Sales: $186.9 million (1995)
Stock Exchanges: NASDAQ
SICs: 7375 Information Retrieval Services; 7371 Computer Programming Services
Cerner Corporation is a leading supplier of information systems for the health care industry. Cerner designs, installs, and supports applications developed around a single architecture, called Health Network Architecture (HNA), which allows clinics, hospitals, HMOs, physicians, and integrated health organizations (IHOs) to share clinical and management data across multiple disciplines and facilities. Cerner’s 12 major system applications, which are supported by more than 200 component applications, operate on the single HNA platform. This allows Cerner clients to purchase the entire HNA system, or to choose among the individual applications, adding applications as needed, while achieving a seamless flow of information across applications. These applications fit into four interrelated groups: clinical management, care management, repositories, and knowledge systems. With its products, Cerner has led the health care industry away from finance-driven information systems to a patient-centered system more appropriate for an increasingly integrated industry focused on managed care and cost-effective services. In addition to developing its own products, Cerner has forged several alliances to share technology and marketing activities with other companies. Cerner’s goal is to automate the entire health management process, creating paperless patient records that the company calls the Electronic Medical Record (EMR), which can be accessed and shared by the full spectrum of medical and health professionals, as well as by the patient.
Cerner supports its products with eight regional offices in the United States and branch offices in Australia, Germany, Saudi Arabia, and England, providing technical and sales assistance to more than 1,330 client sites. Of these clients, more than 30 have implemented the full HNA system, and over 100 have linked multiple Cerner applications. As of the mid-1990s, Cerner’s growth has come primarily from clients purchasing multiple applications. The majority of Cerner’s clients are located in the United States; international growth is hampered somewhat by the need to translate its products into other languages, and international sales have been limited largely to countries with health care systems based on the U.S. and British models. Sales of Cerner applications, together with revenues from continued application support and add-on purchases, combined for $187 million, with a net profit of $22.5 million, in 1995. Cerner is led by chairman and CEO Neal Patterson, and president and COO Clifford Illig.
In 1979, Neal Patterson, Clifford Illig, and Paul Gorup left the management information systems consulting division of Arthur Anderson’s Kansas City office to found Cerner as a developer of laboratory information systems. Cerner was incorporated in 1980, as the company worked to perfect its first product.
By 1984, Cerner was ready to roll out its first application, the PathNet laboratory information system. PathNet provided a comprehensive information system for laboratory clinicians, allowing laboratories to automate their processes. PathNet, which grew to combine applications for general laboratory information, microbiology, blood bank transfusion and blood bank donation, and anatomic pathology, broke away not only from the traditional paper-based sharing of information, but also from the prevailing financial focus of data gathering systems.
PathNet proved an early success. First year revenues were just under $2 million, with a net loss of $1.5 million. However, by the following year, Cerner turned a profit on $10.3 million in sales and was already establishing itself as a leading provider of laboratory information systems. By 1986 PathNet became the market leader, with more than 30 client site placements generating $17.5 million in revenues for a $2.3 million net profit. In that year, Patterson and Illig took Cerner public, offering one million shares at $16 per share.
Through the end of the decade, PathNet remained Cerner’s primary source of revenue, but by 1985 the company had already begun to define what would become its Health Network Architecture. Cerner’s goal was to automate the health care process, focusing the various aspects of the health care process—from registration to clinical care to pharmacy services to outcomes measurement—around the individual patient. By providing access across the continuum of a patient’s care, the HNA system would achieve higher quality care, from prevention to treatment, as well as improved cost-effectiveness. Unlike paper-based medical charts, the medical records of a patient within Cerner’s automated system could be made instantly available to each member of a health care network, including laboratory clinicians, nurses, general physicians, and such specialists as radiologists and surgeons, while also providing resources for patient input and information.
Cerner’s vision of an HNA-based system would allow total management of a patient’s care, including alerts and reminders to the patient of scheduled checkups, information to providers on patient clinical history, medication allergies, and the like, and a means to provide routine and emergency care based on information uploaded by the patient. In this, Cerner anticipated the changing focus of the health care system, from a fee-for-service system, to the largely managed care-based system of the 1990s. Equally, Cerner’s vision anticipated the mid-1990s trend toward integration that would sweep the health care system, as more and more hospitals, clinics, and other providers moved toward providing vertically integrated, complete health care services.
