New Cerner CEO focuses on high-value partnerships in bid to cut excess costs

Cerner Corp. will narrow down its hundreds of partnerships to reduce unnecessary costs and boost revenue under a strategy by newly appointed CEO David Feinberg.

Feinberg, the former vice president of Google LLC's healthcare unit, Google Health, is the second C-suite hire for Cerner in 2021 after CFO Mark Erceg took over from Marc Naughton in February.

In his first earnings call since becoming CEO on Oct. 1, Feinberg outlined his vision for the healthcare IT solutions provider, including focusing the company's operations and improving its current technology offerings. Cerner saw revenue grow 7% year over year to $1.47 billion for the third quarter.

"In the past, Cerner has tried to do too many things, often by ourselves," the CEO said during the Oct. 29 call. "Going forward, we're going to change that approach and only focus on a small number of important high-value areas, some of which we plan to achieve by partnering with highly capable organizations we believe can help us achieve our mission of improving the lives of others."

Part of Cerner's new approach will come in the form of reviewing the hundreds of its current partnerships, Erceg said.

The company will reduce or eliminate some arrangements and refocus those efforts on improving partnerships that add value, the CFO explained. An analysis of third-party software the company uses showed that Cerner spends about $330 million annually on licenses, subscriptions and support, and Erceg said Cerner will reduce these subscriptions and associated costs.

"As we take up David's challenge to focus on the patient and only do a few critically important things really well, we plan to stop or jettison side pursuits that, in many cases, have proven to be nothing but resource drains and distractions," Erceg said.

This strategy offers an opportunity to strengthen Cerner's price integrity in the marketplace, with the potential for "incremental and profitable revenue growth in the years ahead," the CFO said.

Cerner's progress on its cost initiatives is encouraging, and the company is heading toward an EBIT target in the mid-20% range by 2024, RBC Capital Markets analysts Sean Dodge and Thomas Kelliher said in an Oct. 29 note.

Feinberg told analysts that his time at Google had shown him the importance of the user, and part of his goal at Cerner is to improve the experience for patients and clinicians who use the company's electronic health records, or EHR, system.

"The EHRs have been built as billing machines," Feinberg said. "They've been built as lab machines and nobody has built an EHR for a nurse in the ER, no one has built an EHR for a busy ambulatory care physician."

The company launched a new operating unit on Oct. 26 called Cerner Enviza, which will combine insights from both Cerner and Kantar Health — a data and analytics consulting business for the life sciences industry that Cerner acquired in April from The Kantar Group — to accelerate drug discovery processes.