Podcasts > Acquired > Epic Systems (MyChart)

Epic Systems (MyChart)

By Ben Gilbert and David Rosenthal

In this episode of Acquired, host David Rosenthal explores the story of Epic Systems, the dominant player in healthcare software, and its founder Judy Faulkner. From its modest beginnings with $140,000 in startup capital to its current position controlling 42% of the hospital market, Epic's journey illustrates how a commitment to independence and customer service can lead to market dominance in the healthcare technology sector.

The episode examines how government policies, particularly the HITECH Act, shaped the electronic medical records industry and Epic's growth. It also delves into the company's unified software platform, Chronicles, and its impact on healthcare delivery, while addressing both the improvements in patient care and the challenges that have emerged, including provider burnout and industry consolidation.

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Epic Systems (MyChart)

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Epic Systems (MyChart)

1-Page Summary

Epic Systems: History and Founder Judy Faulkner

Born in 1943 to an entrepreneurial father and socially conscious mother, Judy Faulkner developed a passion for software development during a summer internship at the University of Rochester. After pursuing computer science at the University of Wisconsin, she founded Epic Systems in 1979 with $140,000 in combined equity and loans, deliberately avoiding venture capital to maintain control.

Epic's Approach to the Healthcare Software Market

Epic's success stems from its commitment to a unified software platform called Chronicles, which seamlessly integrates clinical, billing, and patient-facing applications. The company maintains independence in product development and customer relationships, implementing standardized processes and fostering a customer-obsessed culture. By focusing on prestigious healthcare institutions and providing exceptional customer service, Epic has established itself as the industry standard for large networks.

Impact of Government Policies on EMR Adoption

The HITECH Act provided $27 billion in incentives for hospitals to implement electronic medical records, significantly benefiting Epic's growth. While the Act's emphasis on interoperability inadvertently strengthened Epic's market position, David Rosenthal notes that it also led to unintended consequences, including workflow disruptions, physician burnout, and healthcare system consolidation.

Epic's Market Position and Future Growth

With a 42% market share of hospitals and 58% of ambulatory physicians, Epic maintains near-perfect customer retention. Ben Gilbert highlights the company's significant R&D investment, comprising 35% of operating expenses, which funds expansion into new areas like the Cosmos Data Platform and AI partnerships. However, Epic faces challenges, including an antitrust lawsuit and regulatory changes that could affect its market position.

State of U.S. Healthcare System and Epic's Role

The U.S. healthcare system currently consumes 18% of GDP, with Rosenthal pointing to insurance complexity and misaligned incentives as key factors. While Epic's platforms have improved patient safety and care coordination, the speakers note that industry consolidation and Epic's historical reluctance toward interoperability have potentially stifled innovation from smaller vendors.

1-Page Summary

Additional Materials

Counterarguments

  • Epic's unified software platform, while beneficial for integration, may lead to vendor lock-in, where healthcare providers become overly dependent on Epic's ecosystem, making it difficult and costly to switch to other vendors.
  • Maintaining independence in product development and customer relationships could be seen as a double-edged sword, as it may limit collaboration and integration with other systems, potentially hindering the broader goal of interoperability in healthcare IT.
  • The focus on prestigious healthcare institutions might suggest that Epic's solutions could be less accessible or less tailored for smaller, rural, or underfunded healthcare providers, potentially exacerbating disparities in healthcare technology adoption.
  • The HITECH Act's incentives for EMR adoption, while beneficial for companies like Epic, may have also contributed to the high cost of healthcare IT systems, which can be a financial burden for smaller healthcare providers.
  • Epic's significant market share and near-perfect customer retention could be seen as indicative of a lack of competition in the healthcare IT market, which may reduce the incentive for Epic to innovate or reduce prices.
  • While Epic's investment in R&D is substantial, it's important to consider whether the outcomes of such investments are accessible to the entire healthcare industry or primarily benefit Epic's existing customer base.
  • The antitrust lawsuit mentioned could raise legitimate concerns about competitive practices and market dominance, which may have implications for innovation and choice in the healthcare IT market.
  • The criticism of the U.S. healthcare system consuming 18% of GDP is a complex issue, and while Epic's platforms may contribute to efficiency, it's worth considering how much technology solutions can address the systemic issues of insurance complexity and misaligned incentives.
  • Improvements in patient safety and care coordination attributed to Epic's platforms should be weighed against any potential negative impacts, such as the learning curve associated with new systems, which can contribute to physician burnout.
  • The claim that Epic's reluctance toward interoperability has stifled innovation could be countered by noting that Epic has made efforts to improve interoperability in recent years, although the effectiveness and extent of these efforts could be debated.

