Epic Systems (MyChart)

Transcript: (disclaimer: may contain unintentionally confusing, inaccurate and/or amusing transcription errors)

Ben: The answer is somewhere in the middle.

David: Well, you texted me last night that you’ve made it to Singapore.

Ben: I made it to Singapore, yes. Anytime you’re researching anything in US healthcare, you know it is time to stop your research process and start the episode once you’ve found Singapore.

All right, let’s do it.

Ben: Welcome to the Spring 2025 season of Acquired, the podcast about great companies and the stories and playbooks behind them. I’m Ben Gilbert.

David: I’m David Rosenthal.

Ben: And we are your hosts. Listeners, today’s episode is about a quiet company in rural Wisconsin that plays an enormous role in our lives, Epic Systems.

David: Indeed, whether you know it or not.

Ben: You probably know them from their medical patient software, MyChart, that, if you’re listening to this, you most likely use.

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. They don’t negotiate, they don’t discount. They never raised any venture capital and they’ve never done any acquisitions in their 47 years of existence.

They don’t work remotely. Everyone is in-person all the time. They notoriously have one gigantic campus on a farm with buildings designed to look like the land of Oz, a Wizards academy, a tree house, a barn, a replica of New York’s Grand Central Station, and an 11,000-seat auditorium underground.

They have the majority of the US’ major hospital systems using their software, and of their over 600 customers, they have never lost a single one.

David: That is the craziest thing to me about this company is at 47 years old, they have never lost a customer. Actually, we found out that’s not totally true. They lost one customer once for six months, and then that customer came back six months later.

Ben: The company’s founder, Judith Faulkner, is undoubtedly one of the great founders of our time. You probably don’t know much about her or the company because the company is still privately-held, and Judy and her family foundation own about half of it.

Despite being large—I think at this point they’re close to $6 billion in revenue and over 14,000 employees—they have a stated goal to never go public and never be acquired. And Judith (at age 81) has created a succession plan and a trust structure for her voting shares to ensure that that will stay true forever.

David: We heard all sorts of stories about companies sniffing around Epic over the years trying to buy them. GE, Microsoft, Google, everybody you would imagine wants to buy this company, and it’s never going to happen.

Ben: And we will dig into this at the end of the episode when we have all the context and all the numbers, but I believe that Judith Faulkner in starting one of the most valuable companies in healthcare is the most successful female entrepreneur in history.

David: Almost undoubtedly.

Ben: Well, all right then. Spoiler alert, listeners.

David: We’ll discuss that at the end.

Ben: Yes. So the healthcare industry. There is so much wrong with the American healthcare system. That is an incontrovertible fact. There’s nobody that’s going to tell you, oh, actually it’s pretty good. It’s not pretty good. It’s a disaster. Runaway costs, burdens of administration, so much excess and waste causing (I think) healthcare costs are now 18% of our GDP.

Rather than trying to eat that whole elephant today and unpack the entire system, today’s episode is about understanding Epic’s role within it and how Epic became so dominant.

David: And if you want to understand the system, you have to understand Epic.

Ben: Well listeners, if you want to know every time an episode drops, check out our email list. It is the only place where we will share a hint at what our next episode will be. We’ll share corrections from previous episodes, and little tidbits that we learned along the way. That’s acquired.fm/email.

After this episode. come join Slack, talk about it with us and the entire Acquired community afterwards. I bet there are a ton of people in the medical ecosystem hanging out in the Acquired Slack. That’s acquired.fm/slack.

If you want more Acquired between each monthly episode, check out ACQ2, our interview show where we talk to founders and CEOs who are building businesses in areas that we’ve covered on the show to go a little bit deeper. Search ACQ2 in any podcast player.

As we announced last episode, we have a very fun save-the-date for you. We can’t say much yet, but after incredible listener demand over the years, we are finally coming to New York City with our friends at J.P. Morgan Payments. So July 15th, mark your calendars, and if you want to be the first to find out what we are up to, sign up at acquired.fm/nyc.

David: This is going to be…

Ben: A night of absurdity.

David: An incredible night.

Ben: All right listeners, before we dive in, we want to briefly thank our presenting partner, J.P. Morgan Payments.

David: Just like how we say every company has a story, every company’s story is powered by payments, and J.P. Morgan Payments is a part of so many of their journeys from seed to IPO and beyond.

Ben: With that, this show is not investment advice. David and I may have investments in the companies that we discuss—although not Epic—and this show is for information and entertainment purposes only.

David, take us in.

David: All right. Well, we start our journey in August, 1943 when Judy, (today) Faulkner, then Judy Greenfield, is born in Erlton, New Jersey, which is part of Cherry Hill, New Jersey, suburb of Philadelphia, right across the Delaware River, not too far from where you and I grew up.

Ben: That’s true. And Taylor Swift.

David: And Taylor Swift, that’s right. Fertile ground for entrepreneurs there in the Delaware River.

Ben: And DuPont. So much great American entrepreneurship in that area.

David: So much indeed. And of course, I don’t think Judy really knew about all this at the time, but yes, indeed, it is a pretty auspicious time and place to be born, because just about four years later after Judy is born, just up the road a little way from Cherry Hill in Murray Hill, New Jersey, William Shockley and his colleagues would invent the transistor at Bell Labs, that would enable Microsoft, Epic, Intel, and all of this.

Ben: And for a long time, the early pioneers of electronic healthcare records were hardware companies.

David: Lockheed, GE, Siemens.

Ben: Lockheed was a vendor to hospitals.

David: Incredible. But for the moment, Judy probably didn’t know anything about this because her family is not in the tech industry growing up. Her father, Lou, is a small town entrepreneur. He runs a local pharmacy and soda fountain there in Erlton called Lou’s Soda Fountain. And perhaps this is where Judy would later get her own entrepreneurial bent from.

Ben: Could be.

David: So that’s Judy’s father. Now, Judy’s mother, Del Greenfield, was an absolute freaking dynamo. She graduated high school at age 15, and she worked first as a secretary, and then she worked with Lou at the store and pharmacy in Soda Fountain. And then later got really involved in peace advocacy during and after the Vietnam War, which I assume was not typical for her generation that lived through World War II. She ends up becoming the director of the South Jersey Peace Center.