Cerner’s client base grew steadily in the late 1980s, reaching 70 sites in 1987, 120 sites in 1988, 170 sites in 1989, and reaching 250 sites in 1990. Installations were primarily of PathNet systems, and sales of systems made up the bulk of Cerner’s revenues, which topped $57 million in 1990. However, recurring revenues, especially from support services and also from add-on applications sales, began to form an increasing share of Cerner’s annual sales. Meanwhile, research and development spending grew from $4.2 million in 1987 to $10 million in 1990.
Cerner’s R&D efforts began to show results as early as 1987, when it introduced two more components of its future HNA system: MedNet and Discern. MedNet joined PathNet in the clinical management family of Cerner products, offering support for pulmonary medicine, respiratory care, and other internal medicine departments. Discern formed the basis of Cerner’s knowledge systems applications, offering retrospective and prospective databases and services that enabled providers to monitor patient care regimens and institute treatment and preventive protocols.
In 1988, Cerner added the next component of its clinical management systems, RadNet, which focused on automating radiology department functions. The following year, pharmacy support was added with the PharmNet application. As with PathNet, each new component was based on the same application architecture, allowing applications to be seamlessly combined to share information across applications.
The flexibility of Cerner’s HNA set it apart from its competitors as well. Through the 1980s and into the 1990s, hospitals, clinics, and their various departments typically purchased “best of breed” applications, that is, individual products from many different vendors. As more and more hospitals and their departments began to forge the health care networks that slowly came to dominate the health care industry in the 1990s, they were faced with the task of forcing integration of their disparate information systems and products. This created not only confusion within each system but also the need to maintain costly support personnel to integrate the systems and maintain their functionality. By basing their applications around a single architecture, Cerner demonstrated a marked advantage for functionality as well as cost-effective operation.
Into the 1990s
By 1990, more than 200 PathNet sites had been installed, solidifying Cerner’ps position as the leading maker of laboratory information systems. Cerner next moved to expand its product family beyond clinical management systems and into care management systems, with the introduction of its ProNet and CareNet products. ProNet provided automated support for patient management and registration, ordering, scheduling, and tracking processes. CareNet gave patient care planning, management, and measurement tools to nurses and other direct care providers. Care management was meant to play a central role in gathering information needed for the care process. With Cerner’s care management tools, providers could more easily manage the many pieces of patient information, including demographic and financial data, health status, operations data such as treatment procedures and protocols, while linking this information to ordering, tracking, scheduling, and patient, case, and health records management.
Cerner understands the challenges facing today’s health systems to provide high quality care in a more efficient and effective manner. It is our belief that the key to success for the future of healthcare is the strategic use of an intrarelated information system. We provide our clients with the necessary technology to realize benefits today, and to achieve success in the health environment of tomorrow. At Cerner, we do not react to the past. Instead, we are helping to create the future.
By the end of 1991, Cerner’s client base had expanded to 320 sites, producing revenues over $77 million and net earnings of $4.7 million. These sales still centered primarily around PathNet. Yet in 1991, Cerner moved closer to its goal of creating the paperless patient medical record with the acquisition of Intellimetrics Instrument Corporation of Massachusetts, and with the launch of its repository product line with the introduction of its Open Clinical Foundation (OCF). The OCF was an enterprisewide, relational database with multimedia capabilities, which captured the information generated by the various clinical and core systems to form a computer-based patient record, while also supporting data extraction capabilities for medical and outcomes research.
In 1991, Cerner also established its first international subsidiaries, in Australia and in the United Kingdom, marking the first implementation of its international strategy. In England, it took over service of PathNet systems originally installed in fifteen hospitals through a licensing agreement with McDonnell Douglas Information Systems. In Australia, agreement had been reached to install PathNet in the New South Wales Health System. With client sites already operating in Canada and Singapore, Cerner reached an agreement to install PathNet at the Riyadh Armed Forces Hospital in Saudi Arabia. International sales grew to $9 million by the end of 1991. By 1993, Cerner had established the first of its two German offices as well.
