It’s 2022 and there are a few new things I’m planning to try out for this newsletter. First, I’ll be reading more financial documents from public companies to learn more about their strategy, and I’ll be writing about it in detail here. There’s so much information contained in 10-K and S-1 filings, and it too often goes unnoticed. Second, I’m planning to do more wrap-up posts on specific topics. These will probably have some opinion from me, but they’ll be organized as a way for you, the reader, to learn about a niche without having to do too much research legwork.
Happy 2022, and as always, reply to this email or comment below with any questions or feedback!
Right before the holiday break, Oracle announced its intent to acquire Cerner for $28.3 billion in equity value. This was pretty unexpected—not only is Oracle not a healthcare company, but Cerner is a big deal for a target. Cerner, a close second to Epic for most market share in electronic health records, hadn’t given any signals of looking to be acquired.
Adding to the mystery, just a few months before the acquisition announcement, Cerner had named a new CEO, Dr. David Feinberg (formerly of Google Health and Geisinger). As The Information put it:
[The] sequence of events [hiring Feinberg and then announcing the acquisition] raises a couple of questions: Were Oracle and Cerner talking before Feinberg started? Or was calling Larry Ellison and offering to sell the company the first thing Feinberg did on his first day as CEO? Perhaps Ellison saw the CEO changeover as an opportunity and he made the first move.
Feinberg had certainly signaled his intention to shake up the business: He told analysts at the end of October that Cerner had “tried to do too many things” and that in future he would focus on “a small number of important high-value areas,” including by partnering with others. Selling to Oracle is one way of focusing things!
And Oracle did more than hint at the new focus area in its press release announcing the acquisition. Mike Sicilia, the Executive Vice President of Vertical Industries at Oracle, is quoted as saying (emphasis mine), “What will change is the user interface. We will make Cerner’s systems much easier to learn and use by making Oracle’s hands-free Voice Digital Assistant the primary interface to Cerner’s clinical systems. This will allow medical professionals to spend less time typing on computer keyboards and more time caring for patients.”
This is a bold move. Not only are they going to try to make voice assistance the primary way of accessing the second most-used electronic health record in the country, but they’re announcing it early, in the acquisition press release. To me, this says either that they’re further along with voice assistant technology than we think they are, or the Oracle folks are terribly naive about the adoption of novel healthcare software.
Big Tech or enterprise software?
Some commentators, including MobiHealthNews’s Laura Lovett, believe this acquisition puts Oracle in the arena with the FAANG companies trying to establish a foothold in healthcare. Lovett compares Oracle to Google (which shut down its dedicated healthcare offering this year after losing Feinberg to Cerner), Apple (an effort to build into primary care recently suffered from employee dissatisfaction and potential data integrity issues), and Amazon (its push into pharmaceuticals was recently complicated by its reassignment of the former PillPack executives).
While this is a fair comparison, I think of Oracle as less consumerist “big tech” and more staid enterprise tech—which is another reason why the run at making voice recognition the primary interface confuses me. As Paddy Padmanabhan, CEO of Damo Consulting, told HIMSSTV, “When we talk about voice recognition technology, Oracle is not the first name that comes to mind.”
So why did Oracle decide to make this acquisition? Most of the articles that came out following the announcement pointed to one obvious potential reason: In April 2021, Microsoft, a major Oracle competitor, acquired Nuance, which does conversational AI and “clinical intelligence.”
While this is almost certainly one reason (and at the risk of over-reading a corporate press release), I see the potential for another big one. Safra Catz, CEO of Oracle, is quoted in the press release as saying:
Healthcare is the largest and most important vertical market in the world—$3.8 trillion last year in the United States alone. Oracle’s revenue growth rate has already been increasing this year—Cerner will be a huge additional revenue growth engine for years to come as we expand its business into many more countries throughout the world.
The mention of the “vertical market” makes me think that Oracle has looked at the healthcare landscape, seen the relatively niche efforts of the FAANG companies and the enormous efforts (and relatively outdated software) of UnitedHealth, and decided to leverage its scale and software prowess into improving one of the biggest pieces of healthcare B2B software in the U.S.
At the same time, as Protocol notes, Cerner will bring more AI and “cloud-based data analytics” to Oracle. In an era of healthcare that’s seen UnitedHealth’s Optum division acquire Change (set to go through in April, following a second look by the Justice Department), competing on the amount and analysis of healthcare data is becoming far more important.
The implementation of the No Surprises Act, beginning this month, only makes billing data and analytics more important to providers and insurers. I wouldn’t be shocked to see Oracle/Cerner trying to capture some of that.
After all, Cerner executives hinted at broader data ambitions prior to the acquisition. In an interview in October 2020, Dan Devers, Cerner's senior vice president of cloud strategy, noted:
Moving forward, I think Cerner will look more like a health platform company and less like an EHR company. As you play out the trend in healthcare, I see Cerner very much operating at the health network level, so beyond the enterprise of a single health system. Given the power of the cloud and the work we’re doing, I see Cerner having much more relevance into broader networks and providing nationwide capabilities.
This is in line with the analysis of Lee Shapiro of 7wireVentures, who said in an email to MobiHealthNews that “Electronic health records and billing systems are pervasive in the industry, so the next frontier will be on leveraging the data that comes from these systems to improve health.”
One area that this acquisition doesn’t seem targeted at remaking is the EHR market. Padmanabhan argued to HIMSSTV that the biggest threat to Epic probably comes from Cerner having greater access to talent. This might be an edge that helps Oracle/Cerner pull ahead in the oligopolistic EHR market. But in all likelihood, current Epic users and current Cerner users will stay with their chosen software.
For all my deep reading of press releases, Oracle’s strategy here is unclear. Maybe Oracle will really find a way to bring voice recognition to the clinic. Maybe the company will fail at that but succeed in leveraging the Cerner acquisition into data analysis that competes with giants like UHG.
It seems likely that Oracle is making a run at healthcare data—but, depending on execution, all the public may ever see is a continuation of Cerner’s software with a little extra Oracle branding thrown in.
This information shouldn’t be taken as investment advice (obviously), and the opinions expressed are entirely my own, not representative of my employer or anyone else.