Later in life, after the kids were gone, she and Lou moved to Portland, Oregon, where Del became the executive director of an organization called Oregon Physicians for Social Responsibility, which—get this—in 1985, this group, in partnership with a broader international group called Physicians for the Prevention of Nuclear War, wins the Nobel Peace Prize. Judy Faulkner’s mom was part of a group that won the Nobel Peace Prize in 1985.

Ben: Where did you find this? Because in everything that I read about Epic, and you and I basically read everything you possibly can read about Epic that’s out there on the Internet.

David: Nobody knows this.

Ben: This is not cited anywhere, so how did you find your way to it?

David: I was curious. I was trying to learn more about Judy’s family growing up, and I was trying to learn about the soda fountain, the pharmacy, and the impact that her dad had on her future entrepreneurial career. I started Googling obituaries and I came across her mom’s obituary where I learned this, and the company actually confirmed this to us. Yes, Judy’s mom won and shared the Nobel Peace Prize in 1985. Incredible.

Ben: So cool. All right, so you’ve got entrepreneurial DNA, you’ve got peace-oriented, divergent-thinking DNA.

David: Then you’ve got Judy, and at this point in time growing up, she’s mostly just interested in math. She loves to tell the story about how when she was in seventh grade, a teacher asked the class a number theory problem.

Of course, probably didn’t frame it as a number theory problem, but asked the class, why is it that numbers that are divisible by three, if you add up all the digits of that number, that number that is the sum of its digits is also divisible by three? This is like a law of number theory. Judy hears this problem and she’s just like, my future is in math.

So in 1961, Judy graduates high school. She goes to Dickinson College to major in math. While she’s there, she gets a summer job one year at the University of Rochester, just a little bit farther north, in their particle physics lab.

For the work that she had to do over the summer, she needed to learn computer programming. This is in the early mid-60s. You got to learn Fortran for the work that we’re doing here and running these experiments over the summer.

They give her a book, a manual on Fortran, Judy teaches herself Fortan in a week, and becomes one of the best programmers in the lab. If you’re not getting the picture here, Judy is a genius. She’s an incredibly talented person.

Ben: And programming at a time when programming wasn’t a thing. The field of software engineering was not a field. These are math people taking programming languages and using them, but there are very few of those people in the world.

David: Universities didn’t have computer science departments until this point in time. Judy is intertwined with the beginning of computer science as a field.

Ben: Makes sense.

David: So she absolutely falls in love with programming that summer in Rochester. She’d later say that she felt like a kid playing with clay, and that programming a computer was like this amazing combination of math, which of course she loved, but it was also language and art together with math.

Ben: She has an artistic side, too. For as math-y as she is, she also has a hyper creative streak.

David: Obviously, her story is very different and she is a very different person than him, but the echoes that you’re seeing here in Judy in what she’s exposed to as a kid, how she thinks, how she operates as an entrepreneur, you should be getting some Bill Gates vibes here.

Ben: I thought you were going to say Steve Jobs with the peace time orientation, around her upbringing, and the, I don’t want to say hippie for Judy, but almost hippie-esque movement too.

David: That’s actually a good point. Well, Jobs and Gates. Well, the reason I said Gates is to foreshadow some Microsofty and DNA and analogies that come into Epic here.

Ben: And they’re contemporaries. She is going to build her company in almost the exact same timeframe that Apple and Microsoft were built.

David: Totally. So when Judy gets back to Dickinson, to college, she decides that she’s going to apply to grad schools in math. She applies to five PhD programs. She of course gets into all of them. On her CV, she lists her Rochester experience and her Fortran programming experience.

Two of the schools she applied to, Stanford and the University of Wisconsin, are just starting their computer science departments. When she applied, they didn’t have computer science departments, and in the interim they started them. They saw Judy’s application.

Obviously, this is a brilliant person who we want here at the university. We’re starting these CS departments. They unilaterally shift her applications to their new CS schools. Judy’s like, oh, I didn’t even realize I could go get a PhD in computer science. Amazing. This is what I’m going to do.

She ends up choosing Wisconsin, goes off to Madison, Wisconsin to start her PhD in computer science, which as we shall see, she never finishes, but she also never leaves. What a sliding door moment. If Judy had gone to Stanford instead, we would probably still be telling this story about her, but it would be a very different story.

Ben: For sure. She would’ve been indoctrinated by a very different type of DNA, what computers are for, and what types of companies you should be building with computers if she was in Silicon Valley at that point.

David: While she’s at Wisconsin, Judy takes a class called Computers in Medicine, taught by a faculty member from the Wisconsin Medical School named Dr. Warner Slack. This is probably the first course of its kind anywhere in the world. Computer science departments themselves are new. The idea of applying computer science and computers to the practice of medicine is new.

Ben: It had to be one of the first classes of its kind because mainframes were really becoming a thing in the 60s, period. I think ENIAC was only 15–20 years before.

David: It’s a good point. This is the first time anybody could use computers for anything outside of government and the defense industry.

So Judy takes this class from Dr. Warner Slack, and as you might expect, she’s the star student in the class. Afterwards, Dr. Slack asks her to work on writing a program for use in the hospital, in the medical school, to optimize the on-call schedules for doctors. Doctors have to have on-call schedules, so optimizing that, perfect thing that a computer application could do.

Judy says, yes, great. She starts working on it. This is a part-time job for her as a grad student. She’s getting paid $5 an hour for her programming time, trading time for money here.

Apparently, the story goes that her programming was so good and she was so efficient at writing these applications because she would go on lots of departments and the hospital would ask her to write various applications for them, that she actually didn’t make that much money because she just wrote them so fast and she was getting paid by the hour. They gave her a raise at one point. They doubled her salary to $10 an hour and still didn’t make that much.

Anyway, as she’s going around throughout the Wisconsin Medical Department—she’s working with psychiatry, OB-GYN, rehab, in-patient in the hospital, and the intensive care unit—she starts to get these requests from all the different doctors and the different practices.

A big problem we have is we’re seeing these patients, other departments are also seeing the same patients, but there’s no way for us to know what’s happening to those patients in other departments across the hospital as they’re being seen. We really would love it if there was a single database that could keep records on every patient that we have across the whole longitudinal course of their care here at the University of Wisconsin Medical Center. An electronic health record for these patients, you might say. And this is the origin of Epic.

