Siemens CEO John Glaser, Ph.D. talks about the business logic of the Cerner-Siemens deal
A lot has happened since John Glaser, Ph.D., left Partners Healthcare, where he had been CIO for 15 years, and joined Siemens Healthcare as its CEO in June 2010. Intensified competition, industry consolidation, federal healthcare reform in the form of the Affordable Care Act, and the meaningful use process under the HITECH (Health Information Technology for Economic and Clinical Health) Act, are among the biggest phenomena that have affected the healthcare industry, and in particular the healthcare IT vendor market the most profoundly.
And it is that context that the Kansas City-based Cerner Corporation and the Malvern, Pa.-based Siemens Healthcare announced a deal on Aug. 5, in which Cerner sill acquire the health IT business of Siemens Healthcare, for $1.3 billion. As Healthcare Informatics reported on Wednesday, the deal between Cerner and Siemens AG, the Germany-based parent company of Siemens Healthcare, will combine R&D, knowledgeable resources, and complementary client bases between Cerner and Siemens’ healthcare IT business. As part of our Wednesday report, HCI Associate Editor Rajiv Leventhal interviewed Cerner president Zane Burke.
This morning, HCI Editor-in-Chief Mark Hagland was granted an industry-exclusive interview with John Glaser, Ph.D of Siemens, in order to get the Siemens perspective on the business deal. Below are excerpts from that interview.
John Glaser, Ph.D.
How did the talks happen between the two companies that led to this business decision?
There had been conversations over several years between the Siemens and Cerner folks, and occasional collaborations. Two things have become clear to me in the last several years. One, given the pressures on the providers, which you know well, including the need to create ACOs [accountable care organizations] and patient-centered medical homes, population health, etc., and if you really want to be an enterprise clinical IT company in this space, you really need to be able to invest strongly in R&D [research and development] . And the whole technology space, along with social media, is just getting broader and more demanding. And it’s server hosting. And it’s workflows, sophisticated algorithms around readmissions work; those are also elements in the mix. The point is, these are becoming very large, very complex [clinical information] systems. So if you’re going to thrive in the years ahead, you have to have a very sophisticated platform, and a very large footprint in the industry.
So one rationale [for the Cerner deal], and this was part of the Siemens discussion, is that health services capability has to achieve a scale greater than it already is. And if you look at how many [electronic health record] companies were certified for Stage 1 versus Stage 2 [of meaningful use], there was a huge drop-off [in Stage 2], because of the amount of resources needed to stay in the game. So the first thing [involved in the calculation around the deal] was the ability to amass significant resources. The second thing is that Siemens had this thing called Med Meets IT, around the integration of imaging, laboratory diagnostics, and classic electronic health records. And I think the assumption was that if you were really good with EHRs on the IT side, that would translate into imaging informatics and laboratory diagnostics as well, and it became clear that those were very specialized areas.
And so Siemens realized if it was going to invest in IT, it was far better to invest in IT immediately related to those projects. So the strategic value of the group I was running was becoming less. Siemens Healthcare was concluding that if our group wanted to acquire a higher level of prowess, we need to realign, and develop new strategies around how to bring the data together, develop new algorithms, and so on. So that was the rationale—that you needed to build up the core IT strength. Meanwhile, Siemens needed to build up its core strengths. And all that led to the conversation that led to
So just to be clear, Siemens Healthcare’s PACS [picture archiving and communications systems] and RIS [radiology information systems] business units will not go with Cerner in this deal?
That’s correct; those will remain with Siemens.
What will happen to Syngo?
Syngo will remain with Siemens also, and will remain centered on advanced visualization.
Some in the industry are comparing this to the Allscripts-Eclipsys merger, which ended up being much rockier than had been predicted, in its execution, and ultimately led to a lot of governance problems, and the dismissal of the CEO. What would you say to those who are making the comparison of this deal with that one?
Clearly, we all learned from that, and other experiences where things were choppier than they needed to be. I think we’ll be able to avoid a lot of governance shootout that happened there, and we’re taking steps to make sure it ends up well… So Cerner is setting up the Siemens group as a separate division, so it will bring out Dick Flanigan [a Cerner senior vice president] and others out there, so there won’t be an immediate effort to mush all the groups together; we’ll take the time to do that in a more deliberate fashion. Now, where there’s a common customer, and we do have 37 common customers—we’ll certainly be servicing them musing a single identity as a company. Meanwhile, with regard to what happened at Allscripts/Eclipsys, with the immediate attempt to integrate those companies’ core solutions, we don’t need to immediately do that in terms of the products here.
Are Millennium and Soarian ultimately going to become one solution?
We haven’t had that conversation yet. My suspicion is that we will collectively decide that those products have to converge over time, but that’s speculation on my part.
Not in a year, of course?
That’s right, nobody’s thinking about a year. and whatever your plans, you have to think about what your customers are going through. So that will be one of the key factors in the timing. And also the emphasis. Increasingly, I think people will emphasize the attempt to do care management or population health; and they’ll say, what I really need is help with that.
Could there be a bridge platform or superstructure around care management or population health?
Well, one of the things with regard to that is that when you look at the population health space, and we and the Cerner people have both thought about that, you have to bridge different EHRs anyway as a matter of course. And exactly how one does bridge things… But pop health/care mgmt is a bridging exercise to begin with, because of the heterogeneous nature of the base.
Has a decision been reached as to your title/role in the combined company?
We haven’t gotten that far. One, we still have a business today [at Siemens]. We are still technically competitors. And we have customers trying to get through Stage 2, and begin care management, and so forth. So we’ll continue with our current commitments. And over the next months, we’ll begin laying out our plans. And there are certain conversations we can’t yet have, because of regulatory reasons. I think the Cerner people are interested in me coming over, and I’m interested, but that’s several months down the road.
One concern being expressed by some in the industry is the possibility that customer service could worsen with this deal, and with EHR vendor consolidation in general. That’s what’s happened in the airline industry, as service to passengers has declined considerably over the years. Your thoughts on that comparison?
I don’t think that will happen in the EHR sector, for a couple of different reasons. In the airline business, we’ve fundamentally seen that a seat on an airplane has become a commodity. For example, you’re looking at a flight from Chicago to New York, and you’re looking for a cheap seat. And they’ll make the space less and you’ll still fly. This is a different business, and I think the premium on service and high-quality software will remain quite high. And in the end, customers don’t buy software, they’re after improvements in operational excellence. So I doubt that we’re going to head there, because whether you’re Cerner/Siemens or Allscripts/Eclipsys or Epic or whoever, we’re not going to head towards commoditization.
What would you like the industry to know?
Well, generally speaking, we’re in a very challenging time, both here and internationally. And people need extraordinary products and service. And I get that and we get that, and our coming together is a response to that. We do think that this is going to be an increasingly sophisticated IT space. And whoever they partner with, providers need that full range of product, service, sophistication, and this is more than just buying an EHR. I think we’re heading into a much more sophisticated and demanding IT territory.
And fundamentally, this business deal has not been a response to the business activity of Epic [Systems Corporation]?
Fundamentally what this isn’t is, “Epic is doing X, thus we need to do Y.” I think fundamentally, you’re always at risk if you’re reacting to what someone else is doing. So, no, this not a response to Epic, it’s a response to core trends in the industry. It’s not a competitive response, it’s an industry response.
