This year, as in past years, Healthcare Informatics has designated several vendor companies in healthcare IT as “Most Interesting Vendors,” and is featuring profiles of those companies in its Healthcare Informatics 100 issue, which this year is our May/June issue. The “Most Interesting Vendor” designation is not an award, but simply a recognition. The trajectories of these companies speak to some of the broader trends taking place in healthcare IT in general and in the healthcare IT vendor market, and are thus of interest to readers. Healthcare Informatics’ Editor-in-Chief Mark Hagland’s profile of the Verona, Wis.-based Epic is the cover story of our May/June issue.
Nine years ago, when we at Healthcare Informatics profiled Epic Systems Corporation, we produced the first major trade-press profile of the Verona, Wisconsin-based electronic health record (EHR) and clinical IT vendor, at a time when the healthcare industry was mesmerized by the company’s rapid rise into the top ranks of EHR vendors nationwide. As we reported in the June 2008 cover story, “Epic: Behind the Curtain,” there was a host of reasons available to explain Epic’s meteoric rise, and its growing dominance among EHR vendors winning the largest number of new and replacement EHR contract bid competitions.
Since then, Epic has only continued to prosper. With revenues of $2.5 billion in 2016, the privately owned company ranked sixth on this year’s Healthcare Informatics 100 list of the top healthcare IT vendors in the U.S., the third EHR/clinical information systems vendor on the list behind Cerner Corporation and McKesson Technology Solutions, and ahead of GE Healthcare, Allscripts Healthcare Solutions, athenahealth, MEDITECH, eClinicalWorks, Greenway Health, Quality Systems Inc. (NextGen), and other major EHR vendors. But Epic’s ranking on the 100 list tells only part of the story, as the company continues to win a considerable percentage of new EHR contract contests, and has become strongly dominant in a number of major healthcare markets, among them the San Francisco Bay Area and the Minneapolis St.-Paul metro area. Indeed, there are markets in which any hospital or health system using a non-Epic EHR is at a strong disadvantage in terms of health information exchange (HIE) and other priorities and activities.
What’s more, several years after the meaningful use program under the HITECH (Health Information Technology for Economic and Clinical Health) Act first got underway, the chances of significant new entrants coming into the rapidly maturing EHR market and succeeding, are dwindling, as Epic and the other mega-EHR vendors cement their hold on that market. Debates are raging across U.S. healthcare as to whether the ongoing acceleration in this consolidation trend that had already become prominent back in 2009, before meaningful use got underway, is a good thing or a bad thing. Certainly, some are openly questioning the value to healthcare providers (and even patients) of an EHR market with fewer and fewer options for patient care organizations, and many are wondering whether the consolidation trend will end up choking off innovation, particularly in the API (application program interface) market, as providers look for solutions that can leapfrog the limiting architectures of core EHRs and help clinicians and administrators improve population health management, care management, and other processes.
At a very basic level, is this ongoing consolidation a good thing or a bad thing for U.S. healthcare? Industry leaders and observers struggle to answer that question. But whatever the answer, Epic finds itself inevitably at the center of the discussion, on the industry, strategic, and policy levels, as the company continues to snap up many of the current EHR implementation contracts.
As we noted back in June 2008, one of the core reasons that Epic continues to win a significant plurality of those bids is because, while its prices, depending on numerous factors, are reportedly nearly double those of their main competitors, Epic’s unique methodology—a rigorous one in which Epic implementers tell their customer organizations how and when to follow implementational steps, and not the other way around—continues to get high marks for results, with very few implementations that don’t go as planned. As one CIO told me two years ago after bringing her EHR live, “It’s simple, really: an implementational failure would not only be a job-ender for me, it would be a career-ender. Epic costs twice as much on the surface, but it’s pretty much guaranteed, and I need a guarantee. I simply can’t afford not to do this successfully; I know that, and everyone around me knows that.”
