Cerner Agrees to $106M Settlement Over Defective Software Claims

March 11, 2014 in News

Cerner has settled a dispute with a North Dakota hospital over allegations that its financial software was defective and did not deliver expected business benefits, Modern Healthcare reports.

Background

In April 2012, Trinity Health told the company it was “transitioning away from Cerner’s patient accounting software solution and certain IT services provided by Cerner, alleging that the patient accounting solution purchased in 2008 was defective and did not deliver the promised benefits,” according to the 10-K yearly report that Cerner filed with the Securities and Exchange Commission. Cerner “disputed the allegations,” the statement notes.

In December 2013, Cerner said that the two sides had agreed to arbitrate the dispute and that an interim ruling would cut into Cerner’s fourth quarter earnings. The arbitration ruling also allowed Cerner to collect some payments due from the hospital, Cerner’s annual filing said.

In a statement, Cerner said that as of Dec. 28, “this matter has been resolved and paid.” Meanwhile, Trinity is “continuing as a client of Cerner for its clinical solutions,” the statement noted.

Settlement Details

The Kansas City, Mo.-based software developer agreed to an arbitration settlement of more than $106 million, according to the SEC filing.

A SEC filing dating back to Oct. 25, 2013, noted that Trinity anticipated damages totaling $240 million relating to the dispute, but Cerner’s expert witness placed total damages “assuming any liability by Cerner” as ranging “up to $4 million.”

Trinity Vice President Randy Schwan confirmed the settlement had been reached but did not provide any additional details.

Cerner spokesperson Megan Moriarty said the company remains “confident in our patient accounting solution, which is in place at 935 facilities worldwide, and take pride in helping our clients achieve successful clinical and financial outcomes.”

Attorney: Relationships Between Providers, IT Vendors ‘Unusual’

Trinity’s attorney, Michael Dagley, also did not discuss the specifics of the case. However, he noted that the relationships between health care providers and health IT vendors are unusual. Specifically, “I’ve never seen — so uniformly across all the vendors — [vendors] overpromise and under deliver,” he said. Dagley added, “The other thing is the seeming lack of concern of the consequences. It’s really remarkable.”

Generally, IT contracts are authored by the vendor and contain clauses to eliminate “consequential damages,” which limits hospitals’ ability to take legal action, according to Dagley. “The damages are limited till you get your money back for the product,” but that doesn’t include money spent on training, the cost of de-installing and converting to another system, he said.

However, alternate courses of action are possible under state and common law provisions of consumer fraud. Under these statutes, manufacturers cannot misrepresent product capabilities and benefits. Such cases tend to be “very favorable to consumers,” Dagley noted, adding, “Courts have held companies’ feet to the fire about functionality” (Conn, Modern Healthcare, 3/7).

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