Mr. HIStalk may may have discovered a new wrinkle in the Cerner business model. He called our attention to a news item describing Cerner EMR installations in rural Idaho hospitals (see: Monday Morning Update 1/3/11). Below is his note
Cerner must be throwing out some low prices lately, even based on per-bed license charges. This article on Idaho hospital EMR projects describes Cerner, being implemented at North Canyon Medical Center for $2 million, as “an economical system that works well for smaller rural hospitals.” Syringa Hospital (a strangely satisfying hospital name) paid $1.3 million.
What? The Cerner EMR as “an economical system that works well for smaller rural hospitals.” I, like Mr. HIStalk, was surprised by this description and had to think about the idea for a while. Then some of my thoughts started to come together. First of all, and as I noted in a previous note, Epic is winning most of the contracts for the highest-end hospital contracts, which was one of Cerner's sweet spots (see: Why Does Epic Keep Hammering Cerner? Mr. HIStalk's Opinion). Also, and as suggested in a previous note, Cerner, Meditech, and McKesson are major competitors in the mid-size to large hospitals (see: A Closer Look at Meditech's "Sweet Spot" in the Hospital Software Market). Could the following scenario be developing. Cerner has difficulty competing with Epic for business in the largest hospitals, It then competes more vigorously on the basis of price for a market share in the mid-size and smaller hospital tier. Hence the Idaho news quoted above.
There is one other factor to consider. Cerner offers a remote-hosting option (see: Comments about Cerner's Remote Hospital Option (RHO)). I suspect that it would be difficult for small rural hospitals to recruit the talent to manage the Cerner EMR on-site. With the RHO, the system is maintained for them by Cerner remotely. It's also possible that Cerner's cost to provide RHO services is declining due to economies of scale. They may thus be able to reduce the price for EMR/RHO services to small hospitals without cutting aggressively into their profit margin.
Subseqent to Mr. HIStalk's note, a reader submitted a rebuttal to it (see: News 1/5/11), from which I extracted the following passage:
Regarding your piece on Cerner’s $1.3M "deal" for a hospital in Idaho, I’ll bet that is capital (one-time) costs, which are rather low with Cerner’s "remote hosting" approach. This would include primarily implementation fees, and maybe some on-site hardware (e.g: med scanners).Operating costs are another matter, since remote hosting (also known as ASP or SaaS) usually has a hefty fee per month for processing and storing data at one of Cerner’s two data centers in KC. It is probably six figures per year, and could approach seven figures depending on how many apps were purchased.
I will assume that the executives in the Idaho hospitals understand EMR TCO even if the amount quoted for the system in the passage above was only the up-front capital costs. My conclusion stands that Cerner may be competing more vigorously for the mid-size and even small hospital business.