At Epic’s ever-expanding headquarters in the Madison, Wisconsin suburb of Verona—once a sleepy farm town, but now that metro area’s Silicon Pasture—there are more buildings, with more conference rooms and offices, and more art, these days than ever; certainly much more development is in evidence since 2008, when Healthcare Informatics first visited. Like the organization and its corporate culture, Epic’s headquarters strongly reflects the personality and preferences of its CEO and co-founder, Judy Faulkner, and to a lesser extent those of its COO, Carl Dvorak. Faulkner and Dvorak both find themselves on the road a great deal of the time, both across the United States and Canada and increasingly, all around the world, including across Europe, the Middle East, Asia and Australia, as Epic continues to expand its empire across more and more international healthcare systems.
Judy Faulkner (courtesy: HIMSS media)
In interviews this spring at the Verona intergalactic headquarters (yes, that’s what the campus is called), Faulkner and Dvorak expressed satisfaction with where Epic is right now in the marketplace, and challenged some of the contentions of critics. Certainly, both believe that their company’s ongoing financial success silences all criticism. The company is expanding so rapidly, in fact, that Faulkner says it’s hard to give a precise number of customer organizations, both because it is winning contracts at such a fast pace, but also because many of Epic’s customers are merging with and acquiring each other. So, Faulkner says, “about 400” is probably the most accurate number one can turn to. “Sometimes you have two customers that merge, and other times, you have a customer that breaks apart, so it really is hard to estimate,” she says. In terms of hospital-based organizations and physician practices active in its “Connect” EHR-share program, “We have 160 hospitals and 32,500 physicians, all connecting, via Connect,” she notes. “Meanwhile, 84 percent of our customers extend out” their contracts to provide EHR functionality to affiliated practices and organizations. What’s more, Epic allows patient care organizations to extend out to federally qualified health centers (FQHCs), free of charge, within certain limits. So a lot of patient care organizations are getting connected.
The Policy Implications of EHR Market Consolidation
By and large, Epic’s customers are satisfied with the functionality and service the mega-vendor provides, a fact that continues to be reflected in ongoing first-place and near-first-place standings in EHR product rankings published every year by the Orem, Utah-based KLAS Research. What’s more, the small number of less-than-fully satisfied customer organization executives out there tend to agree that there is no benefit in publicly expressing dissatisfaction with the company. The broader questions in the marketplace have to do with the confluence of size/consolidation, interoperability, and HIE connectivity. Has Epic become so big now that its size is actually inhibiting progress towards interoperability and data exchange?
“The answer to that question really depends on what hat you wear,” says Julia Adler-Milstein, Ph.D., an assistant professor in the School of Information and in the School of Public Health at the University of Michigan (Ann Arbor). “There are some people who are saying that interoperability is proving to be such a challenge that maybe we are better off with a few dominant vendors. In markets that Epic dominates, people with Epic are thrilled with CareEverywhere,” Epic’s proprietary, Epic-customers-only HIE service. “On the other hand, others oppose market dominance, because they believe that it hinders interoperability and innovation. It really cuts both ways,” Adler-Milstein adds. “The bigger Epic gets, the more interoperability there is only within the Epic sphere, but the less there is outside it.”
Julia Adler-Milstein, Ph.D.
Does that make Epic’s size a policy issue? “Oh, I absolutely think it’s a policy issue,” Adler-Milstein says. With regard to the meaningful use program under the HITECH Act, “We as a country made a huge investment in public dollars with the assumption that these systems would improve care. And I think it’s just unclear whether we’ve gotten that in return,” she says. “Policymakers really need to think about whether we’ve gotten what we’ve paid for. And if we haven’t, it suggests that we need a different set of policies to help ensure that that happens. We can confidently say that the policy framework today has gotten adoption of systems. But have we gotten adoption of systems that are interoperable? No. That are easily used by clinicians and other end-users? No. So will the market get us there from here on out, or do we need regulation? I personally am skeptical that the market will take us to that user-friendly, interoperable place. And frankly, that’s why we got 21st Century Cures, because market forces are simply not strong enough to catch up with interoperability.”
