(Story updated at 6:55 p.m. Eastern Time.)
And the winner is Cerner Corp., which joined up with defense computing contractor Leidos and Accenture Federal Services as the prime contractor and configuration specialist, respectively.
The prize is one of the largest health information technology contracts in U.S. history, awarded by the Defense Department for its global Military Health System.
The military's new EHR system will serve 55 hospitals and 600 clinics, and was chosen in a 22-month, Defense Healthcare Management Systems Modernization procurement effort, or DHMSM (pronounced “dim sum").
The new EHR system must be interoperable with EHRs from multiple other vendors used by civilian hospitals and office-based physicians. About 60% of the care given to the military's 9.5 million active duty and retired military personnel and their families is in those settings, according to Dr. Jonathan Woodson, assistant secretary of defense for health affairs.
Woodson and two other Defense leaders spoke at an embargoed news conference about DHMSM on Wednesday morning.
The total cost of ownership of the system over its projected 18-year life cycle, once estimated at $11 billion, “we think now it will be $9 billion,” said Frank Kendall, undersecretary of defense for acquisition, technology and logistics.
The award was announced at 5 p.m. ET on the Defense Department's website, listing only Leidos, the prime contractor, as the winning bidder. The “ceiling” on the “indefinite-delivery/indefinite-quantity” contract was just over $4.33 billion. The contract has an initial two-year ordering period, with a pair of three-year option periods, and a possible two-year “award term,” which could bring the total contract period to 10 years.
However, only one-third of the contract will be for a fixed amount, he said. The rest will be on a “cost plus” basis. That's a variable form of contract, common with the Defense Department, susceptible to cost overruns.
“We're confident we made a good selection,” Kendall said. But to help hold costs in check, he said, they will need to stick to what's listed in the contract specifications. “We want to do minimum modification. We'll have to discipline ourselves to not ask for modifications.”
Kendall was tasked in 2013 by then-Defense Secretary Chuck Hagel to come up with a lower-cost alternative to partnering with the Department of Veterans Affairs to create a common EHR between them.
Both departments dropped that plan when the cost estimates came in at around $15 billion.
The announcement comes as a blow to two teams that remained competitors until the very end: Epic Systems Corp. as the EHR developer and IBM Corp. as its prime contractor; and EHR maker Allscripts, which partnered with Computer Sciences Corp., and Hewlett-Packard.
Eliminated in February was a team of EHR developers, DSS and Medsphere, that use computer code from the VistA EHR of the VA's Veterans Health Administration, plus PricewaterhouseCoopers and General Dynamics Information Technology.
For the better part of a year, Epic has been buffeted by charges from its critics, competitors and various members of Congress about an alleged lack of interoperability of its system.
The most recent criticism of lack of interoperability was leveled last week during testimony at a Senate Health, Education, Labor and Pensions Committee hearing on data-blocking.
Chris Miller, program executive officer of defense health management systems, the Defense Department office that handled the DHMSM procurement, said the buyers were acutely aware of the data-blocking issue.
“A lot of those issues that are being brought up deal with a lot of contractual things that are put in place with some of the providers and their vendors,” Miller said. “We own 100% of the data. People cannot charge us to access our data. We've also thought about our data rights.” If the military decides to change vendors, he said, “We have all the data rights to move from one vendor to another. “
Further, Miller said, “We're going to extensively test our interoperability with our new system.” But he said, “Interoperability is not something you buy and then you've got it. It needs continuous improvement.”
The next step would be deployment at eight military facilities in the Pacific Northwest, Kendall said, with those to be up and running by the end of next year. Full deployment across the Military Health System will take six or seven years, he said.
“This is going to be an event-driven program,” dependent on the availability of resources by the military and the contractors, Kendall said. “We're not going to take risks to meet a schedule.”
Dr. Howard Landa, chief medical information officer and co-chairman of the Association of Medical Directors of Information Systems, previously worked in medical informatics for Kaiser Permanente, including during the 2003 through 2007 period when it switched from multiple home-grown EHRs to Epic.
The worry then was that Kaiser, with its 36 hospitals, would drain Epic's resources from its other customers. That largely didn't happen. Now, that monkey will be on Cerner's back.
In addition, now that most hospitals have completed installing their EHRs induced by payments under the federal incentive payment program, a lot of experienced installation workers are available, he said.
“I think one thing that could distract them is the amount of research and development if the military requires a lot of customization.”
“It's a lot easier to get data out of Cerner, but it's probably not as user-friendly,” Landa said. “The things that Cerner has going for it is that the organization is much more structured in a military sort of way.”
“Both Cerner and Epic are wonderful companies,” said Russ Branzell, president and CEO of the College of Healthcare Information Management Executives. The differentiator, he said, “probably came more down to the cost bid and the implementation plan.”
Also, Leidos has a long track record with the Military Health System, Branzell said. Leidos, formerly the national security, health and engineering business of defense contractor Science Applications International Corp, was spun off from SAIC in 2013.
In the late 1980s and early 1990s, SAIC, operating on a $1.1 billion Defense Department contract, created and installed the Composite Health Care System for the military health system. CHCS I, which is still in use, was based on public domain software code provided free by the VA from an early version of what is now the VA's VistA EHR.
The winners have a giant task ahead of them, “figuring out how to exchange data with every single (IT) vendor” in the country, Branzell said.
Branzell said he's enrolled in the military health insurance program, TRICARE, but “All of my care is in the private sector. I go to a hospital where they have GE in their physicians' office and McKesson in inpatient. All my scripts today go directly to the DoD online pharmacy. That's common. So they're going to have to connect to that.”
Todd Cozzens, venture partner and senior adviser at Sequoia Partners, a noted venture capital firm in the information technology industry, said interoperability is a key issue.
“The No. 1 focus of the DoD, the ONC and others should be, not only is this system useful, but can it interoperate” with other vendors' EHRs, Cozzens said. “There's so little emphasis on making these systems interoperable,” Cozzens said. “We really failed as an industry to do that.”
He also wouldn't be surprised if the Defense Department's contract decision is appealed.
“Since the beginning of time, I've seen contracts go back and forth three or four times like a pingpong match,” he said. “This is no different. A lot of lawyers are going to get very, very rich until the deed is done.”
Perhaps in anticipation of good news from the Defense Department, Cerner stock prices jumped nearly 7.2% on the day, closing an hour before the award was announced at $73.40 a share.
Miller said the military has more than 50 systems it is planning to replace with the new Cerner installation.