But before we go further on what Judy does next, I think it’s worth taking a step back and talking about what are health records, what are medical records, what was the state of them in America here in the mid-60s, and why is this idea of an electronic version of them so appealing?

Patient health records, at least here in the American medical system, were a ragtag informal process, and they were all paper-based, of course.

Ben: And I think they had dated back to attempts at unifying them or creating standards all the way until 1912.

David: Yes, at Mass General, so all of the efforts to standardize them. You can imagine all the reasons why standardizing them is important. Patients see different doctors at different hospitals and they move. Even within a hospital like here at the University of Wisconsin, cardiology really wants to know what has happened to this patient in other departments that they’ve been in before, et cetera.

Ben: Or if you have to see a different doctor for the same thing, it’d be great if they’re calling the same condition the same condition.

David: Exactly. All of the efforts around standardization in the country really go back to Massachusetts General Hospital in Boston, which Mass Gen or MGH is the main and largest teaching hospital of Harvard Medical School. It would make sense that this is where a lot of research is happening.

Like you said, in 1912 a few members of the American Medical Association and the American Hospital Association get together there at Mass General in Boston, and they start working on can we create some standard entry practices for physicians that we can distribute across the country, that physicians can use as their patient diaries as they’re known back in the day.

So in 1919—it takes them seven years to do this—they did finally introduce a standardized “treatment diary” for distribution across the country. Now, there’s no incentive for doctors to actually use this, and doctors (as we shall see) are notoriously an independent-minded group and profession and don’t like being told what to do or how to design the notes that they take.

Ben: Which makes sense. They’ve been the smartest people their whole life. They’re doing this thing that requires an incredible amount of education. It’s a very prestigious, high paying job.

David: And I think there’s a good argument for this here, too. The practice of medicine, especially then and still now, is equal parts art and science. Telling me how to standardize what is going on with my patient, probably seemed anathema at the time.

Ben: I’m the doctor. I know best. I’ll figure out what delivers the best care.

David: Exactly. This continues for a while. Then finally in 1928, the Association of Health Record Librarians of North America gets set up as an official body to standardize collection, storage, retrieval of patient data. This is a fun callback. I believe the Rockefeller Foundation was behind funding all this, call back to our Standard Oil episodes.

Ben: I believe that because wasn’t our conclusion on Standard Oil, that the Rockefeller Foundation is the initial funder of the nation’s medical schools?

David: Yes.

Ben: Or kicked off the movement of having real medical schools.

David: One of, if not, maybe the main goal of the Rockefeller Foundation was to improve the state of medical care in America. It makes total sense that, oh, here in the late-20s, early-30s, this is getting funded by them.

So all this is great. But the reality is, until this time in the 1960s when computers start to arrive, even the best intentions that even (let’s say) doctors really want to follow all this, as long as you’re dealing with paper records, there’s a limit of how helpful this can all be.

You could standardize it as much as you want, but you still have to get the reams of paper from one physical location in a hospital to another. God forbid you’re trying to get to a different hospital or a different health system or a different state. It’s a mess.

Ben: Not to mention paper doesn’t lend itself well to structuring data, because at the end of the day, you can write on paper however you’d like to.

David: We finally get to the current moment in time that we’re here in the mid-1960s, and two really important things happen. You can argue that they’re both of equal importance.

One, the arrival of the computer age. You can now digitize this stuff. It’s possible to have portability and standardization, and the dream can really be realized here. The other maybe more important thing that happens is in 1965, Congress creates Social Security, Medicare, and state-based Medicaid programs in America.

Ben: Ah yes. So we have so far given you the technological history of medical records, and now it’s time to flip over to the policy side of things, which in medicine you have to understand policy before you can understand the business. All business structure in this industry is driven by what is the architecture of policy in America. We rewind the clock again to 1942.

David: Oh, all right. Educate me here.

Ben: We’re going to catch up to Medicare here. In 1942, America is at war. There is something passed called the Stabilization Act that imposed wage and price controls. An interesting thing to note, at this point in time, only 10% of Americans have health insurance, period.

David: Mostly, the paradigm in healthcare is you pay for service. You go to the doctor, you pay the doctor.

Ben: You don’t yet have these runaway costs and well, I might have a procedure that could randomly cost a million dollars. You don’t yet have these amazing breakthrough treatments that could be very expensive if you were able to achieve them, so you mostly just paid out of pocket.

You’ve got these wage controls, but employers still want to be able to attract top talent, so the way around the wage controls was to offer health insurance as a bonus to work around the system.

David: Markets always find a way.

Ben: As soon as this happens, unions go, oh, this is awesome. Our people can make more money. Amazing.

David: We’re going to make capital pay for our health plans now, yeah.

Ben: Exactly. Increased wages for workers. This is what we’re all about. They lobby to make it explicitly legal since it was a gray area from the wage controls. So the National War Labor Board makes it official. You can do this.

Two, employers and the health insurance companies that are springing up then lobby to say, hey, these health insurance premiums, can we make these tax deductible for the business? Because the business shouldn’t have to pay taxes on this money if they’re going out and buying health plans for their employees with it.

On top of that, even though it’s a form of compensation, can we make that not taxable as income? That would be really great. The businesses can deduct it and the individuals shouldn’t have it affect their income taxes, even though clearly compensation.

David: This is where the whole origin of pre-tax stuff versus post-tax stuff in your paycheck comes from.

Ben: Exactly, so this sets it all in motion. With incentives like that, why would you want your healthcare any other way? What a dream. You can pay for your premiums with pre-tax dollars. And what a dream for employers that can now offer this benefit that was deductible.

At the end of the war in 1946, the percentage of Americans who had medical insurance was already up to 30% from that 10% number just 6 years before. Flash forward a couple of decades, 1964, it’s now up to 80%.

Of course it was going to run the table and become the default as soon as this regulatory framework was set up. Once we did this, the US did not have a chance of implementing any other system. We were just going to end up with employers primarily being responsible for health insurance and creating large insurance companies to provide it.

David: That takes us to 1965 and Medicare and Medicaid, because the big policy question is now what do you do about all the people who don’t have jobs?

