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Cerner poised for growth in health care information technology

Monday, October 5, 2009

A sign in Neal Patterson’s office sums up his company’s biggest challenge.

“People hate change,” it reads, “more than they do disaster.”

Patterson is the chief executive and a founder of Cerner Corp., a North Kansas City-based company that for three decades has worked diligently to bring the information revolution to the health care industry.

But getting doctors and hospitals to give up pen and paper, which Patterson calls the most dangerous instruments in medicine, has proved to be a slow process.

Although Cerner, a publicly traded company, has grown to more than 7,600 employees and today has annual sales of $1.7 billion with customers across the globe, Patterson thinks the company is only beginning to penetrate the market.

A survey published last year in the New England Journal of Medicine found that 4 percent of physician practices have a “robust” electronic health records system in place, while a survey earlier this year found that 2 percent of acute care hospitals had such a system.

But as Cerner celebrates its 30th anniversary and plays host to 6,000 clients, vendors and employees at its annual health care conference in Kansas City this week, change may be inevitable.

After all, the government’s on board. Thanks to billions in federal stimulus dollars and pending health care reform efforts, the industry’s resistance appears ready to tumble.

Cerner — which got its start with a conversation in the park in 1979, had fewer than 15 employees in 1982 and brought in just $17 million in 1986 — is poised for continued rapid expansion.

Discussing plans to establish another office location in Kansas City, Kan., Patterson said last month that Cerner expected to add 12,000 employees by 2020, almost tripling its current payroll. This kind of growth is easy to imagine in an industry that expects to see dollars spent in the U.S. market rise from $2 trillion to $4 trillion in just over a decade.

“If we grow at the same size as the overall marketplace, we’ll probably double in size,” Patterson said.

Stimulus and more

The American Recovery and Reinvestment Act, passed by Congress in February, promises about $35 billion in spending on health care information technology beginning in 2011. Hospitals and physicians practices that don’t significantly ramp up the amount of technology in their practices will face reduced Medicare reimbursement payments beginning in 2015.

“They don’t have to change,” said Paul Gorup, Cerner’s chief of innovation and co-founder. But if they don’t, “they just won’t get paid.”

As a market leader in health care information technology — clients include roughly one-third of domestic hospitals — Cerner appears to be in prime position.

“I think they’re on the verge of a potential landslide for themselves,” said Joe Fortuna, chairman-elect of the health care division of the American Society for Quality.

The Chicago-based investment firm William Blair & Co. estimates that Cerner stands to gain as much as $8 billion in stimulus-funded information technology sales, including $4 billion from hospitals that are choosing a clinical IT system for the first time and $4 billion from existing clients that are expected to upgrade or replace current systems.

Even if the stimulus windfall brings more competitors to the market, many analysts agree new entrants are unlikely to have the knowledge, experience and reputation to effectively compete with established companies. Cerner’s primary competitors in this area include Eclipsys Corp. of Atlanta and Epic Systems Corp. of Verona, Wis.

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