The U.S. Department of Veterans Affairs is in shambles -- figuratively and almost even literally.
In 2012, the VA made headlines when its Veterans Benefits Administration office building in Winston-Salem, N.C., nearly collapsed under the weight of paper files recording backlogged health claims. According to media reports, files on one floor had overflowed the capacity of cabinets to hold them, were stacked as much as 2 feet deep in piles on top of the cabinets, flowed from there down into cardboard boxes on the floor, and then began climbing back up the surrounding walls.
The immense weight of the VA's inefficiency, reported the VA inspector general at the time, "exceeded the [load-bearing] capacity of the floor by approximately 39 pounds per square foot." The floor, bowing under the excess weight, had "the potential to compromise the structural integrity" of the entire building.
The scandal of the slow-motion collapse of one of the VA's key service centers soon caught the eye of Jon Stewart at Comedy Central, who has aired numerous segments...
... on the subject of the VA's delays in delivering health services to returning veterans.
But help is on the way.
Better later than later-er
Spurred by negative publicity surrounding tardy claim processing, the VA embarked on a process of (slowly) accelerating resolution of veterans' claims for disability benefits.
By 2013, the Center for Investigative Reporting was still clocking the average wait time for resolution of a VA disability claim at 279 days. But last year, the VA promised to accelerate its digitizing of benefits claims and eliminating paper, with the aim of cutting claims processing to 125 days or less by 2015, and improving accuracy of claims resolution to 98%.
Last week, we learned who might help them meet these goals.
Google to the rescue?
As reported on ModernHealthcare.com, at least four teams of companies are bidding on a 10-year, $11 billion Pentagon contract to help digitize the VA by upgrading its "VistA" electronic medical records system:
- PricewaterhouseCoopers and Google (NASDAQ:GOOG) (NASDAQ:GOOGL)
- IBM (NYSE:IBM), teamed with privately held Epic Systems
- an alliance of Cerner (NASDAQ: CERN), Accenture (NYSE:ACN), and Leidos (NYSE:LDOS)
- a team consisting of Allscripts (NASDAQ:MDRX), Computer Sciences (NYSE:CSC) and Hewlett-Packard (NYSE:HPQ).
Who will win it?
Of the four, ModernHealthcare seems to believe PwC and Google have the best chance of winning. In addition to Google's expertise in cloud storage, security, networking, and search, the website pointed out that "Google has already implemented its infrastructure services for the Defense Department's Uniformed Services University of Health Sciences, which educates prospective military health providers." The Pentagon's familiarity with Google's capabilities might give the company an advantage in the contest to revamp the VA's electronic medical records.
That said, there's no doubt Google faces a heaping helping of competition from some of the biggest names in government information-techology contracting. So who do I think will win?
In an ideal world, the answer would come down to "who has the best, most elegant solution, and can build it at the lowest price?" While I can't really opine on the intricacies of electronic medical records and which system will ultimately work best, I can tell you which company has the leg up when it comes to offering the Pentagon an EMR solution at a low price:
Yes, Google to the rescue
Surprised? You needn't be. In addition to ModernHealthcare's vote of confidence, I can't help but notice that of all the major players bidding on the VA's EMR project, Google boasts the single fattest profit margins -- and so has the most flexibility to quote a cheap price. According to data from S&P Capital IQ, Google generates a whopping 23% operating profit margin from its operations. That's a good 2.5 percentage points more than next-most-profitable operator Cerner -- and 27 percentage points ahead of Allscripts, where operating profit margins are negative.
So if winning this contract comes down to a bidding war, Google's got the most room to sacrifice profit margins in order to underprice the competition. Anyone trying to undercut Google's price may find itself operating at a loss.
There's also Google's sheer size to consider and its ability to ramp up rapidly to capture new markets. Three years ago, Google won one of its most significant battles for a government IT contract, beating out Microsoft (NASDAQ:MSFT) for the right to revamp the U.S. Department of the Interior's email systems with its "Google Apps" software suite. Back then, the win was small potatoes for Google -- about $35 million over five years. Since then, however, Google's abilities in government IT have grown.
Last year, CIO magazine reported that Google and Microsoft were already in a "2-horse race" when it comes to bidding for government cloud computing contracts. Google has rolled out software ("Google Apps for Government") specifically tailored to government use, won clients in the General Services Administration and National Archives, and underpriced Microsoft's Office 365 product by about 16%.
The rapid growth of Google's government IT business shows it's very interested in getting into this game. At the same time, Google's willingness to undercut Microsoft on pricing foreshadows the difficulties that IBM, Cerner, Accenture, et al. will encounter when they face off against Google.
Long story short, when betting on which company has the best chance of helping turn the VA's system of record-keeping from something like this:
into something looking like this:
... I'd put my money on Google.
Rich Smith has no position in any stocks mentioned. The Motley Fool recommends Accenture, Google (A shares), and Google (C shares). The Motley Fool owns shares of Google (A shares), Google (C shares), International Business Machines, and Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.