Epic, CEO Faulkner Confront Life as a Big Tech Company in 2018

Xconomy Wisconsin — 

Almost all of Epic Systems’ growth during the nearly four decades the healthcare software powerhouse has been in business has come from selling products and services developed internally, which founder and CEO Judy Faulkner has argued is preferable to expanding through mergers and acquisitions.

“We’re a software factory. We build our own software. We do not acquire it,” Faulkner reiterated Tuesday during her keynote address at Epic’s annual Users Group Meeting, which attracted an estimated 17,000 people to the company’s sprawling corporate campus in Verona, WI.

Epic has its critics, but its build-don’t-buy mentality has served it well to date. The company has grown to 9,000-plus employees and won scores of prestigious healthcare clients. Epic’s software allows its customers, mostly networks of hospitals and clinics located around the U.S., to manage the health records of their patients, schedule appointments, and bill for care, among other tasks. More than 200 million people have a current medical record administered by Epic software, the company says on its website.

Epic’s insistence on maintaining its independent strategy is notable considering the rapid expansion of the healthcare IT sector, which is attracting tech companies of all sizes and stripes—and putting pressure on well-established players such as Epic to continue to grow as the field evolves around them. Nevertheless, Faulkner and other Epic executives who took the stage Tuesday made clear that they do not intend to begin buying healthcare technology startups. Nor is Epic seeking to be acquired by a tech giant such as Amazon (NASDAQ: AMZN) or Apple (NASDAQ: AAPL), both of which have signaled an interest in wading deeper into the healthcare industry. (One of Epic’s “10 Commandments,” a set of principles posted in employee bathrooms and other locations on the company’s campus, is “Do not be acquired.”)

Faulkner said the intersection of healthcare and technology is “the hottest area around.” Epic senior vice president Sumit Rana said that’s likely to remain the case in coming years, pointing to an estimate from StartUp Health that early-stage healthtech companies raised more than $11 billion in venture funding in 2017.

Although Epic isn’t purchasing startups, it has demonstrated more willingness to work with them in recent years. Rana has helped oversee some of Epic’s efforts to make its software more open to third-party applications. One example is the company’s App Orchard program, which is loosely modeled on the smartphone application marketplaces created by Apple and Alphabet (NASDAQ: GOOGL). Startups can work with Epic to list their products on the App Orchard, and hospitals are in turn able to browse for and download new applications.

Nevertheless, on Tuesday Rana warned the hospital leaders in the audience that working with startups can present pitfalls. He cited the recent changes Zocdoc, a New York-based startup that has developed software for scheduling doctor visits, made to its pricing model. Users of Zocdoc’s tools have reportedly objected to the changes on social media and by signing a petition on the website Change.org.

When a hospital agrees to install a new software product, “initial pricing might be low or even free, [but] through time they want a larger and larger piece of your pie,” Rana said. (Of course, Epic software doesn’t come cheap—Boston-based Partners HealthCare spent $1.2 billion to install Epic, double the initial estimate of the overhaul of its medical records system, according to the Boston Globe.)

Faulkner acknowledged that there’s a lot of buzz around digital health. Today, many leaders in hospital IT departments have words like “innovation,” “analytics,” “digital,” and “data” in their job titles, she said.

“Most of those titles barely existed 10 years ago,” Faulkner said.

Faulkner, who reportedly decided against raising money from venture capital firms to fuel Epic’s growth, said she sometimes finds the hype that has permeated the industry to be off-putting.

“There’s so much money in Silicon Valley for startups,” she said. “When I go to an innovation conference, I feel like a piece of meat walking around dogs. And I like dogs.”

Startups sit at one end of the spectrum of technology businesses. At the other are giant gadget and software makers like Amazon, Alphabet, and Apple. In addition to those three, Faulkner mentioned IBM (NYSE: IBM), Microsoft (NASDAQ: MSFT), Netflix (NASDAQ: NFLX), and Walmart (NYSE: WMT) as large corporations seeking to create the future of healthcare.

It’s too early to say how they’ll fare, but some big companies from outside the industry have struggled to impact healthcare in the past—see Google Health and Microsoft HealthVault Insights. Faulkner said in her keynote that it’s hard to make meaningful advances in an area as complex as health IT.

“The [electronic health record] is in the most complex area in the world, which is healthcare,” she said. “I think it’s more complex than rocket science.”

But new technologies and care models offer the potential to reduce costs and improve patient outcomes, industry leaders have said.

Healthcare providers are increasingly seeking to knock down the traditional walls of the hospital or clinic and engage patients on their terms, whether they’re at home or on the go, Faulkner has said previously. On Tuesday, she said Epic is continuing to develop tools that capture what health researchers call the social determinants of health—things like access to transportation and healthy food where a patient lives.

Faulkner’s comment about “going beyond the walls” of traditional healthcare settings fit with the “Great Outdoors” theme of this year’s Users Group Meeting.

Each year, Faulkner dons a costume that reflects the theme of the conference. On Tuesday, she appeared ready to hit the trails, decked out in a brown scoutmaster’s hat and dress with sewn badges, hiking boots, leggings, and a purple kerchief.

The handful of Epic employees who spoke about recent customer success stories and new features the company has in the works were dressed as scouts, park rangers, fishermen, canoe paddlers, ski patrol members, cave spelunkers, and other outdoor adventurers.

Faulkner spoke about her years as a girl scout and camping trips she’s taken to the western U.S. and Canada as an adult. She also reminisced about stargazing. Faulkner compared the spectacle of looking up at a seemingly infinite array of stars to the data Epic’s customers have on their patients, and the possibilities all of that information presents for making new discoveries and improving care. Faulkner used the comparison to pitch a database of non-identifying patient information that Epic is compiling with a network of research partners. She has ambitions for the network, which Epic calls Cosmos, to become “the world’s largest database of clinical information.”