Epic Systems (MyChart)

Ben Gilbert and David Rosenthal delve into the intriguing story of Epic Systems, a pivotal player in the U.S. healthcare industry, renowned for its medical software, MyChart. They explore how founder Judith Faulkner, a formidable entrepreneur, built Epic into a healthcare giant without venture capital or acquisitions, maintaining a privately held status. The episode highlights Epic's unique company culture, its singular campus in Verona, Wisconsin, and its steadfast commitment to customer satisfaction and product integration. The discussion also covers Epic's strategic growth, the implications of the HITECH Act, and future prospects amidst evolving healthcare technologies.

• Epic Systems is a major player in the healthcare software industry, known for its medical patient software, MyChart.
• The company operates uniquely with no marketing, no sales, and no venture capital, maintaining a single campus in Wisconsin.
• Epic has never lost a customer in its 47-year history, except for one brief six-month period.
• Founded by Judith Faulkner, who remains a significant figure in the company, Epic aims to stay private and independent indefinitely.

"Epic is a very unusual company in so many ways. They do no marketing. They basically don't do any sales either. They often say no to potential customers who approach them."

• Epic's business model defies conventional practices, emphasizing independence and selective customer engagement.

• Judith Faulkner, born in New Jersey, is the founder of Epic Systems and a pioneer in healthcare technology.
• Faulkner's background includes a strong interest in math and computer science, which she pursued at the University of Wisconsin.
• Her mother was part of a Nobel Peace Prize-winning group, highlighting a legacy of impactful contributions.

"Judy's mom was part of a group that won the Nobel Peace Prize in 1985."

• Faulkner's family background is marked by notable achievements, influencing her own path in healthcare innovation.

• The American healthcare system faces significant challenges, including high costs and inefficiencies.
• Healthcare costs in the U.S. account for 18% of GDP, driven by complex administrative processes and systemic issues.
• Epic's role in the healthcare system is pivotal, providing solutions that streamline operations and improve patient care.

"There's so much wrong with the American healthcare system... It's a disaster. Runaway costs, burdensome administration, so much excess and waste."

• Epic aims to address these systemic problems by offering integrated software solutions that enhance healthcare delivery.

• Medical records have evolved from paper-based systems to electronic health records (EHRs), driven by technological advancements.
• The creation of Medicare and Medicaid in 1965 increased the demand for standardized medical records.
• Epic's software provides a single database for patient records, integrating clinical and billing information seamlessly.

"The dream can really be realized here... the existential need for an electronic medical record system, but really also, and maybe more importantly, an electronic medical billing system."

• Epic's integrated approach to medical records and billing systems is a key factor in its success and widespread adoption.

• Epic's business model is characterized by a focus on long-term stability and customer satisfaction rather than rapid growth.
• The company has never raised venture capital, relying instead on its own revenue and a small initial investment.
• Epic's commitment to privacy and independence is reflected in its refusal to be acquired or go public.

"They have a stated goal to never go public and never be acquired."

• This business model has allowed Epic to maintain control over its operations and prioritize customer needs.

• Epic's software is built on a single database system, Chronicles, which integrates all aspects of patient care and hospital operations.
• The introduction of a graphical user interface (GUI) in the 1990s made Epic's software more accessible to healthcare providers.
• Epic's system is known for its reliability and comprehensive functionality, making it a preferred choice for hospitals.

"Epic becomes the natural choice for enterprise decision makers precisely because of its integrated system architecture."

• Epic's technological innovations continue to shape the healthcare industry, providing efficient and effective solutions for patient care management.

• Epic Systems, originally a small business in Madison, Wisconsin, faced comparisons with Microsoft due to its founding timeline, but it followed a distinct trajectory as a vertical healthcare software provider.
• In 1995, Epic generated $18 million in revenue, while Microsoft, having gone public, achieved $6 billion, highlighting their divergent paths.
• Epic focused on providing integrated healthcare solutions, contrasting with Microsoft's broad platform approach.