Ben: What do you do about people who don’t have jobs, which actually aren’t that many, but what do you do about people who are old or poor? America needs a social safety net. That’s what we’re all about.

David: Who also, by the way, are the highest consumers of healthcare.

Ben: So here we are in 1965. David, you’re exactly right. Medicare and Medicaid enter the picture as a part of the Social Security Act. How did we get here is interesting.

FDR, Truman, and Kennedy had all tried to pass a single payer system the way that the UK did right after World War II. The UK is in this moment of great nationalistic pride. We all have to band together, look after one another. They pass the National Health System.

The US does not have the political will to do it, so we don’t. You have this coverage gap, to your point earlier, of all these people who are not currently in the workforce. The compromise is we will create Medicare for those over 65 and Medicaid if you have a low income or other special situations. We can’t really fund either exactly right, so we’ll figure out how to fund Medicare out of the Federal government, and Medicaid, let’s make that the state’s responsibility. We’ll help, but we’ll federate that out to the states.

So all of that is our system today. Private insurers, you have a job buying directly from the CA. If you don’t, but again, still from private insurers, Medicare or Medicaid if you fall outside those buckets.

The important thing to realize from all this is that the vast majority of patients do not feel the cost of their healthcare directly in the United States. Those costs are so laundered through private insurance companies and Medicare and Medicaid, that most people think about any given health encounter as being paid for by someone else, by a part of some system.

If you’re trying to unpack how did our healthcare become 18% of GDP versus 11% of the UK GDP or a staggering 6% of Singapore’s GDP, albeit at a much smaller scale, why are we 18%? A big thing you have to understand is psychologically every healthcare encounter is that the system is paying for it. I’m paying into the system, the system is paying for it, but what does it cost? What do I actually pay? It’s a big abstraction.

David: In case it’s not glaringly obvious, why is this so important to medical records and the fledgling electronic medical record industry here? Because now, with these second- and third-party payers set up, you need documentation of what happened in order to get paid.

If you’re a hospital or you’re a doctor or you’re a clinical practice before this system, you just see your patients and they pay you. Now, after this system, you see your patients and then you need to negotiate with the payer, whether that’s the insurance company or the government about getting paid for that. The insurance companies and the government, they’re like, well, hey, I need proof. I need documentation of what you did. I’m not going to pay you if you just tell me that you did this stuff.

Ben: And I need it in a really standardized form.

David: I need an official standardized medical record. All of a sudden you start this Faustian bargain or slippery slope (if you will) for the medical profession of okay, in order to get paid and get paid more and more over time, as my procedures that I’m doing become more and more complex, I need strictly codified, regulated, and standardized documentation of what I did. I need really bulletproof workflows and data flows between what’s happening in the patient room and then what bills get sent over to the payers.

Thus the existential need for an electronic medical record system. But really also, and maybe more importantly, an electronic medical billing system.

Ben: And the realization that I think the whole industry had early is insurance wants to pull together in a very large pool, so the payers are always going to have a tremendous amount of leverage over individual physicians, small hospital systems, even larger hospital systems. You really need to be extremely buttoned up, extremely standardized, and extremely auditable, because you’re negotiating with this large counterparty, whatever the given payer is, be it a government or a large insurance company, that’s going to have leverage over you.

David: And for the hospitals, in terms of “customers”—I mean, they’re not customers, they’re payers; the reason they’re called payers is they’re not getting the delivery of care, they’re just paying for it—of that set of payers, Medicare and Medicaid are the big gorillas, because they’re covering the elderly population who are consuming the vast majority of care, the vast majority of complicated care, and expensive care in the country.

Ben: Makes sense.

David: Here we are in 1966, the year after Medicare and Medicaid get created by the government. There’s this existential reason now for healthcare to adopt systematized records.

A group, once again at Massachusetts General Hospital in Boston, starts work on the first real computerized medical records system called COSTAR (COmputer STored Ambulatory Record). It’s used for patient scheduling, registration, clinical data and everything you would think of in an electronic health record, but also critically, billing and interfacing here with the payers. Development for that was funded by the National Institute of Health.

The technical requirements for creating this, though, are actually pretty difficult, especially with programming languages available at the time, like Fortran or whatnot. This is a very high concurrency transaction system. A lot of users need to use this across a health system.

Ben: Even then.

David: Even then, yeah. A lot of users across a health system need to use this and it needs to interface with a lot of endpoints, and especially with the limited storage and processing power of computers like mainframes at the time. The group of programmers that were working on this found that existing programming languages couldn’t really suit their needs to build what they needed, so they end up writing their own new programming language called the Massachusetts General Hospital Utility Multi Programming System, or MUMPS.

Ben: Which is amazing that there’s a medical-oriented programming language called MUMPS.

David: And Epic still uses MUMPS today, or actually it uses its modern descent in Caché, but this is the standard programming language and database system for the industry.

Ben: I don’t know about the industry, but for Epic, which I guess now for the industry.

David: Well that’s what I was going to say. Many of Epic’s competitors do not use this, but Epic does, so it’s de facto the standard now.

Now there are two key features of MUMPS, and this is why these programmers had to create their own language. One, the language and the database are integrated. Right there within the programming language is a database structure. That makes it very computationally-efficient for handling all these high velocity and data-intensive transactions that need to happen.

Ben: Or at least efficient for the programmer, because you’re not switching over the right SQL queries in the middle of your program. Everything is in the same language. If what you’re doing is primarily building a wrapper around a database, to use modern parlance, a glorified database that is going to constantly be read and written to, kind of nice for it to all just be one standard language.

David: The other thing that they design it for is for multiple simultaneous users. Imagine you’ve got different departments within a hospital updating the same patient record at the same time. You’ve got then administrators in the hospital also updating that record to know what’s been billed out to a payer, what’s not been, what’s been challenged, et cetera.

Ben: You don’t want collisions to create data loss or something like that. This is people’s lives we’re dealing with.

David: Exactly. Now the lead programmer of this group here at MGH, at Mass Gen, that is creating COSTAR and MUMPS, was a recent MIT graduate named Neil Pappalardo. Being the young enterprising MIT grad that he is, a couple of years later in 1968, Neil spins out and starts a company around this to sell his software, originally called Medical Information Technology, or MIT.

