Why doesn't Microsoft just build its own cloud based EHR?

Lloyd Price
Jun 20
6 min read

One question bounded around the Nelson Advisors office on a regular basis is why doesn't Microsoft just build its own cloud based EHR?

The answer lies in understanding the complexities of the Electronic Health Record (EHR) market and Microsoft's broader strategy in healthcare. While Microsoft certainly has the technical prowess and cloud infrastructure (Azure) to build its own EHR, there are several compelling reasons why they have chosen a different path:

1. The Entrenched Nature of the EHR Market

High Switching Costs: EHR systems are deeply embedded in healthcare organizations' workflows, from patient registration and scheduling to clinical documentation, billing, and reporting. Migrating from one EHR to another is an incredibly complex, costly, and time-consuming undertaking, involving extensive training, data migration, and potential disruption to patient care.
Dominant Players: The EHR market is mature and dominated by a few major players, primarily Epic and Oracle Cerner, especially in large hospital systems in the US. These companies have spent decades building out their comprehensive platforms, establishing vast customer bases, and developing deep integration with healthcare operations. It's an incredibly difficult market to enter as a new, direct competitor.
Ecosystem and Interoperability: Existing EHRs have built extensive ecosystems of third-party applications and integrations. Healthcare providers rely on these connections for various specialized functions. A new EHR would need to replicate or integrate with this complex web, which is a massive undertaking.

2. Microsoft's Strategic Approach: Augmenting, Not Replacing

Instead of directly competing with established EHR vendors, Microsoft has adopted a strategy of augmentation and enablement. Their focus is on:

Powering Existing EHRs with Cloud and AI: Microsoft recognizes that healthcare organizations are heavily invested in their current EHRs. Their strategy is to provide the underlying cloud infrastructure (Azure), AI capabilities (like Azure OpenAI Service), and specialized healthcare services (like Microsoft Cloud for Healthcare and Dragon Copilot) that enhance and extend the value of existing EHR systems.
Focus on Interoperability: A major challenge in healthcare is the fragmentation of data across different systems. Microsoft's efforts, including through its Cloud for Healthcare, aim to improve interoperability between these disparate systems, rather than forcing a single, new EHR. Their data models are often based on standards like FHIR (Fast Healthcare Interoperability Resources) to facilitate this.
Addressing Unmet Needs (e.g., Clinician Burnout): While EHRs are essential for digital health records, they have often been criticized for contributing to clinician burnout due to their data entry demands. Microsoft's Dragon Copilot directly addresses this pain point by automating documentation, allowing clinicians to focus more on patients. This is an area where traditional EHRs have struggled, providing an opportunity for Microsoft to innovate without directly competing on the core EHR functionality.
Platform Play: Microsoft's business model is largely a platform play. They provide the tools and services that other companies and developers can build upon. By partnering with EHR vendors, they expand the reach of their Azure cloud, AI services, and developer tools within the massive healthcare industry.

3. Challenges of Building a New EHR

Even for a company like Microsoft, building a competitive, cloud-native EHR from scratch would face immense hurdles:

Regulatory Compliance: Healthcare is one of the most heavily regulated industries. A new EHR would need to meet a myriad of stringent regulations (e.g., HIPAA in the US, GDPR in Europe) related to data privacy, security, and interoperability.
Clinical Workflow Complexity: EHRs must support incredibly diverse and complex clinical workflows across specialties, departments, and care settings. Designing a system that truly meets these varied needs is an enormous challenge that takes years of iteration and deep domain expertise.
Data Migration: The sheer volume and complexity of historical patient data make data migration a monumental task when a new EHR is implemented.
Sales and Implementation Cycles: The sales and implementation cycles for EHRs are notoriously long and involve significant professional services, training, and support. Building out this entire infrastructure from scratch would be a massive investment.

Microsoft's strategy in healthcare is less about being the EHR and more about being the enabler of digital transformation for EHRs and the broader healthcare ecosystem. By focusing on cloud infrastructure, AI, interoperability, and clinician support tools like Dragon Copilot, they are aiming to be an indispensable partner to healthcare organizations and existing EHR vendors, rather than a direct competitor in a deeply entrenched market. This approach allows them to leverage their core strengths (cloud, AI, developer tools) while avoiding the immense challenges and market resistance associated with building a new, ground-up EHR.

Could Microsoft Build an EHR in the Future?

While Microsoft is unlikely to build a standalone EHR in the near term, there are scenarios where it could explore this space:

Disruptive Innovation: If existing EHRs fail to keep pace with AI and cloud advancements, Microsoft could develop a next-generation, cloud-native EHR focused on AI-driven workflows, predictive analytics, and seamless interoperability. However, this would likely be a long-term play, given current market dynamics.
Acquisition Strategy: Microsoft could acquire an existing EHR vendor (similar to Oracle’s acquisition of Cerner) to enter the market quickly. However, this would require careful integration and could strain relationships with other EHR partners like Epic.
Niche EHR for Specific Markets: Microsoft could target underserved segments, such as small practices or emerging markets, with a lightweight, cloud-based EHR. However, this would still face competition from low-cost providers like Athenahealth.
Regulatory and Partnership Shifts: If regulatory changes or market demand strongly favor cloud-native, AI-integrated EHRs, Microsoft could leverage Azure and its AI portfolio to build a differentiated solution. Its current investments in FHIR and interoperability position it well for such a pivot.

Future Innovation in Healthcare Without an EHR

Microsoft is already driving healthcare innovation through its existing portfolio, and this approach may be more effective than building an EHR:

AI-Powered Workflows: Expanding Dragon Copilot’s capabilities to support nurses, pharmacists, and other personas, or integrating it with telehealth and remote monitoring, could further reduce administrative burdens and improve care delivery.
Predictive Analytics and Population Health: Using Azure and Microsoft Fabric, Microsoft can help providers analyse EHR data for proactive care, such as identifying at-risk patients or optimizing resource allocation.
Global Expansion: Scaling Dragon Copilot and Azure Health Data Services to more countries (e.g., ongoing rollouts in Europe) will address global healthcare challenges without the need for a proprietary EHR.
Edge Computing: Enhancing Azure’s edge capabilities for healthcare could enable real-time data processing in low-connectivity settings, complementing EHRs in underserved areas.

Microsoft’s decision not to build its own cloud-based EHR is a strategic choice driven by the complexity, cost, and competition in the EHR market, as well as its focus on leveraging core strengths in cloud, AI, and interoperability. Tools like Dragon Copilot and Azure Health Data Services allow Microsoft to innovate in healthcare by enhancing existing EHRs, reducing clinician burnout, and improving patient outcomes without the risks of entering a saturated market. In the future, Microsoft could explore EHR development through acquisitions or niche solutions, but its current approach—augmenting rather than replacing EHRs—positions it to deliver scalable, impactful innovation in healthcare.

Nelson Advisors > Healthcare Technology M&A

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