"Epic is and always will be constrained by being a vertical software provider instead of a horizontal software provider like Microsoft or Google or Oracle."

• Epic's focus on the healthcare industry, which constitutes 18% of the American GDP, suggests significant growth potential despite its vertical constraints.

• In 2001, Epic launched the inpatient version of Epicare, integrating outpatient and inpatient care with a unified database and billing system, which became crucial for hospital revenue streams.
• Epic's strategy emphasized providing comprehensive solutions to hospitals, avoiding piecemeal systems in favor of an integrated approach.

"Our customers do not want to buy piecemeal solutions. They want to buy everything from one vendor."

• Epic launched MyChart in 2000, a pioneering web-based platform for consumer access to medical records, showcasing their innovation in a highly regulated industry.

"Epic launched this in the year 2000. Which is wild."

• MyChart's development began with Epic Web in 1997, aiming to provide doctors remote access to electronic medical records (EMR), eventually evolving into a consumer-facing platform.

• Epic's culture is characterized by a unique blend of whimsy and high performance, with a focus on creating a "software factory" to produce healthcare software.
• The Verona campus, inspired by Microsoft's Redmond campus, features whimsical architecture and serves as a recruitment tool for young talent.

"Judy comes back and basically copies the campus strategy of Microsoft almost exactly."

• Epic employs rigorous hiring practices, including programming tests originally developed by Judy Faulkner's son, to identify top talent.

"Judy's teenage son wrote the first test that is now no longer being used."

• Epic's customer-centric approach involves not only serving hospital administrators but also ensuring product reliability and integration.
• The company's reputation for successful implementations, as demonstrated by the Kaiser Permanente deal, has been a cornerstone of its growth.

"Epic has bet the whole company on having a reputation for we don't have failed implementations and that wins deals."

• Epic's strategy includes not raising prices significantly, maintaining long-term customer relationships, and focusing on product excellence.

"They basically never raise prices once you're a customer."

• Epic's decision to remain private, avoid acquisitions, and focus on internal development reflects its commitment to control and stability.
• The failed partnership with Philips reinforced Epic's aversion to external dependencies, shaping its strategy of self-reliance.

"Epic develops this intense scar tissue for partnerships."

• Epic's competitive edge lies in its ability to deliver a fully integrated system, contrasting with competitors like Cerner's acquisition-driven approach.

"Epic wins the deal... because EPIC is the only one that can offer that."

• Epic's success with large-scale implementations, such as Kaiser Permanente, has set industry standards and solidified its position as a market leader.
• The company's focus on continuous improvement and adaptability positions it well for future growth in the evolving healthcare landscape.

"Epic gets elevated to the new gold standard."

• Epic's commitment to customer satisfaction and product excellence ensures its continued relevance and influence in the healthcare software industry.

• Epic employs a customer-centric strategy, aiming for long-term customer retention and market dominance.
• They offer free updates and new modules to existing customers, discouraging them from seeking alternatives.
• Epic's strategy is reminiscent of Microsoft's bundling approach, focusing on customer loyalty and enterprise-wide agreements.

"EPIC is trying to win deals and stay in forever and achieve world domination. So they do these very interesting things that feel very customer focused and are but are also very valuable for Epic."

• Epic's strategy involves customer loyalty and long-term retention by providing value through free updates.

• Epic's corporate culture is unique and customer-obsessed, aligning with the broader goals of capitalism.
• The company's culture and strategic decisions have significantly impacted the healthcare IT industry.

"They're customer obsessed because in the long term that is the right thing to do for epic."

• Epic's customer obsession is a strategic decision for long-term success, aligning with capitalist principles.

• The Great Recession and subsequent legislation, such as the HITECH Act, transformed the healthcare IT industry.
• The legislation aimed to stimulate the economy and promote electronic medical records (EMR) adoption.

"There's a whole big crazy thing that happens as a part of the Great Recession and some legislation that gets passed transformative for the industry."

• The Great Recession and legislation significantly impacted the healthcare industry, promoting EMR adoption.