By the end of 1993, Cerner had completed the largest part of its product family, with the 1992 introduction of its SurgiNet and Open Management Foundation (OMF) products, and the 1993 introduction of its MRNet product. SurgiNet, part of Cerner’s clinical management product line, offered information management support for operating room teams. OMF extended Cerner’s repository line with tools for supporting management analysis and decision-making based on process-related information. MRNet functioned to link the OCF and OMF products in automating the chart management process for the medical records department. By 1993, Cerner’s repository and care management products had begun to make significant contributions to the company’s $120 million in revenues. Net earnings for 1993 reached $14.6 million.
In November 1993, Cerner acquired Megasource, Inc. in a stock-swap merger valued at approximately $6.7 million, creating the company’s wholly owned Cerner Megasource Inc. subsidiary. The Megasource merger added an additional product to Cerner’s clinical management group, MSMEDS, which added information management capabilities to pharmacy operations. This merger was significant in that roughly 80 percent of all physician orders, both in inpatient and outpatient areas, went for either laboratory or pharmacy services. With Megasource, Cerner filled out a significant presence in both services. During 1993, also, Cerner moved to expand its client support services, opening regional offices in Atlanta, Boston, Dallas, Kansas City, Los Angeles, and Washington, D.C., while providing 24-hour emergency support at its Kansas City headquarters.
Forging Alliances in the 1990s
Strategic alliances had formed a part of Cerner’s growth since the early 1990s. By 1991, Cerner had participated in a joint venture with Sony Corporation’s medical electronics division to develop the Cerner Pathology PACS Workstation, which integrated Sony’s color video capabilities with Cerner information technology. A second collaboration was formed with Beckman Instruments Inc. to introduce PathTrac, which coupled parts of PathNet with Beckman’s chemistry analyzer. A third alliance, with APACHE Medical Systems, Inc., gave Path-Net, ProNet, and CareNet capabilities through APACHE workstations.
In 1994 Cerner extended its alliance strategy with the formation of the Cerner Alliance Program. Initial partners were SDK Health Care Information Systems of Boston, MEDIC Computer Systems of Raleigh, North Carolina, and Amisys Managed Care Information Systems of Rockville, Maryland. With these alliances, Cerner moved to add administrative and financial functions, based on HNA, that fell outside of its own development efforts. In addition to collaborating on engineering, the alliances also profited from some shared marketing activities.
By year-end 1994, more than 30 clients had contracted with Cerner for the broad implementation of the complete HNA system, including five contracts in the fourth quarter alone; another 100 clients had purchased multiple system components. The company rolled out support for the IBM RISC System/6000 processor and announced support for Microsoft’s Windows interface. Revenues reached $156 million, and net earnings grew to $19.5 million, representing increases from 1990 of 217 percent and 686 percent, respectively. An important component of Cerner’s success had been its aggressive R&D spending— more than $80 million in the first half of the 1990s, with plans to spend another $200 million by the year 2000.
In the mid-1990s, the trend toward consolidation and integration throughout the health care industry was evident. Increasing numbers of hospitals, clinics, physicians, and other providers were joining forces to create integrated health care organizations (IHOs). This trend would see a drop in the numbers of individual purchasers of information systems. Yet, the creation of large, regional health care systems would drive a resurgence in the need for automated information systems, with purchases of products and services expected to rise from $8.5 billion in 1995 to $13 billion by 1997. Cerner, with a mature product line centered around HNA raising $189.6 million in 1995 revenues, was positioned to continue its market leadership.
Cerner Megasource, Inc.; Cerner Corporation Pty., Ltd. (Australia); Cerner Deutschland GmbH (Germany); Cerner Arabia Co. Ltd. (Saudi Arabia); Cerner Limited (U.K.).
Electronic Medical Record: Supporting Lifetime Health Management. Kansas City, Mo.: Cerner Corporation, 1995.
Intrarelation: Characterizing Cerner’s Health Network Architecture. Kansas City, Mo.: Cerner Corporation, 1995.
Meyer, Gene, “Diagnoses on Cerner: More Growth Ahead,” Kansas City Star, September 26, 1995, p. E20.
Tierney, Mary C, “Cerner Corporation,” Business Digest, March 1996, p. 24.
—M. L. Cohen