How Oracle’s purchase of Cerner shakes up the tech field in healthcare

With Oracle acquiring Cerner in a $28 billion deal, the Texas-based tech giant made it clear it aims to become a major presence in the healthcare industry.

The merger, which was announced Monday, is the biggest tech deal of the year, by far, said Paddy Padmanabhan, founder and CEO of Damo Consulting. He said the deal makes sense in many ways. Oracle, a huge software company, gains the country's second biggest player in electronic health records in Cerner.

“This move puts a lot of people on notice, a lot of big tech firms,” Padmanabhan said in a phone interview.

Microsoft, Google, Amazon and Apple now realize that there’s another major tech company expanding its presence in the healthcare industry. “‘That field just got expanded by another player who came in with a big bang,” Padmanabhan said.

The Oracle-Cerner deal represents “an interesting marriage” with a great deal of potential, he said.

“For Oracle, it seems to be a good move on their part,” Padmanabhan said. “They get instant credibility, instant access to a large swath of the healthcare ecosystem.”

Oracle has a minimal presence in the hospital sector, Padmanabhan noted. The deal gives Oracle a greater position and the chance to sell other Oracle products to healthcare organizations, as well as the opportunity to take Cerner into international markets.

“It also provides for Oracle to compete in technology where others are ahead, and one obviously is cloud,” Padmanabhan said. “The whole cloud movement is one Oracle has been slow to embrace.”

In the deal, Oracle touted the merger as one that will transform healthcare. Oracle mentioned the deal would accelerate the move into cloud technology, providing easier access to healthcare records.

Oracle and Cerner also hailed the incorporation of voice recognition technology to make it easier for doctors to submit records, saving the hassle of typing them into computers. The companies said the move would enable doctors to spend more time caring for their patients and reduce the stress that comes with investing so much time in electronic records.

Padmanabhan said he was surprised at the repeated references to the voice technology, since it’s not one of Oracle’s more well-known areas.

“If they do indeed have the technology and they can deliver on the promise, that provides Oracle an opportunity to be a player in the voice space,” he said.

It’s also a shot across the bow to Microsoft, he said. Microsoft acquired Nuance, a leader in voice recognition technology, in a $19.7 billion deal earlier this year.

He said the deal makes sense for Cerner, which has been struggling recently as well.

“For Cerner, this could be a lifeline,” Padmanabhan said. “It now gives them access to vast talent Oracle brings to bear. It provides access to Oracle’s global footprint and potentially a big infusion of capital to modernize the platform and bring it into the digital era.”

Padmanabhan said it will be fascinating to see how other players in the industry respond.

Oracle already has a presence in enterprise resource planning (ERP), the software that manages business and financial operations. Now with Oracle gaining a big player in electronic health records, it puts added pressure on Epic, the leading EHR company. Padmanabhan said he didn’t see customers moving from Epic to Cerner simply because Cerner is owned by Oracle. But Epic will have to respond.

“Epic will now have to compete with the vast resources of Oracle as a competitor,” Padmanabhan said. “That is going to be a big strategic shift for Epic.”

If other big tech companies want to do more in healthcare, they could look to acquire other electronic health record companies. Padmanabhan didn’t see Epic as likely to agree to a sale.

Tech companies could look at other significant companies in electronic health records, such as AllScripts or Meditech.

“The EHR space is a challenging one,” Padmanabhan said. “There’s only a handful of companies.”

As far as prospective contenders, Padmanabhan noted Amazon is getting into the primary care area. “Having an EHR platform with a primary care offering would make strategic sense,” he said.

For Amazon, moving into electronic health records would be a big decision, said Holger Mueller, vice president and principal analyst for Constellation Research. It’s possible Amazon could look to acquire an EHR company, but Mueller said he didn’t think it was likely.

Microsoft hasn’t shown interest in acquiring an EHR company, Padmanabhan said. But he quickly added, “Microsoft Is Microsoft. They have the money. If they desire it, they could acquire one of these companies. They’re really strong in the workplace collaboration space.”

Mueller also said he could see a scenario where Microsoft bought one of the electronic health record firms.

Apple certainly has the resources, but Padmanabhan didn’t see the company going after an EHR player. “Apple likes to do things on their own,” he said.

Apple dialed down its primary care offering this year, he noted. Apple still has significant plays in healthcare, partnering with EHR vendors and hospitals. With Apple’s iPhones, consumers can connect to healthcare providers and access health records. Padmanabhan said Apple could expand that program.

Oracle has pledged to change healthcare with the Cerner acquisition. Analysts said it won’t be easy.

“For Oracle, they’re oging to have to work hard to make it work,” Padmanabhan said.

“All the assumptions they’re making, may or may not come to pass.”

Natalie Schibell, a senior analyst at Forrester, said this week the Oracle-Cerner merger’s success will be determined by “Oracle’s cloud-first strategy for harnessing the power of data that sits outside of the electronic health record.”

“An Oracle-Cerner deal would require Oracle to push the throttle on Cerner’s move to the cloud to drive a new paradigm of data-driven healthcare,” Schibell said. She added that as Oracle expands in the healthcare industry, “its investment in cybersecurity must also exponentially grow.”

Ultimately, Padmanabhan said the Oracle acquisition of Cerner may have its biggest value in driving other companies to rethink the possibilities of what they can do in the healthcare industry.

“The Oracle deal is a catalyst to spur accelerated innovation and that is ultimately going to benefit consumers,” Padmanabhan said. “I see that as a positive.”