• The push for EMR adoption began in the Bush administration, contrary to the narrative that it started with the Obama administration.
• Political motivations and changing party perspectives influenced healthcare IT policies.

"The narrative out there...was that Obamacare and the Obama administration were the ones who really pushed EMR adoption and Meaningful Use."

• The push for EMR adoption was bipartisan, starting with the Bush administration, highlighting political influences on healthcare IT.

• Interoperability, or the ability of different EMR systems to communicate, is a significant challenge in the healthcare industry.
• Epic's approach to interoperability focuses on internal data sharing, with limited external integration.

"Interoperability...is worth knowing sort of the buckets. So there's the first and easiest interoperability, which is EPIC to EPIC at a different hospital."

• Epic prioritizes internal interoperability, with external data sharing posing technical and business challenges.

• The HITECH Act incentivized EMR adoption but also imposed regulatory burdens on healthcare providers.
• Meaningful Use criteria encouraged EMR usage but led to increased operational overhead and regulatory compliance.

"HITECH contained the phrase meaningful use, which is this crazy phrase where if you say meaningful use or you even say mu to anyone, it is a triggering term in this industry."

• The HITECH Act and Meaningful Use incentivized EMR adoption but increased regulatory burdens on healthcare providers.

• EMR adoption led to increased digitization in healthcare, but not necessarily cost reduction or improved interoperability.
• The legislation accelerated EMR usage but did not fully achieve its goals of cost reduction and data interoperability.

"Market penetration of electronic healthcare records went from 9% of hospitals in 2009 to 95% by 2014."

• EMR adoption significantly increased, but cost reduction and interoperability goals were not fully achieved.

• The HITECH Act's regulatory requirements increased the burden on healthcare providers and influenced industry dynamics.
• Epic's position as a reliable, high-value vendor benefited from the legislation, reinforcing its market dominance.

"You end up with the one that's just going to work. So what did hitech actually do?"

• Epic benefited from the HITECH Act's regulatory environment, reinforcing its market dominance as a reliable vendor.

• The Department of Defense and VA contracts were significant opportunities for EMR vendors, but also highlighted challenges in government contracting.
• Cerner won these contracts but faced significant delays and budget overruns, illustrating the complexities of government projects.

"Cerner ends up winning both of these contracts, the DoD and the VA. And sadly, in what will perhaps not shock you at all, both of these projects, despite being huge at the bidding phase, go massively over time and budget."

• Cerner's experience with the DoD and VA contracts highlights the challenges and complexities of government healthcare projects.

• Epic's growth strategy focuses on long-term customer relationships and expanding its product offerings.
• The company's focus on customer satisfaction and integrated solutions has strengthened its market position.

"Epic continues to win. Epically. In 2011, they hit $1 billion in revenue. They keep winning."

• Epic's growth strategy and focus on customer satisfaction have strengthened its market position and industry influence.

• Epic's future opportunities include international expansion and leveraging its data assets for new products and services.
• The company faces challenges from regulatory changes, market dynamics, and potential competition from innovative startups.

"Epic now has enough data and enough scale on the hospital side that they can go to the payers and say, hey, prior auth, our customers don't like it, you don't like it. We have all the data. We can just automate this for you."

• Epic's data assets and market position offer opportunities for new products and services, but the company faces challenges from regulatory changes and competition.

• The transition from paper-based records to digital databases allows for unprecedented data accessibility and analysis.
• EPIC's database, Cosmos, offers 295 million patients' anonymized data for free to institutions that contribute data.
• This system enables doctors to find "lookalike" patients with similar conditions and access treatment outcomes.

"Imagine there's something wrong in the water supply, but all the records are on paper... But if you have a whole database full of information and you can quickly and easily look horizontally across a whole bunch of records."

• Illustrates the inefficiency of paper records and the potential of digital databases to identify widespread issues, like the Flint, Michigan water crisis.

"Cosmos, is that on steroids? What can you figure out about the whole world if you have 295 million patients worth of data in an anonymized, accessible database?"

