After the Veterans Administration made headlines a few years ago when one of its buildings nearly collapsed under the weight of too many paper benefits claims files, the Department of Defense sent out a request for proposals to modernize its health records system. That meant upgrading a mammoth system with aging infrastructure, and for the winning bidder, it would be a very big deal.
In this Industry Focus: Tech clip, Motley Fool analysts Sean O'Reilly and Kristine Harjes talk about just how gargantuan the deal was, and what winning it will probably mean for lead contractor Cerner (NASDAQ:CERN) in the future.
A full transcript follows the video.
This podcast was recorded on Feb. 12, 2016.
Sean O'Reilly: So, I understand that both of these companies, and a lot of these guys, they have big business not only with private hospital chains, but also the federal government and the Department of Defense and stuff.
Kristine Harjes: Yeah, the Department of Defense contract, that's a really interesting story. So, this was ...
O'Reilly: Not a small customer, obviously.
Harjes: Yeah (laughs). On the heels of a 2012 story where the VA made headlines ...
O'Reilly: Oh my gosh, that!
Harjes: Do you remember that?
Harjes: So, for those who aren't familiar with the story: Basically, the Veteran's Benefits Administration office building in North Carolina nearly collapsed under the weight of all of its paper files.
O'Reilly: They still had computers from the 1980s or something. (laughs)
Harjes: Yeah! According to these reports, one floor had totally overflowed, and you had stacks and stacks of paper going up to the cabinets, and falling out of boxes--
O'Reilly: You're talking about physical files!
Harjes: Yeah, yeah!
O'Reilly: Oh my gosh!
Harjes: You have actual paper files! And there was such a backlog, just, for people waiting to get more information, and they just weren't online at all. So, the floor almost collapsed.
Harjes: So, the Department of Defense decides, "OK ... "
O'Reilly: "Maybe we should use computers!" (laughs)
Harjes: "Maybe we should modernize a little bit." So, there was a huge battle between a bunch of companies that are in this space, and it ultimately ended up being that Cerner, a combination of Cerner and Leidos and Accenture, they beat out a partnership between Epic and IBM, and they also beat out a couple of others competitors to win this $11 billion contract. Interestingly, it was originally anticipated to be $11 billion, but was whittled down to $9 billion, which is the effect of competition. But, going forward, these things, they don't get cheaper. These contracts only expand. So, this is a huge deal.
O'Reilly: Right, and once you're in on the federal government, you're in. (laughs)
Harjes: Yeah, this is definitely a long term partnership.