That having been said, David Muntz, who served as CIO at Baylor Health System in Dallas from 2006 through 2011, before becoming Deputy National Coordinator for Health IT at the Office of the National Coordinator for Health IT (ONC) from 2012 to 2013, and who is now a principal in the StarBridge Advisors consulting firm, notes that “What the government could do to avert that problem [of massive EHR vendor consolidation] is to force interoperability now; they could shorten the intended 10-year-timeframe for interoperability and could accelerate it. If vendors were forced to accept data from other vendors, and decision trees via APIs, then no vendor would be able to continue its dominance, because it would have to accept the bolt-ons or other elements that could compete favorably on features and functions. I’d prefer to see a private-sector approach” to achieving true healthcare system-wide interoperability among EHR and clinical information systems, the Dallas-based Muntz says, “but the incentives for the vendors to keep the APIs in a disclosing information-only mode, while continue to refuse to accept information from them, presents a challenge. So I would think if we see an aggressive embrace among vendors that would truly compete on features, functions, service, and community, then we could be successful in that regard.”
Many blame the current situation of massive consolidation in the EHR sector and its subsequent drag on interoperability, on the meaningful use program, which had the unintended effect of freezing EHR vendors relatively in place in terms of market competition, as vendors rushed to meet the federal government’s requirements for EHR certification, and became locked in cycles of upgrade work with provider organizations. Faulkner herself shares that view. Asked whether meaningful use overall was beneficial to the industry or not, she says, “It’s done some good in that it helped organizations afford technology. Now, in some cases, they installed rapidly and had to go back. What I would really like to do is to unwind some of what’s been done. There are too many things that a physician has to fill out that physicians in other countries say, why is that in there?” she says in relation to elements put into EHRs to satisfy program requirements.
And Epic COO Dvorak adds, “We did very, very well in that era where doctors and nurses got together and picked out an EMR without government subsidy. That’s our core strength, listening to customers and working out problems for them. We and they do that much better than folks from ONC.”
The University of Michigan’s Adler-Milstein makes a point about the meaningful use program’s actually rigidifying sub-optimal characteristics of all the commercial EHR products. “Was Epic pre-meaningful use a dream product?” she asks. “There’s not a lot of evidence to me that that alternative reality would have happened”—that, without MU intervening, Epic, or any of the other major EHR vendors, for that matter, would have moved to optimize their EHR solutions. “We like to think that, and that’s very clearly the vendor narrative, but it’s just not obvious to me that the market forces were in place to get these incredible, user-friendly EHRs. Would we be in a marginally better position? Maybe. But I don’t see us having moved into some kind of dream world” in lieu of MU’s ever happening.
Still, Epic’s top executives hold a largely anti-regulatory view. “I wouldn’t mind if meaningful use went away in its entirety, and we went back to the trajectory of doctors and nurses collaborating to move things forward,” Dvorak says.
Does Price Matter Anymore?
One of the more fascinating aspects of the Epic story is how its unique methodology, devised in the company’s early days by Faulkner and maintained into the present, has seemingly defied traditional market dynamics. Epic has always been more expensive at the front end, and Faulkner makes no apologies for that. But its strong record on implementation success has at least until now buoyed the company in the contract-bid sweepstakes, even as patient care organizations reel from the double hit of continually tightening reimbursement and increased operating expenses. Up until now, Epic’s higher pricing has only had the paradoxical effect of adding to the company’s mystique; some have compared Epic’s EHR to a Coach purse—a pricey version of a necessity, whose cachet is only enhanced by its higher price.
