Electronic health record vendors Epic Systems and Cerner may face competition from a joint patient information-sharing network being developed by the Defense and Veterans Affairs departments, analysts said.

Prompted by President Obama’s push for medical facilities to adopt electronic records, hospitals may pay companies to modify the open-source code likely to power the government-developed system, rather than buying commercial systems, said Ed Meagher, former Veterans Affairs deputy chief information officer.

Veterans Affairs plans to modernize its records system using open-source software, making it likely that the VA-Defense system also will use it, said Meagher, now vice president of health-care strategy for Computer Sciences Corp. in Falls Church. Open-source software is publicly available and can be shared with other organizations at no charge.

The government agencies “are going to spend north of $4 billion turning these two systems into one new system,” said Meagher, whose company may win business modifying the government’s open-source code for other hospital systems. “And when they’re done, anybody in the world will be able to use it.’’

The Obama administration has begun distributing as much as $31.3 billion in incentive payments to encourage hospitals and doctors to adopt electronic health record systems. The federal government plans to reduce Medicare reimbursements to physicians who fail to make the transition by 2015.

‘Whole enchilada’

Companies that primarily sell “all-or-nothing” electronic health records that provide “the whole enchilada,” such as closely held Epic Systems of Verona, Wis., may suffer, said Gene Mannheimer, an analyst with Auriga USA.

“Smaller niche vendors that are good at certain aspects of electronic health records, like providing lab or pharmacy applications, could benefit,” Mannheimer said.

The VA and the Pentagon operate two of the largest health-care systems in the country. They have been criticized for running separate electronic health records networks to serve an overlapping population of U.S. military personnel and veterans.

Veterans Affairs Secretary Eric K. Shinseki and former defense secretary Robert M. Gates agreed in March to use a common platform.

The departments plan to use a common technology architecture and share data centers to cut costs and promote efficiency, said Beth McGrath, the Pentagon’s deputy chief management officer.

She said the private sector also may provide applications enabling the departments to share pharmacy information and laboratory work.

“We want to be able to take advantage of things that have already been built,” McGrath said in a June 29 interview.

The Pentagon won’t spend money on modernizing its current electronic health records system and will pay only to sustain current operations or for critical fixes, McGrath said. Companies including Science Applications International Corp., Planned Systems International and Deloitte have made more than $100 million each from contracts related to that network, and may lose work as the department phases it out.

Software contract

The VA awarded a $5 million contract in June to Reston-based Informatics Applications Group to build and manage a network of software developers to upgrade its electronic record.

Three U.S. congressmen and two U.S. senators representing Wisconsin, including Rep. Paul Ryan (R) and Sen. Herb Kohl (D), opposed the open-source decision earlier this year. The lawmakers, from the state where Epic Systems is located, urged the VA and Defense to consider using a single vendor’s commercial product instead of multiple vendors or a “homegrown development strategy.”

“While multivendor EHRs were common in the past, patient safety, workflow efficiency, and other concerns have caused the industry to move away from this model,” the lawmakers wrote.

Epic Systems provided technical information to the staff of the Wisconsin lawmakers who sent the letter, Barb Hernandez, a spokeswoman for the company, previously told Bloomberg Government. She did not respond to phone requests for comment on this story.

Michael Cherny, a New York-based analyst with Deutsche Bank, said Epic worked on VA pilot programs in the past. But “the VA is very focused on using an open-source platform to create greater connectivity and interoperability,” he said.

Allscripts Healthcare Solutions “has done a good job of creating an open architecture platform’’ in a product line for acute care software, Cherny said.

GE Healthcare IT’s Centricity products, which relay radiology images, track medications and schedule surgery, can function in an open-source environment and would be useful as the departments try to modernize their system, said David Motherway, a government account executive with Fairfield, Conn.-based General Electric, in an Aug. 1 e-mail.