Takeaway: The award of the VA contract to CERN still must overcome significant challenges in implementation and there is little optimism for success

Despite daunting challenges for implementation, Acting Veterans Affairs Secretary Robert Wilkie, announced the execution of the Electronic Health Records Modernization Program contract with CERN. Instead of a delay, as we expected, the Acting Secretary chose to address the considerable internal concerns and external political pressure with an unusual contract provision:

This contract was awarded after a determination by the Secretary of Veterans Affairs to be in the public interest under FAR 6.302-7.  The goal of the accelerated award is to deliver a modernized system in the best interests of Veterans, their healthcare, and the providers that care for them both inside the VA and in commercial care settings.

This award contemplates the provision of services by Cerner Corporation, and accordingly the documents reference Cerner Corporation and its software and services.  The VA may determine a different source of software and/or services will best serve the interests of Veterans for such services including quality of care, patient engagement, operational efficiency or interoperability to fulfill the goals of Electronic Health Record Modernization, the Veterans’ Choice program, or other areas as the VA may decide.  The VA may then follow the Federal Acquisition Regulations to seek other sources for the services.

In effect, the VA is putting CERN on notice that they don’t have an exclusive role on the project. Clearly, the VA needs the Millennium system for their direct care facilities. But beyond that, the VA is reserving the right to go around the prime contractor - who normally would be charged with subcontracting as necessary – to source software and services as it sees fit. The provision achieves two important goals – strengthens the VA’s position in the event of a protest and appeases Congressional overlords who have pressed for a contract award.

It is an untenable position for a prime contractor. CERN’s name will be forever associated with the procurement but they may have limited control over who does what and where. Furthermore, in those cases where the VA separately procures software and services for the EHR Modernization Program, CERN will not be the beneficiary of the prime contractor margin associated with subcontracted work.

Additionally, significant problems with this contract remain. There is no permanent CIO, the DoD roll-out is going poorly, CERN has little federal contracting experience, the operations of the Agency are a mess, etc.

One small cloud was lifted today when President Trump nominated Acting SecVA Robert Wilkie to hold his position permanently. If Wilkie is ultimately confirmed, concerns about Wilkie's legitimacy and his legal authority to execute a contract will be rendered moot. The nomination coincides with both the contract award and Sen. McConnell's decision to move ahead with the MISSION Act next week.

For good reason, there is a great deal of skepticism this contract will go well. Some of that is cynicism with respect to federal IT purchases but a greater part is an appreciation for how little talent and experience is being applied to the project. At a minimum, we expect a lot of delays. At a maximum, there could be significant reputation damage incurred by CERN.

In the next few months, we will be watching:

  • Post-award protest from CliniComp or another vendor
  • SecVA nomination hearings
  • Filling of key VA IT vacancies
  • Disbursements to CERN and subcontractors under the contract
  • Disposition of CliniComp lawsuit
  • FY 2019 Budget hearings
  • Oversight hearings on DoD implementation, if any.
  • Additional procurement requests
  • Contract modifications

Call with questions.

Emily Evans
Managing Director - Health Policy


@HedgeyeEEvans

Thomas Tobin
Managing Director


@HedgeyeHC

Andrew Freedman, CFA
Director


@HedgeyeHIT 

Alexander Ross
Associate


@HedgeyeLab