Ben: Name’s taken.

David: Hey. But soon he changes the name perhaps at the request of the real MIT to Meditech. For folks in the industry, that’ll sound very familiar because Meditech is still in business today and is the number three player in the EMR space behind Epic and Cerner.

Ben: Pretty amazing.

David: Back to Judy now here at the University of Wisconsin. She’s working with Dr. Slack and the medical department there doing all these various application projects. Then Dr. Slack moves to Harvard where he of course meets Neil and starts working with Meditech. But he and Judy keep in touch.

Judy’s part of this community of programmers and computer scientists building applications for healthcare systems. And like we said earlier, what the people at Wisconsin really want, is the same thing that the people at Harvard and MGH really want, is this integrated system where they can get longitudinal patient records across the continuum of care, and that they can use to bill the payers.

Ben: The Holy Grail.

David: The Holy Grail. Through this connection, Judy learns about MUMPS. She goes and learns MUMPS the programming language, starts working on this problem, and legend has it that one day in the mid-1970s, she’s sitting in her living room and has an epiphany about how she is going to build a great system, a single database that can do all of this.

Her quote on this is, “The sun was shining, I was dis-attentive, I was just sitting there, and suddenly it all came to me. Here’s how you build it. The integrated system. I remember running to the kitchen, grabbing a pad of paper, and just writing code, code, code, code.” That code became Chronicles. It’s a chronicle of a patient’s care journey. That code in that database is still the core of Epic to this very day.

Ben: Is it actually the same code?

David: No. She’ll claim none of my code that I wrote is still in production, et cetera. I’m sure that is true. But it is true that Epic’s core database, the core single database—this is Epic’s big differentiation—there’s only one database that every application pulls from.

Ben: Directly talks to.

David: It directly talks to, whether it’s the clinical side for EMRs, whether it’s the billing side with the resolute module that Epic has, whether it’s Cosmos, whether it’s Stork for OB gyn or Beans for Kidney or whatever application that Epic makes of their hundreds, it all pulls from one single database in Chronicles, and that’s what Judy writes here in the 1970s.

Ben: Okay, so it’s just a database? Where does it go from, she writes a bunch of code when she has this insight that there should be a database with the patient model at the center?

David: Well, that’s a good question because it is just a database. The idea of applications and certainly graphical applications on top of it doesn’t make sense because we’re still in the mainframe world here. What the product is, is this database, then different departments in the Wisconsin Medical Center can write their own screens, like queries on top of the database that can sit on their terminals, and that they can read data out of the database directly into their patient rooms or departments, wherever they’re sitting.

Ben: So these are terminals. These are 80-character-wide text-only terminals.

David: Yes. Green screens, Unix terminals.

Ben: Okay, so you run Judy’s database, you run Chronicles somewhere in your hospital building on a big mainframe, and then there are these text only terminals that can query it.

David: That’s the product.

Ben: Sweet. Long way to go.

David: Just like the projects in Boston at MGH where the intention was to make the systems for use there at MGH, Judy at first is just making Chronicles for the Wisconsin Medical System. She’s just a programmer employee of the medical center.

But the doctors at UW are going to academic conferences all around the country, and they start telling other doctors at other academic institutions about this great system called Chronicles that they have, that this programmer that they employ, Judy Faulkner has written, and demand for it starts to spread virally. Wisconsin gets calls and then Judy gets calls from all these other health systems around the country that are like, oh hey, can you write this for me too?

Ben: Doesn’t she get asked to start a company several times? And she’s like, no, I just made it this one instance. We don’t need to build a whole company around this thing.

David: Exactly, and this happens again and again and again. Legend is finally, she just breaks down, is like, fine. I’ll start a company. I’ll be part-time on it. We’ll get some other people who are working with me, who will be part-time. This will be a small little thing. Thus finally in 1979, the company is born, Human Services Computing.

Ben: Amazingly generic.

David: The future Epic Systems. But before we tell the story of how Human Services Computing became Epic…

Ben: This is a great time to thank our presenting partner, J.P. Morgan Payments, and in particular to dive into how essential modern payments infrastructure has become to building your business today, whether you are a large multinational business or a startup in your early days of processing payments.

David: If you think about it, there are whole companies and industries that couldn’t exist a decade ago without the payment tools we have today. It’s absolutely essential to create businesses with modern product experiences like ride sharing, the creator economy, or B2B use cases like SaaS marketplaces or managing supplier relationships. For those types of companies, payments is their business.

Thankfully, J.P. Morgan has built the stack to let them focus on their differentiation instead of reinventing the wheel. J.P. Morgan payments has been pioneering in this industry for decades. They move $10 trillion a day. You can literally never outgrow their capabilities.

Ben: While we are examining the healthcare landscape today, let’s look at the industry through the lens of payments. There’s a lot of innovation promise coming with telehealth, AI, preventative treatment, and new clinical trial processes. Seamless and secure payments are critical to improving patient experiences in unlocking innovation for businesses and providers.

When you zoom out, healthcare is an incredibly complicated ecosystem of payments, healthcare providers, insurance network specialists, health monitoring services and more. It creates a complex and friction-filled payment experience—who’s paying who, when, and under what terms. Then you layer data privacy requirements on top. It’s wild.

David: If you’re a company or a provider trying to innovate in this space, you know getting the payments piece right is paramount, which is why J.P. Morgan’s array of products, including their healthcare payment solutions and InstaMed offering, provides a patented cloud-based technology to securely transform healthcare payments by driving electronic transactions, processing payments, and moving healthcare data seamlessly.

Ben: If you’re in the industry, you likely know that J.P. Morgan is finally attuned to all these innovations on the frontier hosting the premier healthcare industry event every January. If you learned anything at this year’s event that’s relevant to this episode, come share it with us in the Slack. Listeners can check out jpmorgan.com/acquired to learn about how J.P. Morgan’s end-to-end payment solutions can accelerate your business and discover more innovation happening across all industries.

All right, so David, Judy leaves her job, she starts, what is it? Human Computer…

David: Human Services Computing.

Ben: Human Services Computing.

David: Really rolls off the tongue.

Ben: She’s not planning up to this point to be the founder of a company, and yet for the next 47 years of her life she would be. How does that go?