Actionables

  • You can explore a new interest by seeking out internships or volunteer opportunities in that field, much like how a passion for software development can be sparked by hands-on experience. For example, if you're curious about healthcare technology, you might volunteer at a local hospital's IT department to gain insight into how technology supports patient care.
  • Consider starting a side project or small business by pooling together personal savings and small loans, emulating the entrepreneurial spirit of starting with limited resources. If you have a hobby or skill, such as crafting or web design, you could invest in materials or online courses to improve your skills and then sell your products or services.
  • Educate yourself on the importance of data integration by organizing your personal information using unified platforms. For instance, you could use a personal finance app that combines budgeting, investments, and savings to see the benefits of having all your financial data in one place, which mirrors the seamless integration found in successful software platforms.

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Epic Systems (MyChart)

Epic Systems: History and Founder Judy Faulkner

Epic Systems has grown to be a leading healthcare software company, and its founder, Judith Faulkner, is hailed as a significant figure in the industry. Often described as a wacky founder who’s singularly focused on making Epic great, Faulkner's unique approach and business philosophies have been key elements of her entrepreneurial journey and the company's enduring success.

Judy Faulkner's Foundations for Entrepreneurial Success

Judy Faulkner, Born 1943 In New Jersey To an Entrepreneurial Father and Socially Conscious Mother

Judith "Judy" Faulkner was born in August 1943 in Earleton, New Jersey, part of Cherry Hill, a suburb of Philadelphia. Judy's father, Lou, was an entrepreneur who ran a local pharmacy and soda fountain called Lou's Soda Fountain. Her mother, Del Greenfield, was a peace advocate who became the director of the South Jersey Peace Center and later the executive director of Oregon Physicians for Social Responsibility, a group that won the Nobel Peace Prize in 1985.

Judy's Interest in Math, Programming, and a Summer Internship at the University of Rochester Sparked Her Passion For Software Development

Judy developed a passion for software development, particularly during a summer internship at the University of Rochester, where she likened programming to playing with clay, combining her love for math with language and art. She was accepted into several Ph.D. programs in math but was directed towards computer science due to her programming experience, ultimately choosing the University of Wisconsin.

Judy's Pursuit of a Computer Science Ph.D. Set the Stage For Her Healthcare IT Venture

At the University of Wisconsin, Judy took a seminal class, Computers in Medicine, likely one of the first courses of its kind. Although initially unsure about building and running a company, she was efficient as a developer, as showcased in her work on a program for optimizing doctors' on-call schedules.

Judy Faulkner Founded Epic Systems In 1979 With a Self-Sustaining Model

Judy Founded Epic Systems With $70,000 in Equity and a $70,000 Loan, Avoiding Venture Capital to Keep Control

Judy founded Epic Systems in 1979 with a self-reliant funding strategy, raising approximately $70,000 in equity from friends, family, and colleagues and securing a $70,000 bank loan. She avoided venture capital—a decision that allowed her to maintain control over Epic, shaping it into a company deeply rooted in software development and logical thinking.

Epic's Focus on Custom Software For UW's Medical Departments Enhanced Judy's Programming Skills and Customer Insights

Judy's initial work on custom ...

