Need more evidence value-based care is gaining traction? Cerner reports big uptick in interest among providers

Need more evidence that value-based care is gaining traction?

It's among the biggest shifts seen by health IT giant Cerner as it's worked with health provider clients to navigate the rocky waters of the COVID-19 pandemic, officials said during a recent third-quarter earnings call. 

"Managing COVID with our clients has enabled Cerner to extend and strengthen relationships and to help our partners manage their response, plan their recovery, and, in many cases, reimagine new business models that leverage comprehensive data and network strategies," said Cerner CEO Brent Shafer.

Seeking stability or reliability of cash flow, officials said, many of their provider clients are increasingly moving toward capitated—or value-based—agreements.

RELATED: Shafer says COVID-19 pandemic has driven 'burst of innovation' at Cerner

"I think, as we progress through the year over the course of 2020, there’s been a lot of focus on surge capacity and response, a lot of focus on elective surgery recovery," said Cerner President Don Trigg. "I think as those strategies played through into Q3, both [Chief Client and Services Officer John Peterzelek] and I started having significant and higher levels of conversation in the marketplace around rethinking of the business model and the role of value-based care and first dollar risk strategies in provider’s five-year plan."

Trigg said there's "no question we've seen an increasing intensity of conversation" as well as "meaningful" increases in its weighted bookings pipeline. 

"As we look out on a five-year basis, we think the market is now readying itself for capabilities that we’re quite well suited to provide inclusive of the investments we’ve made on a multi-quarter basis around Medicare Advantage in the provider-sponsored plan space," he said. "I think this is going to be a big area of focus. I think providers recognize they want to take control of their top-line revenue and make that part of their strategy going forward and are thinking through people, provider, and technology strategies to do it."

His comments came as health IT giant Cerner posted net earnings of $356.7 million in the third quarter, more than three times what the company earned in the same quarter in 2019.

The company said it met its expectations as it reported third-quarter profits of $1.17 per diluted share up from 26 cents—or $81.9 million—in the same quarter a year earlier. Cerner posted revenue of $1.37 billion in the third quarter of 2020, down from $1.43 billion during the same quarter in 2019.

The company said the 4% drop in revenue was primarily due to the impact of two recent divestitures, including the company’s exit from a large revenue cycle outsourcing contract in the fourth quarter of 2019. Excluding those, the company's revenue growth in the third quarter would have been about 2%, reflecting the negative impacts of the pandemic.

Bookings in the third quarter of 2020 were within the company’s expected range at $1.47 billion. The company reported third-quarter operating cash flow of $382 million and free cash flow of $237 million. The company has a total backlog of about $13 billion.

RELATED: Cerner senior exec: Amazon cloud partnership is driving Cerner's shift to become digital platform company

Officials acknowledged the latest milestone in the Department of Veterans Affairs' s decades-long, multibillion-dollar effort to upgrade its aging health IT systems with the deployment of the Cerner electronic health record system in its first site in late October. 

"This is a significant milestone and it positions us to proceed with the broader deployment plans as we head into next year," Peterzelek said.

The company also announced Chief Financial Officer Marc Naughton will leave the company in 2021. Officials said he expects to remain at the company during the search for his successor.