Epic expat: 'There's been a realization that Epic has saturated its classic market.'
What do you do after you've won the gold rush? When you've claimed the richest veins of ore? That's the big question for Epic Systems, the medical software giant that has become Dane County's signature company with 8,000 or so employees at its fairyland campus in Verona.
Epic is the big winner in the federally subsidized effort to shift American medical care from paper to electronic records. As part of President Obama's economic stimulus plan, Congress approved a $27 billion incentive program in 2009 that touched off a mad scramble to modernize health systems in the name of improved efficiency and better care.
These health systems, which involve hospital and physician networks, can be complicated contraptions, and no company was better situated to harmonize its knotty internal operations than the well-seasoned Epic, which was founded in 1979 in the shadow of UW-Madison by the charismatic computer wizard Judith Faulkner.
Epic cleaned up in that gold rush. Today, one out of two Americans have their medical records on Epic software, and revenues at the fast-growing privately held company hit $1.7 billion in 2013.
Famously insular and only occasionally open to nosey reporters, Epic declined to provide an executive to be interviewed about its recent strategic moves. But local Epic watchers, a few on the record and more speaking not for attribution (they're reticent because Epic is feared as well as respected), see a new strategy taking hold.
"There's been a realization that Epic has saturated its classic market -- the whales, academics and pediatrics," says an Epic expat who's active in the Madison entrepreneurial community.
Translation: Epic successfully targeted the biggest and most complicated health systems -- "whales" like multi-state Kaiser Permanente, academic health systems like UW Health, and children's hospitals. All told, Epic has more than 300 clients, including top-tier players like Cleveland Clinic and Johns Hopkins Medicine.
A few whales are still out there -- notably Mayo Clinic and the larger for-profit hospital chains -- that Epic may yet land. But it's clear that Epic is looking elsewhere to grow. Here are four targets.
International expansion
Epic had a rotten experience when it partnered with Netherlands-based Philips Medical Systems. In 2006, it pulled the plug on a three-year collaborative effort to develop health IT for midsized hospitals. Several Epic expats said the Philips experience "scarred" Epic in terms of international work and partnering.
But Epic's Netherlands office wasn't closed, and it became the base for Epic's solo expansion into hospitals in the Netherlands, Denmark and England and farther afield in Dubai, Abu Dhabi, Australia and Singapore.
Globally, health IT expenditures are expected to hit $97 billion in 2015, with about 40% occurring overseas. Faulkner, in an interview with Modern Healthcare, said U.S. IT companies are primed to do well in the overseas competition, including Epic, which she said had painstakingly "internationalized" its code. But given the realities of the Third World, she said the international market is "not gigantic."
That may be because China, the biggest market of all, is apparently not an Epic target. "They're really nervous about their intellectual property, the software, being stolen," a former Epic employee says of company executives.
New partnerships
Epic sees its customers, not other IT companies, as its partners. But in the past year Epic has revealed two big-name partnerships nevertheless. It's joined with Apple -- another famously idiosyncratic, go-it-alone enterprise -- on the HealthKit app and with IBM in pursuing one of the last great whales. Moby-Dick in this case is the 10-year, $11 billion federal contract to provide electronic health records (EHRs) for the Department of Defense.
The military health system is the largest in the nation -- some 9.6 million beneficiaries treated at 50-plus military hospitals and 600-plus clinics. The feds have encouraged team proposals (IBM has extensive experience in federal contracting), so Epic's IT rivals, including Cerner and Allscripts, have put together their own posses.
The Apple partnership is bigger on promise, thus far, than delivery. That promise is the merger of consumer-collected data from the ubiquitous health apps that many people use with the doctor-created medical information contained, for example, on Epic's MyChart patient portal. Serious questions have been raised about functionality, but most everyone recognizes that if Apple and Epic (Mayo is a third partner) manage to pull this off in a meaningful way, it will be a big step in advancing the Big Data revolution down to the individual consumer level.
Angle for smaller fish
Once upon a time Faulkner as Epic's Captain Ahab would never consider a 300-bed hospital as a worthy catch. They're too small to afford Epic's pricey suite of integrated software programs. But now Epic has a two-fold strategy to capture the smaller fish schooling around the whales.
Epic's Community Connect
More interesting is Epic's quiet move into cloud-based electronic health records, seen by many as the next big advance in health IT. Epic confirmed to Isthmus that it has built a data center on its Verona campus for hosting EHRs for clients and is planning a backup data farm in western Wisconsin.
Often criticized for its alleged old technology, Epic is taking a big step here. Smaller medical practices and hospitals often don't want to invest in the servers and staff to host their own data systems. They would rather pay a vendor to take care of the back shop. Epic is preparing to enter that business.
Consulting services
Optimizing Epic software after installation has become a booming industry for consulting companies -- Nordic, Sagacious, BlueTree and lots more -- that recruit the steady stream of Epic burnouts who've tired of the company's demanding pace. Madison's Nordic, with more than 400 employees, is the largest.
This seems like a logical move for Epic. Increasingly, the "meaningful use" requirement for the federal EHR subsidy will financially penalize health systems for poor or wasteful care. The promise of fully functioning EHRs is streamlined treatments and deep-data analytics that produce new insights into best medical practices.
Economist Kay Plantes, a San Diego business consultant with Madison ties, points out that as an industry matures, value climbs up the economic chain and away from the core product. So in health IT the greater value (and profits) in the years to come won't be so much in selling EHR systems but in crunching and utilizing their data to improve care.
The consulting companies say that Epic's targeting of their work doesn't worry them.
"At the end of the day I view Epic as no different than any other competitor," says Nordic Consulting Partners CEO Mark Bakken. "We have to prove our value every day."
"Both of our interests align really well," Shane Adams, founder of Sagacious Consultants, says of Epic. "We're both looking to make our clients more profitable, and we're both trying to improve health care quality."
BlueTree Network cofounder Ted Gurman says that BlueTree clients recognize the difference between a vendor offering advice and an outside consultant doing the same. In some cases, he says, "they truly want a third-party opinion."
Bakken says the same: "We can freely say what is the best solution."
The critics
The Epic juggernaut faces challenges on multiple fronts, not just from consultants who feed off its software. Epic's EHR competitors lash out at what they complain is the difficulty in exchanging patient data with hospitals and doctors using Epic software. Faulkner occasionally breaks her public silence to contest these claims, but the rebuttals have failed to silence her rivals, who've organized as the CommonWell Health Alliance.
Faulkner herself has become a conservative bête noir. She's denounced as Obama's crony by critics who connect Epic's success to Faulkner's ample political support of liberals and their causes. Given that Faulkner began her pioneering work on medical records when Obama was still a teenager, Epic's success would seem to require a more complex explanation.
Insiders point to her extraordinary work ethic and singular vision through the decades. No matter the passing controversy, Epic is still focused on "the worldwide domination" of its software, one of the expats jokes.
[Editor's note: This article was corrected to reflect Ted Gurman's opinion on the role of outside consultants. He said that "in some cases" a customer would want the opinion of a third party.]