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Epic Systems: History and Founder Judy Faulkner

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Actionables

  • Explore your family history to identify entrepreneurial traits and social values that you may have inherited, just as Judy Faulkner's background influenced her career path. You can start by creating a family tree and noting any patterns of entrepreneurship or activism that appear. This could help you understand your own predispositions and how they might be leveraged in your professional life.
  • Develop a hobby or side project in a field that interests you, similar to how Judy Faulkner's passion for math and programming led her to software development. This could be anything from learning a new language, starting a blog on a topic you're passionate about, or taking an online course in an area you've always wanted to explore. The key is to find joy in the learning process, as this intrinsic motivation can lead to unexpected opportunities and personal growth.
  • Create a personal funding strategy for a ...

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Epic's Approach to the Healthcare Software Market

Epic's commitment to a single, unified software platform has set it apart in the healthcare software market. This distinctive approach has been instrumental in driving the company's dominance.

Epic's Commitment to a Unified Software Platform Sets It Apart

Epic's Centralized Database Ensures Seamless Integration and Reliability Across Clinical, Billing, and Patient-Facing Apps

Epic's single database, Chronicles, is the core of its offering and provides a unified platform where all applications, whether clinical, billing, or patient-facing, pull from one central database. This ensures reliability and integration across the continuum of care. David Rosenthal acknowledges that Epic's stability and continuity of the system across inpatient, outpatient, and billing were key reasons for its selection by Kaiser, illustrating the importance of a unified platform. The integration of scheduling, billing, and clinical care in Epic's offering suggests a unified platform approach, ensuring various aspects of hospital administration and patient care are reliably managed within a single system.

Epic's Independence Reflects Judy Faulkner's Belief In Controlling Product Development and Customer Relationships

Epic's preference for independence, leading to a direct approach to customer without reliance on partnerships, reflects Judy Faulkner's belief in controlling product development and customer relationships. The company has a list of "10 commandments" on its campus, emphasizing its commitment to independence and long-term stability. Epic's culture is customer-obsessed, and Judy Faulkner's company-building philosophy ensures a hardcore focus on software development, with the satisfaction of both customers and the company in mind.

Epic's Standardized, Prescriptive Software Development and Training Foster a High-Performance Culture Aligned With Long-Term Vision

Epic is highly opinionated with its standard package and encourages customers to adopt as much of the standard setup as possible for ease of updating and adding new modules. The company's approach to convincing customers to implement systems in the way Epic deems best illustrates their focus on high-quality performance and long-term vision.

Epic's Focus on Healthcare Needs Drove Dominance

Epic's Focus on Prestigious Healthcare Institutions Sets It As the Standard for Large Networks

By securing contracts with leading academic hospitals and treating university hospitals as separate customers, Epic ensures that new healthcare professionals are trained on its platform, reinforcing its standard position within large networks. After winning the Kaiser contract, Epic became the industry's gold standar ...

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Epic's Approach to the Healthcare Software Market

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Counterarguments

  • While a unified software platform can offer integration benefits, it may also limit flexibility and customization options for healthcare providers with unique needs or workflows.
  • A centralized database like Chronicles can be a strength, but it also presents a single point of failure, which could be catastrophic in the event of a system outage or data breach.
  • Independence and control over product development are valuable, but they can also lead to a lack of external innovation and potentially slower adaptation to emerging technologies or industry standards.
  • Standardized software development and training can lead to a high-performance culture, but it might also stifle creativity and discourage individual customer innovation.
  • Focusing on prestigious healthcare institutions may reinforce Epic's status in large networks, but it could also overlook the needs and contributions of smaller practices, which may have different requirements and insights.
  • Exceptional c ...

Actionables

  • You can streamline your personal data management by using a single platform for all your digital needs. Instead of juggling multiple apps for tasks like budgeting, scheduling, and communication, choose one comprehensive tool that integrates these functions. This mirrors the unified approach of using a centralized system and can improve your efficiency and reduce the risk of errors.
  • Embrace a long-term vision for your personal growth by setting standardized, achievable goals. Just as a high-performance culture is fostered through prescriptive development, you can create a personal development plan with clear milestones and regular self-assessments to ensure you're aligned with your long-term aspirations.
  • Culti ...