• Emphasizes the vast potential of Cosmos to revolutionize healthcare research and treatment by leveraging a massive dataset.

• EPIC has 607 customers, 3,200 hospitals, and 590,000 physicians using its systems, covering 325 million patients worldwide.
• Despite its central role in healthcare, EPIC's revenue is lower than expected, capturing only a fraction of the value it creates.
• EPIC's pricing strategy is conservative, aiming to prevent competitors from gaining a foothold.

"They have 607 customers with 3200 hospitals in between them... They add 10 to 25 new health systems as customers each year."

• Highlights EPIC's extensive reach and consistent growth in the healthcare sector.

"In revenue last year, in 2024 they did $5.7 billion... If you divide it by their number of customers, it comes out around $10 million a year a customer."

• Discusses EPIC's revenue relative to its customer base, indicating a conservative pricing strategy.

• EPIC's long-term orientation and conservative pricing prevent customers from considering alternatives.
• EPIC's revenue is modest compared to its importance in healthcare, indicating untapped potential for capturing more value.
• The company's culture and strategy focus on customer relationships and long-term stability.

"They could charge their customers a lot more money. They definitely could, I think."

• Suggests EPIC's potential to increase pricing but chooses not to, maintaining customer loyalty and market dominance.

"EPIC has become this incredibly important and powerful linchpin in the system, despite not actually having that big of a profit pool in the industry."

• Highlights EPIC's strategic importance in healthcare, despite its relatively low profit margins.

• Judy Faulkner, EPIC's founder, plans to transfer her shares to a trust to ensure the company's continuity and independence.
• The trust will be managed by family, senior managers, and customer CEOs, with strict bylaws to prevent sale or public offering.
• The next CEO must be a longtime EPIC employee and a software developer, ensuring continuity in leadership and company culture.

"Judy has announced that upon her death, all of her voting shares... will transfer into a quote, unquote purpose trust."

• Describes Judy Faulkner's plan to maintain EPIC's independence and continuity after her tenure.

"The next CEO of Epic must meet two criteria. One, must be a longtime Epic employee, and two, must be a software developer."

• Emphasizes the importance of maintaining EPIC's core values and expertise in leadership succession.

• EPIC's competitive advantages include high switching costs, scale economies, network economies, and branding.
• EPIC's proprietary development process and unique company culture contribute to its market dominance.
• Potential challenges include international market expansion, antitrust lawsuits, and adapting to new healthcare regulations.

"Switching costs. I mean, this is the biggest switching cost piece of software ever."

• Highlights the significant barriers for customers to switch from EPIC to another provider, reinforcing its market position.

"EPIC is kind of the choke point of the industry at this point to decide what software innovations reach hospitals."

• Indicates EPIC's influential role in determining which technological advancements are adopted in healthcare.

• EPIC has opportunities to expand its product offerings and customer base, including insurance companies and international markets.
• AI and ambient listening technologies present significant growth potential for EPIC.
• Potential threats include regulatory changes, antitrust actions, and paradigm shifts in healthcare delivery.

"AI would be amazing for this. If only there was an ambient listening AI scribe that could be writing down and categorizing and structuring all the data."

• Suggests the potential for AI to enhance EPIC's offerings and improve healthcare efficiency.

"The Cures act makes things like screen scraping or Chrome extensions or RPA legal as a means to extract data from epic."

• Discusses regulatory changes that could impact EPIC's control over its data and systems.

• EPIC's integrated approach and long-term focus have set a standard in healthcare IT.
• Judy Faulkner's leadership and vision have created a lasting impact on the industry.
• EPIC's success demonstrates the power of vertical market software in transforming complex industries like healthcare.

"EPIC has got to be the most valuable vertical market software company in the entire world."

• Highlights EPIC's unique position as a leader in vertical market software, particularly in healthcare.

"Judy is almost certainly the most successful by any measure. Female founder in history."

• Acknowledges Judy Faulkner's remarkable achievements and influence as a pioneering entrepreneur in healthcare technology.