David: Well, before she does anything, she needs to raise some money for not the least of which to buy a computer to do this work on.

Ben: Which, wasn’t it like $70,000 to buy a computer?

David: Yes. A computer being a Data General Eclipse 16-bit minicomputer, which is the size of a washer and dryer system that sits in the basement.

Ben: That’s right because we’re in this awkward era between mainframes and microcomputers. The microprocessor hasn’t been invented yet. We have these “minicomputers” that are still washing machine sized.

David: We’re right before the PC era here.

Ben: It’s so interesting how sometimes you have the technology wave that eclipses all prior, but sometimes you have these half steps along the way that turn out not to eclipse everything.

David: Minicomputers were like the netbooks of their time. We talked about this a lot on our Microsoft episodes, but the critical thing about minicomputers, and especially for Judy here and fledgling Epic, was a consumer wouldn’t buy these things, but small businesses could, and small departments of big companies could.

An IBM mainframe system was going to cost you a lot of money. A Data General or DEC minicomputer is going to cost you about $70,000, and Judy needs to buy one. She also needs to fund the company. She goes to the bank and she gets a bank loan for $70,000 to finance and buy the data General Eclipse minicomputer.

She rounds up a bunch of friends, family, and other people, whether physicians or other programmers in the University of Wisconsin system who are working with her on these projects, to invest money in the new company. Together, they all put in about $70,000. They value the company at $70,000, so pre-money valuation of $70,000.

Ben: Another $70,000 of new on top.

David: Post money of $140,000.

Ben: Taking 50% dilution from your $70,000 fundraise, and then you also have this $70,000 loan.

David: And those were the only primary investors ever in Epic Systems. There are some really fun stories about what happened to those shares that the other original investors bought over time. The company has bought a lot of them back, but not all of them.

Ben: There are still some floating out there.

David: There are some floating out around there. We can’t share all the stories that we heard in the research, but one fun thing is that at one point in time, I think this was probably the 2000s maybe, a pretty good chunk of those shares made their way to Sequoia Capital. Sequoia did not put that one on their website.

Ben: Almost the only way in which Epic intersected with Silicon Valley in the entire company’s history, but this is a crazy point. They do $5.7 billion in revenue today. They dominate an industry, at least here in the United States, and in total they raised $70,000 of equity capital and $70,000 of bank debt.

David: And that’s it.

Ben: This is IKEA all over again.

David: Totally, and I think a huge part of what enabled this building software is not necessarily a capital-light activity. It is really hard, especially in those days to build great software. I think how Microsoft never really raised primary capital either. It’s because Judy got generational talent as a programmer.

Ben: I hadn’t made that linkage. That’s interesting.

David: They had a cornered resource as a startup. Microsoft did in Bill Gates and Paul Allen, too, but Epic totally did too in Judy. She could write really, really great software.

Ben: They didn’t need to go hire an army of programmers.

David: And the company stayed very, very small for a very long time.

Ben: Because as legend has it, it’s three halftime people in the basement of a building that started the company, and I think they got pretty far on just that.

David: I think so, and for years they didn’t hire that many more people. That would obviously change over time.

Okay, I am 90% sure I’m going to stump you on this one. You mentioned the basement of the building. They get their first office space. Judy gets the company’s first office space in the basement of an apartment building at 2020 University Avenue in Madison, Wisconsin. Do you know what other great American company from Madison, Wisconsin also started in that same office space, and I believe overlapped. I think they were both in this same shared office space concurrently.

Ben: David, there’s only so much material out there on this company. We were both going to find this. Listeners, this is the American Girl doll company.

David: I really thought I had you on this. Ben and I don’t do our research calls together. We do most of them separately, but we were on one together. The person we were talking to was about to say this and I was like, no, don’t say it. I want to stump in on the episode.

Ben: I did see it somewhere else, though. The crazy thing is, I think when American Girl moved out, Epic bought some of their furniture.

David: I think that’s right. Listeners, what we’re talking about is the American Girl doll company founded by Pleasant Rowland in Madison, Wisconsin.

Ben: My sister had (I think) a few of these growing up.

David: Oh man. Jenny had so many of these. A lot of them have migrated now to our house and our girls have them. Already, my three-year-old runs around our house with the American Girl doll magazine, and she tells me on a weekly basis, these are the ones I want for my birthday, and she’s pointing at a $250 doll. Incredible company. It actually ends up getting acquired by Mattel in the late-90s. It was a big part of Mattel for a long time.

Oh, I’m so bummed I didn’t stump you on this one. Okay, back to the Epic story. Judy’s got the financing, she’s got the computer, but she still doesn’t know anything about building and running a company. She’s a software developer. Warner Slack says, okay, come on out to Boston. I’m going to set up a couple of days for you to spend time with Neil and Meditech. I’m going to ask him to help you out starting this company.

Ben: I got to say this is a pivotal moment, and not just for everything she learns from Meditech, which I know you’re going to get into all these cool things that she brought over. But instead of, I’m going to introduce you to a business person, he says, I’m going to teach you as a programmer everything you need to know about running a business.

It’s not true, but it rounds to true to say Epic basically never did hire any business people. It is essentially a big gigantic company of programmers, logicians, implementation people who could be programmers who think like programmers. That is the DNA of the company to this day. And it could have gone in a super different direction of you need to go figure out a sales and marketing strategy and a business plan. That is just not what happened.

David: This is a history turns on a knifepoint–moment for Epic and Judy because the likelihood that she would get introduced to a business mentor, who is also a software developer and not a business school graduate business guy, we’re talking about the 1970s here. The business playbook is you bring the grown ups in. Bring in the suits. Bring in the business school graduates. Fire the founders.

Ben: But that only happens if you raise capital.

David: Exactly. You wonder why Judy was so averse to venture capital. Everybody else she knew who was taking it in that era was getting fired.

Ben: Swapped in for a business guy.

David: Totally. Neil came out of MIT. He’s a programmer. He was on the original MUMPS team. So Judy goes out, spends three days with Neil and gets a total crash course in setting up and running a company.