Of course, not everyone is willing to pay. David Higginson, chief administrative officer and CIO at Phoenix (Az.) Children’s Hospital, who says he admires Epic’s EHR, ended up going with the Chicago-based Allscripts instead, after a “bake-off” involving several of the leading EHR vendors a couple of years ago. “The thing is, if you’re able to buy the best in everything, that’s great,” Higginson says. “But a lot of people have to make tough choices. And people might pick a building over a software over something else. We also did like Allscripts, they’re very open. And their solution runs on SQL server.” So in the end, he reports, his organization’s physicians, who found Epic’s EHR very appealing, told him that they would prefer that the hospital take the savings differential between the Epic and Allscripts bids, and build out their hyper-crowded emergency department instead. As the CAO and CIO of a children’s hospital that has to work on very narrow margins because of its high Medicaid census, he says he has no regrets.
In fact, StarBridge Advisors’ Muntz says, “I think Epic is vulnerable because of its reputation for higher pricing,” in the evolving vendor market. “The fact is that people have to be so conservative about expenses. And there are other alternatives. I’ve seen great packages fail and modest or average products excel.” What’s more, he says, “I think that there’s enough expertise on how to do implementations well that the more expensive ones will ultimately lose, that it’s really the implementation, not the fact of having features and functions itself.” Still, he says, Epic retains a very special advantage in the market. “Epic has a really good product,” he says, “but it has a great community.”
David Muntz, Ph.D.
One Epic customer organization executive, Michael Hogarth, M.D., a professor in the Departments of Internal Medicine and Pathology and Laboratory Medicine, and a practicing internal medicine specialist, at the University of California Davis Health System, sees all this in a historical context. “They are very polarizing,” he says of Epic, “but I’m not sure that they’ve done anything that would make them so. It’s interesting to me: Epic started as a company in the mid-70s with a vision that was not compatible with the market at the time. And Judy stuck with it. The market really wasn’t about putting everything into the central repository, with data coming from multiple places, and doctors using the computer, at that time. If she had gone to an investor in the 1970s, they would have laughed her out of the room. But she was visionary and passionate. And she’s still the same. And people see that as, she’s pushing the world. Now that she has big market share, people perceive that vision and passion as pushing the market. But where were those people 25, 30 years ago?”
What’s more, Lydon Neumann, a vice president at the Chicago-based Impact Advisors consulting firm and a consultant who has been in the industry for nearly 40 years, says, “We do a lot of cost modeling” of EHR solutions, for the firm’s hospital and medical group clients, “and their premium is actually not as large as is perceived. They’re not automatically the most expensive, though they are expensive for smaller hospitals.” Judy Faulkner’s genius, Neumann says, was that at the time that Epic came fully into the inpatient EHR market, “People were selling on price, i.e., doing deals to win customers. And Judy priced it [Epic’s EHR] correctly. She raised the price, but that price was less about maximizing revenue and more about what this really cost; she raised the acquisition cost to what it really requires. She was also committed to quality. When I was a vendor, we were OK with getting to a 6 or 7 on a scale of 1-10, because the cost was so high to achieve, say, a 9. Now, she charged more, but she was committed to a high level of quality in terms of usability, and everyone’s moving towards that level.”
Of course, as StarBridge Advisors’ Muntz notes, that relatively high level of pricing could prove to be a point of vulnerability at this point, in a rapidly maturing EHR vendor market. In that context, industry observers note, a number of scenarios are possible for that market, depending in part on the federal healthcare IT policy landscape. With a change in presidential administration, and in particular with a change in leadership at the Department of Health and Human Services and the Centers for Medicare & Medicaid Services, the chances are that the regulatory framework around health IT could be loosened over the next few years, and with that potential new regulatory looseness playing out in any number of ways. Certainly, Epic’s senior executives are well-positioned for the moment, if such turns out to be the case.
But longer-term, with the near-universalization of EHR implementation in patient care organizations and the massive shift towards population health management and care management, Epic finds itself in the same position as the other dominant EHR vendors—saddled with technology that was originally designed primarily to build and maintain data repositories, rather than responding in an agile way to the U.S. healthcare system’s shift from volume to value. Still, given Epic’s market success to date and its vast resources, it would be foolish to count the company out at all; Epic has continued to thrive in a rapidly changing market. In that context, the next five years should be most interesting, indeed.