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Impact of Government Policies on Emr Adoption and Epic's Growth

The Health Information Technology for Economic and Clinical Health (HITECH) Act has profoundly influenced the adoption of electronic medical records (EMRs) and the rise of Epic Systems as a dominant force in the health IT industry.

HITECH Act & "Meaningful Use" Sped Up Emr Adoption, Benefiting Epic

The HITECH Act, as David Rosenthal notes, was successful in digitizing the healthcare industry by providing $27 billion in direct incentive payments to hospitals to implement EMRs—part of a broader $36 billion dedicated to health IT—though he argues it fell short of achieving a digital transformation.

Hitech Act's $27b Incentives For Emrs Boosted Epic's Demand as a Reliable Enterprise System

Ben Gilbert discusses that the incentives of the HITECH Act and the resulting accelerated EMR adoption benefited Epic significantly. The Act's "Meaningful Use" requirements played into Epic's strengths as a reliable enterprise system provider, leading to an increased demand for their software.

Hitech Act's Interoperability Emphasis Reinforced Epic's Emr Dominance

While the HITECH Act stressed the implementation of interoperable standards, this emphasis on interoperability unintentionally strengthened Epic's market position since Epic already offered an extensive integrated EMR system that appealed to large healthcare providers who were looking for comprehensive solutions.

Hitech Act's Unintended "Meaningful Use" Consequences

The demand for industry standardization and the synergy with Epic's systems notwithstanding, the HITECH Act's repercussions extended beyond mere market shifts.

Emr Legislation's Requirements Disrupt Workflows and Increase Burnout, Challenging Epic

The legislation was specific about what "Meaningful Use" entailed, influencing software features and the work habits of healthcare providers. This, in turn, disrupted workflows and spurred physician burnout, as the software became more demanding.

Hitech Act Incentives Accelerated Consolidation, Empowering Large Hospital Systems and Cementing Epic As the Preferred Vendor

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Impact of Government Policies on Emr Adoption and Epic's Growth

Additional Materials

Counterarguments

  • The HITECH Act's incentives may have disproportionately benefited larger vendors like Epic, potentially stifling competition from smaller or emerging companies that could have brought innovative solutions to the market.
  • The focus on interoperability might not have been as unintentional as suggested, as policy makers often aim to create standards that can be widely adopted, which can inadvertently favor established players.
  • The claim that the legislation disrupted workflows and increased burnout could be seen as an oversimplification, as burnout in healthcare is multifactorial, and EMR systems can also streamline workflows and reduce administrative burdens when implemented effectively.
  • The acceleration of consolidation in the healthcare industry might not be solely attributable to the HITECH Act; other economic and regulatory factors could also have played significant roles.
  • The failure to achieve EMR interoperability might not ...

Actionables

  • You can educate yourself on the basics of electronic medical records (EMRs) to better understand your own healthcare data. Start by reading articles or watching videos that explain what EMRs are, how they're used, and what rights you have regarding your medical information. This knowledge will empower you to have more informed discussions with your healthcare providers about your medical history and treatment options.
  • Advocate for improved data sharing by asking your healthcare providers how they protect your privacy while ensuring interoperability. During your next medical appointment, inquire about how your health information is shared with other providers and what measures are in place to keep it secure. This will not only increase your awareness but also signal to healthcare providers that patients value both privacy and the benefits of integrated healthcar ...

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Epic's Market Position and Future Growth in AI/Automation

Epic solidifies its dominance through a focus on customer success and by continually improving and expanding its product offerings.

Epic's Focus on Customer Success and Product Improvement Solidifies Dominance

Epic's Reliability and Near-Perfect Retention Make It the Large Healthcare Systems Standard

Ben Gilbert notes Judy Faulkner’s strategy for targeting hospitals with complex needs, indicating Epic’s sophistication in software solutions. This focus has led to Epic becoming the standard across large healthcare systems. MyChart’s enhanced features, such as self-scheduling and waitlist management, offer workflow savings and reduce revenue loss from no-shows, bolstering Epic’s market dominance.

