The entire healthcare industry is adapting to a new normal amid the pandemic, and EHR companies are no different, having to juggle software patches and COVID-19 upgrades without getting in the way of health system clients and patient care.
EHR giant Cerner on Tuesday reported financial results for the first quarter of 2020, missing both internal and Wall Street expectations for revenue. In the last two weeks of the quarter ending March 31, the coronavirus pandemic pretty much halted new bookings for the vendor, depressing incoming volume to almost $1.1 billion, at the low end of Cerner's guidance.
The Missouri-based software company still managed to pull a profit, despite the headwinds, and plans to continue pursuing mergers and acquisitions while divesting flagging businesses as it pivots to a stronger reliance on software as a service. Analysts say Cerner is well-positioned to navigate the pandemic as it redeploys its workforce to work on its backlog and business optimization efforts.
But the vendor is looking at a tumultuous second quarter as its health system clients are unlikely to start reinvesting in software so soon. And the pandemic has created another delay in the multibillion-dollar project to implement a new EHR system for the U.S. Department of Veteran's Affairs and Department of Defense.
Healthcare Dive talked with Cerner Chief Client and Services Officer John Peterzalek about how the four-decade-old vendor is changing its priorities amid the outbreak, the status of the embattled federal projects and how Cerner hopes to capitalize on increasing virtualization of healthcare delivery.
This interview has been lightly edited for brevity and clarity.
HEALTHCARE DIVE: How would you characterize the first quarter?
JOHN PETERZALEK: Considering the challenges, I think we delivered a solid quarter. We came in at the low end of our guidance for bookings, but I think it's still good considering in the last two weeks of the quarter everybody started scrambling to go virtual very quickly. Our clients, rightfully so, were worried about taking care of patients, worried about preparing for the potential surge, worried about their employees. So we were actually on track to deliver above our guidance in bookings, but then some things got pushed out. Nothing was lost — they're just going to sprinkle into different quarters. Q2 looks like where the primary impact is going to be. But as our clients enter a recovery phase in Q3 and the later half of the year, we'll continue to deliver growth.
How have Cerner's priorities shifted because of the pandemic?
PETERZALEK: We've just slowed our normal course of business and done some specific things to ensure we don't induce any risk into the stability of the systems. There's no worse time to have problems than right now. On the technical side, we do updates and upgrades as a normal course of business. We've slowed those down, because with any change, it's not risk-free, right? So we've limited ourselves to essential changes, security patches — fixing any issues that could cause a problem. We run a 99.97% uptime in our Millennium systems, which is really high. But we want to make sure we're limiting changes.
We're also releasing COVID-specific content, whether that's documentation, whether that's workflows — those types of things. And we're working on quickly expanding wherever the system needs to be expanded to handle any surge activity that has to happen. We've done the vast majority of that, if not all of it, at no cost. And I think we'll resume our normal course of business in the very near future.
You said on the earnings call "the pandemic represents an opportunity to rethink how we approach projects going forward." Can you expand on what that "new normal" might look like?
PETERZALEK: I think what the past 60 days has provided to us is, none of our clients wanted to stop. As there were preparations for people to go virtual, obviously there was a real slowdown. But once everybody got settled, everybody wants to continue moving forward.
With that came a lot of virtual activity. We couldn't go onsite. We couldn't get on airplanes. Clients didn't have office spaces to go to. So we found out we can be quite effective in a digital environment, especially for things like workflow reviews and designs. We've always done those in a conference room interactive setting with whiteboards and screens. Those are working great virtually and in some cases, I think maybe even better than in-person. People can share their screens, and work off a common presentation or display.
I believe when we see that, and our clients understand that it is working well, we'll reduce the amount of things we may have done face-to-face in the past. We see that in our commercial clients, and frankly we're seeing that with our government clients as well.
There are some things that you're just going to have to do onsite, like the actual activation when you turn on the system. We need to be onsite for that, for any sort of major activation, because you want to ensure you can address issues really quickly if they come up, that people are properly trained and using the system appropriately. Being onsite for that is key for a clean activation. You don't want to take chances with patient safety.
What's the status of the VA/DOD project?
PETERZALEK: All of the planning of activations, and those types of things, are still in progress with our VA counterparts. As it relates to the initial operating capability, if we look at it purely from a project perspective, we continue to work and progress. But at some point we'll need to do some onsite work, depending on when things open up, depending on when and if surge activity occurs in some of our VA sites — we'll see. And it's yet to be determined. But we continue to actually work pretty well virtually in getting the preparation activity up to the point of where you actually have to be onsite, whether that's in the latter stages of integration testing — absolutely for the activation. We'll see where that goes. But we are keeping the train moving.
The coronavirus is increasingly digitizing healthcare delivery — how is Cerner poised to take advantage of that?
PETERZALEK: One of the things we believe is going to come out of this crisis is an acceleration of trends that are out there right now. And that acceleration is going to involve the consumer more and more. I put telehealth and virtual care in this bucket. There were barriers in terms of reimbursement making telehealth not advantageous to health systems. But I see that growing incredibly due to some of the new payment mechanisms, some of which are temporary. We've seen incredible increases in demand for our telehealth component. So, all the things that we've put into our strategic growth businesses, I think there's a real opportunity to accelerate those.
And on interoperability — we've been pushing for it for a decade. This pandemic crisis has actually shown the value of having true interoperability so that you can get a handle on the demand, a handle on the needs and care for patients better.
HHS pushed back the deadline for its interoperability rules because of the outbreak. Any thoughts on the delay?
PETERZALEK: We support HHS in what they do. We're just in an unprecedented time with the COVID crisis. I don't have any criticisms.