Ben, like you said, Neil ran Meditech like a software developer, so all the processes were extremely standardized. He had hardened APIs for running the company. He had manuals and documentation for everything, and he shared the manuals with Judy. This is how you set up a HR system. This is how you do benefits payroll,

Ben: How you do college hiring. How you promote internally.

David: Meditech recruited from the universities there in Boston. They didn’t hire experienced programmers. They were hiring fresh college graduates. Totally natural that Judy’s going to do the same thing at Epic out of first the University of Wisconsin and then other schools. That was the playbook, and that DNA runs right through to this very day at Epic.

Ben: It’s mostly people from non-medical majors. They’re hiring from Midwestern schools, from people with technical majors just operating under the assumption, eh, you can learn this healthcare thing.

David: It’s the same thing as Microsoft or Google or Meta or what have you. They are going to universities, all departments, and recruiting kids on campus, recruiting at colleges.

Ben: And she was doing this at a time when it wasn’t the norm. I got to keep drilling in how different the world was then in a bunch of different ways. But one of them was you didn’t have these college career fairs where you would just assume you could get this amazing high agency job right out of college. Microsoft was really on the frontier of hiring smart college grads and empowering them and letting them run free. Epic was doing the same thing, and this was not industry standard.

David: And Microsoft wasn’t even really doing it at this point in time. They had only just moved to Washington. They’d only just left Albuquerque. This is the timeframe we’re talking about.

Ben: What year are we in?

David: We’re in 1979.

Ben: Microsoft really isn’t starting to wrap hiring yet.

David: No, and to that point, there is no DOS yet. There is no real PC industry. Microsoft’s main product is the BASIC interpreter. For Judy and the fledgling Human Services Computing here, yes, they have demand from other large academic hospitals out there and medical systems that have mainframes set up, that have university computing infrastructure that they can leverage and use. But your average hospital or medical clinic or outpatient clinic out there in America doesn't have a minicomputer. They don’t have a mainframe. The market isn’t really there for this stuff yet in a big way, except at these university medical systems.

Ben: And part of what she is doing is going after a different segment than Meditech was doing is a little bit out of deference to Neil and his company. They’re going after the small hospital market. She’s going to take a more upmarket enterprise-y approach, and go after the most complex institutions, these academic training hospitals, later on the IDNs or the integrated delivery networks, which are huge hospital systems, or children’s hospitals. Again, the most complex, upmarket, enterprise-y, has the most possible needs for the most complex software, that is where she’s about to point the company.

David: Which she has to for the Unix-based product that she’s making, because those are the only institutions that have Unix infrastructure.

Ben: That can afford these big computers.

David: So 1979, they started out with four initial customers. Four years later in 1983 is when they renamed the company to Epic Systems. Ben, why did they rename the company?

Ben: Well, aside from the first name just being an awful name, you can start to see Judy’s quirkiness come through. I think you saw it originally with Chronicles, her abstract creative thought, the notion of an epic, the Greek epic is this big story, this big longitudinal, historic event. And I think the way that she’s thinking about a patient record is that the life of the patient is an epic. Does that jive with your understanding?

David: Yeah. It definitely was not a declaration of aspirations as a company because this was still a very, very small business. They started with four initial customers in 1983 when they changed the name. They only have nine customers. In fact, by the end of the company’s first decade of existence, at the end of 1988, they only have 24 customers. It’s only doing $1.5 million in revenue, and they’ve got a handful of employees. That’s the crazy thing. Unlike Microsoft, this was a small business from the get-go.

Ben: It took a decade to get to $1.5 million in revenue. That’s a slow grubbing startup.

David: A great software business for a local entrepreneur in Madison, Wisconsin, I think is how you would describe that. For the first 10 years of the company, yes it’s growing, but it’s not exactly setting the world on fire. Part of the reason is the computing infrastructure wasn’t their customers, like we talked about.

The other big reason why they weren’t getting crazy customer adoption is they actually were only doing the clinical medical record stuff at this point in time. They weren’t doing the really important stuff of the billing system until 1987. For the first, what is that, call it eight years of the company, they weren’t addressing the actual critical problem in the hospitals, which is to help us bill for this stuff.

Ben: If you can help them make more money, they’re going to be a lot more excited to buy your software, and pay a lot more for your software.

David: Totally, In 1987, they launched a billing module called Resolute, again on top of the Chronicles’ single core database, which still today is the company’s revenue cycle application for all their hospitals. I know we’ve made this point a few times, but I really want to underline, it is still just an application built on top of the Chronicles database. Fast forward to today, I think that is actually the single biggest reason why Epic wins over their competitors.

Ben: I would argue there are two big reasons Epic wins today. One is reliability. But the reliability also comes from the fact that it’s all built on one database. You’re not gluing multiple systems together. All their competitors along the way, or almost all of them other than Meditech, became 30 other companies glued together through M&A, take public, take private crazy transactions. Epic’s just been Epic the whole time.

You get this system, that when you buy it and they say it’s going to take X dollars and X time to implement, it does. Then you go live and it works, which sounds crazy, but it does the thing that they say it’s going to do on time and on budget, or as good as anyone does in this industry.

Then the second reason in addition to reliability, David, as you’re alluding to, is the fact that the clinical side and the billing side are completely stitched together in one code base working off of one database. It is perfect harmony. You don’t have information dropped when one system is talking to another. If your goal is to adopt a system that keeps track of everything in your hospital and make sure that you can make money from it for your organization, this is the ideal architecture for such a product.

David: It’s funny. I’m laughing as you were saying earlier of it does what it’s supposed to do. As with the [...] I assume you’re referring to the actual clinician doctor–facing EMR side of it. If you’re looking for a system as a hospital that ties what happens in your medical practice to your billing and your revenue events, there is no if.

Ben: That’s all you’re trying to do as a hospital.

David: This is what you are looking for. That is the product. And Ben, like you said, all the competitors out there, except arguably Meditech, in many cases, the billing system is a separate and often separately-acquired product from the medical record.

Not only is it just like, oh, maybe not ideal if some of the information doesn’t pass quickly or efficiently or accurately between those two systems, it’s incredibly not ideal. It’s like you’re not getting paid for the work you’re doing. Or even worse, maybe you’re submitting documentation that is wrong, which is a federal crime.