Epic’s team demonstrated their system’s robustness by modeling Kaiser’s transaction flow overnight, convincing Kaiser of Epic’s performance reliability. The 42% market share of hospitals and 58% of ambulatory physicians that rely on Epic further supports their leading position. Epic's deep market penetration, evidenced by 79% of the US population interacting with their system, shows that they're a cornerstone in healthcare systems.

Epic’s commitment to customer success is also evidenced by the strategy of continually adding new features, like telehealth modules, to existing customer packages, ensuring ongoing client satisfaction.

Epic’s focus on product improvement is apparent in its R&D investment, which has allowed for the strategic expansion into adjacent products and services, such as Cosmos Data Platform and AI/automation partnerships. With its bundling strategy and initiatives like Care Everywhere promoting usability and interoperability, Epic is positioning itself for sustained growth in a rapidly evolving market.

Epic's Strategic Expansion Into Adjacent Products and Services—Such as Cosmos Data Platform and AI/Automation Partnerships—Positions It for Continued Growth

Epic is looking to grow by tapping into opportunities presented by AI and automation. The launch of Cosmos, which allows extensive data analysis from anonymized patient data on their platform, signifies Epic’s foray into data-centric services. AI partnerships with companies like Nuance indicate Epic’s open-mindedness towards integrating AI into its suite of services.

The introduction of AI ambient listening through partners and AI scribe products allows physicians to focus more on patient care than on documentation, transforming EHR into a potential AI operating system, further reducing administrative costs and improving clinical efficiency.

Epic's Success Hinges On Navigating Industry Dynamics and Regulatory Changes

Potential Antitrust Lawsuit A ...

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Epic's Market Position and Future Growth in AI/Automation

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Clarifications

  • Epic's Cosmos Data Platform is a data analytics platform that allows extensive analysis of anonymized patient data within the Epic ecosystem. It enables healthcare organizations to derive insights and make data-driven decisions to improve patient care and operational efficiency. By leveraging Cosmos, Epic aims to enhance its offerings by providing advanced data-centric services to its users. This platform represents Epic's strategic move towards harnessing the power of data analytics to drive innovation and improve healthcare outcomes.
  • AI ambient listening involves using artificial intelligence (AI) technology to passively listen to and transcribe conversations in a healthcare setting. This process aims to automatically capture and document patient-physician interactions in real-time, reducing the burden on healthcare providers for manual documentation. By leveraging AI algorithms, ambient listening can help streamline electronic health record (EHR) workflows and improve the overall efficiency of clinical documentation processes.
  • The Cures Act, officially known as the 21st Century Cures Act, is a U.S. law aimed at accelerating medical product development and bringing new innovations to patients faster. It focuses on advancing medical research, improving mental health services, and enhancing the development and approval process for new drugs and medical devices. The Act also includes provisions related to health information technology, interoperability, and data sha ...

Counterarguments

  • Epic's focus on customer success and product improvement may lead to a perception of dominance, but it could also be argued that such a focus is necessary for survival in a competitive market, rather than a sign of market control.
  • While Epic is a standard across many large healthcare systems, there are other competitors in the market that also provide sophisticated software solutions, suggesting that Epic's dominance is not absolute.
  • Enhanced features like MyChart's self-scheduling and waitlist management are beneficial, but they may not be unique to Epic, as other healthcare IT providers may offer similar or even more innovative features.
  • Epic's demonstration of system robustness to Kaiser is impressive, but it is a single case and may not reflect the experience of all healthcare providers using Epic's systems.
  • Holding a significant market share does not necessarily equate to market dominance, as it does not account for the quality of service or customer satisfaction compared to competitors.
  • The statistic that 79% of the US population interacts with Epic's system could be misleading if it includes indirect interactions or if the data is not current.
  • Investing 35% of operating expenses in R&D is substantial, but without context regarding the effectiveness of that investment or comparison to industry standards, it's difficult to assess its impact.
  • Strategic expansion into adjacent products and services is a common business strategy and does not guarantee continued growth, especially if the new ventures do not align well with core competencies or market needs.
  • The introduction of AI and automation features is forward-thinking, but it also raises concerns about the potential for job displacement and the need for significant retraining of healthcare staff.
  • T ...

