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Time Capsule: Why You Should Root for Cerner, Even if you Hate Them

February 10, 2012 Time Capsule 1 Comment

I wrote weekly editorials for a boutique industry newsletter for several years, anxious for both audience and income. I learned a lot about coming up with ideas for the weekly grind, trying to be simultaneously opinionated and entertaining in a few hundred words, and not sleeping much because I was working all the time. They’re fun to read as a look back at what was important then (and often still important now).

I wrote this piece in February 2007.

Why You Should Root for Cerner, Even if you Hate Them
By Mr. HIStalk


Cerner announced fourth-quarter earnings of 48 cents a share last week, handily beating last year’s Q4 profits of 34 cents despite sales growth of “only” 17%. That met analysts’ expectations exactly. Even then, the stock shot up nicely. Neal Patterson now has nearly $300 million worth. Nice.

Plenty of people dislike Cerner or its products. Many are competitors envious of their growth or market capitalization. Some don’t like the company’s brashness or its ready-fire-aim product development tendencies.

Even those folks should relish Cerner’s stock performance. In an age of multi-national, multi-industry conglomerates dabbling half-heartedly in healthcare IT, Cerner is one of the few pure plays left. For that reason, their stock is a proxy for the entire industry and our future employment prospects in it.

OK, just between us girls, how is Cerner doing?

Cerner’s most important customer — Wall Street — is fickle. Cerner is a relatively small and narrowly focused company. Continuously increasing profits are required to keep the stock afloat. Once you lose investors and analysts by disappointing them with a slowdown, it’s almost impossible to drag them back.

Signs suggest that Cerner is about to hit an earnings growth wall. The big bubble in hospital clinical systems, their bread and butter, appears to be slowing. Everybody’s installing all the systems they bought and can’t afford to replace for 7-10 years. That’s a nice, steadily profitable business, but it can’t fuel a stock that arouses investors.

Another chink in their armor is Epic Systems. Big hospital selections nearly always involve Cerner and Epic as finalists. In most cases I’ve heard of lately, Epic wins. Few would have expected that back in 2002 or so, when Epic suddenly roared out of the ambulatory systems market with a vengeance, much like Cerner exploded out of its lab system roots to dominate the world (at least just behind Meditech.)

It seems to me that Cerner’s aggressiveness in selling not-quite-ready systems has cost them some reputation points. ProFit financial system problems and rumblings of system performance issues and stalled implementations haven’t helped.

Still, for a company whose products are generally KLAS mid-packers, Cerner sets the standard for broad product lines, a razor-sharp healthcare focus, and outstanding management that skillfully meets Wall Street’s expectations every time (which is nearly unheard of in healthcare and is a core competency that should not be trivialized.)

Cerner’s management is smart. They’re spending their expansion and acquisition dollars on life sciences, non-US healthcare IT, and downstream automation development such as medication dispensing cabinets. Diversification into high-growth areas is good and their rich market capitalization pays for it.

None of this should alarm customers or prospects. Skilled management means that Cerner will either find a way to beat earnings expectations or they’ll sell out to a larger competitor.

(That particular rumor won’t die, of course. Even though GE says they’re finished with acquisitions for awhile, few would be surprised if they picked up Cerner with their spare change. Based on GE’s track record, however, only Epic and McKesson would be cheering. Cerner’s customers and employees would not be nearly as elated.)

Cerner steps on toes, but we need them to succeed. We have darned few vendors already, fewer still that write and install their own systems instead of re-labeling someone else’s, and fewer again who focus on healthcare and keep a lot of healthcare people like you and me productively employed.

I want Cerner to grow. I want them to compete aggressively and win frequently. I want Neal Patterson to keep right on being Neal Patterson, a pig farmer turned Wall Street darling SOB who bootstrapped Cerner out of nothingness and runs it however he damned well pleases, the antithesis of button-down interchangeable bankers-turned-CEOs who manage companies they don’t own as dispassionately as a mutual fund.

If Cerner is neutered one way or another, our industry will be just as boring as it was before they elbowed their way into the limelight. I enjoy trashing them as much as the next person, but I’m secretly rooting for them.

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Currently there is "1 comment" on this Article:

  1. I work as a system admin at a hospital that runs Cerner and let me tell you that this is one of the worst pieces of software I have ever seen. Rarely works correctly and every time it bombs Cerner is quick to blame every other system in the hospital except their own. we have had all other vendors out here to stress test and evaluate our system configuration and guess what? they all point back to Cerner. We have spent millions on having Citrix , VMware, Cisco and HP on site and not once have they said anything about our system configuration being bad or configured incorrectly, they all point to Cerner. If it were up to me I would kick Cerner to the curb, worst company to deal with ever. Rude support, never get the same person twice and they always send a rookie to our campus who has no clue as to our system configuration or account history. the only thing that Cerner is good at is, like you said, meeting Wall St expectations.

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