VA Contract Waiting Game Takes a Toll on Cerner Revenues

"This would be a different conversation had this VA Secretary been in place at the end of the first quarter," the company's president said.

A section of Cerner's Kansas City, Missouri campus. Photo courtesy Wikimedia Commons user Hookmeupbarb.

In their quarterly shareholder earnings call yesterday afternoon, Cerner executives acknowledged that delays in signing a contract with the Department of Veterans’ Affairs (VA) to replace the agency’s legacy electronic health records (EHR) system had impacted the company’s revenue.

CEO Marc Naughton noted during the call that the uncertain contract and other factors, like somewhat underwhelming technology and subscriptions sales, combined to deliver Q1 numbers that failed to meet the company’s expectations. “The slow start to the year and ongoing uncertainty as to the timing of the execution of VA contract has led us to revise our full year revenue and EPS outlook,” he said.

>>READ: So, Who's Left at the VA, and What Does that Mean for the Cerner Deal?

Company President Zane Burke seemed to confirm speculation that the recent dismissal of VA Secretary David Shulkin, MD, had slowed an already-dragging procurement process. Shulkin announced the plan to award the deal nearly 11 months ago now.

“I think you can see, this would be a different conversation had this VA Secretary been in place at the end of the first quarter. And I think we'd be having a different conversation about how the outlook of the year is,” Burke said. Shulkin was fired via Presidential tweet days before the end of Q1.

He added that the company continues to be in touch with government officials about the deal. Still, when asked if the delays are keeping the company from other projects that could also generate revenue, Naughton acknowledged the possibility.

“There's certainly people that could be on other jobs working more efficiently than some of the things we have them filling in on today,” the CEO said. “It is a loss of revenue relative to those. And that's why we characterized it as an investment.”

And it’s an investment that could pay off, if it’s ever formalized. The VA contract is expected to be worth over a billion dollars each year for a decade-long implementation. Early numbers put the total value at around $10 billion, but recent chatter indicates that it will cost $16 billion or more.

Naughton repeatedly expressed confidence that the deal would get done in the latter half of the year, and it is still being factored into the company’s forecast for the remainder of the year. Last week, the House Appropriations Committee allotted $1.2 billion in the VA’s 2019 budget towards the EHR modernization program.

“We believe the VA's going to happen. We're going to be absolutely prepared to deliver on that when it does, and we're going to continue to have a level of investment in that business,” Naughton said.

In the meantime, the VA is still lacking a permanent Secretary, or even a nominee following the withdrawal of White House Physician Ronny Jackson, MD. Many consider former Florida Representative Jeff Miller, who once headed the House Veterans’ Affairs Committee, to be the leading candidate.

In mid-April, VA Acting Chief Information Officer Scott Blackburn resigned, becoming the 4th high-ranking VA official to leave the agency in the last 6 months.

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