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State of U.S. Healthcare System and Epic's Role

Experts David Rosenthal and Myles E. Johnson discuss the challenges of the U.S. healthcare system, which spends an unsustainable 18% of the nation's GDP, and the complex role played by Epic, a dominant electronic health records (EHR) provider.

U.S. Healthcare Challenges: Rising Costs and Inefficiencies

With healthcare costs now at 18% of the GDP, the American healthcare system is described as being characterized by escalating expenses and inefficiencies that fail to provide good value to consumers, amounting to about $800 billion in waste, comparable to Switzerland's GDP.

U.S. Healthcare Spending Reaches 18% of GDP Due to Insurance Complexity and Misaligned Incentives

Rosenthal notes the massive inefficiency within the healthcare industry, attributing the runaway costs to a variety of factors, including the complexity of insurance and misaligned incentives.

EMRs and the HITECH Act Contribute to Physician Burnout and Dissatisfaction

The speakers discuss the contributing factors to physician burnout, such as the compliance burden and the complicated user experience of EHRs, which partially result from the HITECH Act. EHRs have led to the ordering of unnecessary care and increased billing codes. The workload for doctors has increased with the digitization of EHRs, and the industry has responded with solutions like adopting AI technology for ambient listening to aid physicians.

Healthcare Consolidation for Scale and Compliance Creates Monopolies, Reducing Competition

The discussion also delves into how government actions like the High-Tech Act and meaningful use requirements have unwittingly led to industry consolidation, which, in turn, created monopolies and stifled competition. Hospitals merge often to survive and scale, with the successful ones reinvesting profits into growth to deal with large-scale entities in the healthcare system. This need for scale, driven by regulatory compliance, minimizes competition and does not lead to decreased prices for consumers.

Epic's Complex Role in Healthcare

Epic has had a significant yet multifaceted impact on the healthcare landscape.

Epic's Platform Boosted Patient Safety and Care Coordination, but Stifled Smaller Vendors' Innovation

Though Epic's systems have prevented countless potential adverse drug interactions and surgical errors, the consolidation in the EHR industry, driven by the financial stimulus of the HITECH Act, has prevented newer, potentially innovative competitors from entering the market, suggesting a stifling effect on smaller vendors' innovation.

Epic's Focus on Customer Satisfaction and Reliability Benefits Clients, ...

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State of U.S. Healthcare System and Epic's Role

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Counterarguments

  • The high percentage of GDP spent on healthcare could be seen as an investment in a healthier population, which might lead to long-term economic benefits through increased productivity and reduced sick days.
  • Some of the inefficiencies in healthcare spending are due to the high cost of innovation, research, and development of new treatments and technologies, which can lead to better outcomes in the long run.
  • The complexity of insurance could be a reflection of the diverse needs and preferences of consumers, allowing for a range of coverage options.
  • EHRs may contribute to physician burnout, but they also provide critical data that can improve patient outcomes and facilitate research.
  • The increased workload for doctors due to EHRs might be offset by the long-term benefits of having comprehensive patient records that improve care coordination.
  • Healthcare consolidation might lead to economies of scale, which can result in more efficient operations and the potential for cost savings.
  • Epic's dominance in the EHR market could be a result of providi ...

Actionables

  • You can choose healthcare providers and facilities that are independent rather than part of larger systems to support competition and potentially lower costs. By opting for independent clinics and doctors, you're voting with your wallet for a more competitive market, which can lead to better services and prices for consumers.
  • Advocate for transparent healthcare billing by asking your providers for itemized bills and questioning any charges that aren't clear. This practice encourages accountability and can help you understand the true cost of your care, potentially leading to a reduction in unnecessary services and a push for more straightforward billing practices.
  • When selecting health insurance plans, p ...

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