitals in the U.S in 2020, as well as a strong presence elsewhere, including 9.5% of the revenue share in EMEA, acquiring Cerner also provides Oracle with a vast amount of sales opportunities for its core cloud services offering.

About That Cloud

Cloud providers are increasingly interested in the healthcare market, and more similar deals are likely to follow; there are rumours, for instance, that . This raises questions of compatibility. Oracle will naturally hope that when Cerner’s customers make the transition to cloud, they will do so using Oracle’s cloud services. The same is true of Nuance customers for Microsoft and will be for any cloud providers that take this approach into healthcare. This means that in the mid-term, imaging IT vendors are unlikely to limit themselves to just one cloud provider, as this could drastically shrink the number of hospitals that they are able to sell to. This cloud compatibility is even expected in cases where one cloud provider is nominally preferred or partnered. GE Healthcare’s TruePACS for example is promoted as being built in partnership with AWS, but GE’s software can be deployed on the customers chosen cloud platform; AWS or otherwise.

The cloud market is not straightforward, however. In the U.S. Cerner accounts for 27% of all EHR revenue but is losing market share to its chief rival Epic. Despite this, it still has a strong presence internationally. This will be advantageous for Oracle, which will look to sell its cloud services across the world. However, there are, in some markets still some regulatory hurdles that will increase the difficulty of cloud adoption and make Oracle’s ambition more challenging. In Australia, for example, there are strict rules around data centres, and their location. The sentiment in Nordic countries meanwhile is comparatively against public cloud, again, making this a difficult region for Oracle to capitalise on its newly-found access. As such, while Cerner’s international reach will open opportunities, Oracle will still have to work hard to capitalise on them.

Although Cerner’s biggest market is by far the U.S., it does have a presence globally

Healthcare’s Digital Deficit

Ultimately, this increased interest in the healthcare sector is, for the most part, a positive change. The Covid-19 pandemic, in particular, has recently highlighted some of the frailties of the broader healthcare sector from the perspective of digitisation. This emphasised the opportunity that awaited Silicon Valley companies that had the technology and the resource to come and offer solutions to these frailties within imaging and elsewhere. It increasingly seems as though these vendors have taken this cue, and are making much more concerted efforts into healthcare. While there have been false starts in the past from vendors such as Google, Amazon and Microsoft, and rumours suggest that other vendors such as IBM are also looking to free themselves of their healthcare concerns, the present investment represents a new level of commitment.

Not every deal will impact medical imaging to the same degree, with Microsoft’s acquisition of Nuance likely to have a much more direct effect than Oracle’s acquisition of Cerner, particularly for Imaging IT vendors, despite being around two-thirds the size. Regardless, the wave of investment into this digitisation, the additional spending in the market and the added impetus to adopt and embrace broader trends driven by big tech means that Oracle’s impact will ripple out to all parts of healthcare, including imaging. Microsoft and Oracle have shown their hands first, but it is unlikely their peers won’t soon follow.

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