Ben: Or even if it’s bad in the other direction, then it’s not just that your billing system is not making it into clinical, you’re potentially causing patient harm and costing lives. Any data flowing in either direction that’s bad is really, really bad in this particular use case.

There’s a great Substack called Health API Guy, which I’m going to reference a few times because it’s just some of the best writing on Epic you’ll find. He put it perfectly.

“Epic becomes the natural choice for enterprise decision makers, precisely because of its integrated system architecture. Rather than managing multiple vendors and systems, buyers get a comprehensive platform with a single database, unified workflows, and built in operability through Care Everywhere,” which we’ll talk about later. Care Everywhere is the magical button that makes it so that your hospital records at one hospital are easily integrated and viewed in any other hospital that is (of course) also an Epic customer.

David: After they launch Resolute—now we’re in the late-80s into the early-90s—we’re finally entering the PC era. It’s now possible for hospitals and health practices to adopt computers for a few thousand dollars instead of a few tens of thousands of dollars. The market really starts to take off for Epic. On the back of that, in 1992, they launch EpicCare, which I believe is the first graphical user interface, like Windows-based EMR application in the entire industry.

Ben: Certainly. Epic definitely says that that is true.

David: So what does that mean? Go back to what Chronicles was originally. It was terminal access directly into a Unix-based database on a mainframe or on a minicomputer. This is not something that your average doctor or nurse or medical assistant is going to use.

Now here in the 90s with EpicCare, they’ve created a Windows application that any PC user can fire up on their Windows machine, and use a graphical interface for their patient interactions in their EMR. And oh yeah, by the way, it’s tied directly into your billing system for your hospital or your health practice. This is all of a sudden really compelling.

Ben: We’re approaching holy grail here, if you’re a hospital administrator, especially with scheduling. In addition to billing, their scheduling thing is called Cadence. But once you have billing, scheduling, and EpicCare handling the actual clinical part of it, and this is all ambulatory, right? We haven’t gotten to inpatient yet.

David: Yes. The initial launch of EpicCare, the GUI EMR application, was only for ambulatory, only for outpatient settings.

Ben: Not overnight stays. Yes.

David: Not overnight stays in the hospital.

Ben: As a non-healthcare person, that’s always how I define what inpatient is.

David: You hear ambulatory, you just hear non-overnight stays. Too confusing otherwise.

Ben: But this is it. Scheduling, billing, and EpicCare on the clinical side for ambulatory. Pretty amazing product that is trajectory-changing for the company. It’s now got enough functionality that it’s not going to stay a small business for long.

David: So by 1995, they hit $18 million in revenue, up from $1.5 million in 1988.

Ben: So pretty phenomenal seven years there were they more than 10x’ed. By most measures you’d look at this and be like, business is going well.

David: No longer a small Madison, Wisconsin business.

Ben: However, where we were comparing it before was Microsoft. You made the Bill Gates comparison. This company was started, when was it, 1970…?

David: 1979, so only a couple of years after Microsoft.

Ben: Four years after Microsoft. In 1995, Epic did $18 million. In 1995, Microsoft had gone public and shipped Windows 95 and did $6 billion in revenue.

David: Very different trajectories.

Ben: The primary reason here is one is a small, vertical-focused healthcare company, and one is creating the horizontal platform of the future. But it’s worth contextualizing businesses going well by making sure that we stop making the Microsoft comparison from here on out.

David: Well, I think I want to come back to it later in the episode and in analysis because yes, 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 or what have you.

Ben: Vertical being one industry.

David: Vertical being one industry. However, the one industry that they operate in is 18% of American GDP, so how big can this get is a question we’ll revisit.

Then finally in 2001, they launch the inpatient version of EpicCare, so yes, this is for inpatient hospital stays overnight. Now you finally have the holy grail. You’ve got Chronicles as the one single database. You’ve got EpicCare Ambulatory for all your outpatient clinics. You’ve got EpicCare Inpatient for all your inpatient activities.

By the way, again, inpatient activities are probably going to be your majority revenue stream because that’s where the most expensive, most complex care is happening, kind of similar to Medicare is your most important payer relationship because old people is where the most complex, most expensive care is happening, So you’ve got that, and then you’ve got Resolute, the billing system, all single database, all tied together, all built on top of it. If you’re a hospital system administrator, this is the best thing you could possibly imagine.

Ben: And Epic is really starting to get religion around this point in our future is breadth. Our customer, these hospitals do not want to buy piecemeal solutions. They want to buy everything from one vendor, and they want that one vendor to provide the very best, most integrated experience possible, so we need to continue to orient the company around that philosophy.

David: Now, right around the same time, actually before EpicCare Inpatient launches, Epic also launches MyChart. This is crazy. If you had asked me before doing research for this episode, when would I guess that MyChart launched, this is an internet-based consumer-facing medical records access interaction platform on the web in a highly regulated HIPAA-regulated industry. I would’ve guessed, I don’t know, 2010 maybe? Mid-2000s at the earliest. No, Epic launched this in the year 2000, which is wild.

Ben: Right around the dot-com bubble.

David: Yeah, crazy. It’s absolutely wild that they launched this and that their customers launched this.

Ben: And it’s incredibly innovative. It is truly cutting edge. It wasn’t 1994 like Amazon, but the fact that yeah to your point, the medical record thing was being surfaced on the web, it’s pioneering.

David: That consumers had direct access to. Well, I want to come back in a minute to how important this is for Epic and their customers, but the origin story of MyChart is fun.

It actually started as an outgrowth of what was called Epic Web in 1997, which was a project that they were working on for remote access to the EMR to EpicCare for doctors at home. The idea was like, oh, you’re a doctor. You go home, you wake up in the middle of the night, you’re thinking about a case, and you want to check the medical records, maybe you want to update some…

Ben: Foreshadowing here of how doctors are going to spend their time in the future.

David: Exactly. Little did they know how much doctors would hate what we’re saying here, but you want to be able to access remotely from your home the medical records of your patients, so they start working on Epic Web.

A young, right out of college programmer is working on this by the name of Sumit Rana. Sumit today is the president of Epic. He goes to the then-president of Epic, Carl Dvorak and says, hey this is good that I’m working on this, but I’m bored. Can you give me something hard to do?

Ben: This says a lot about the culture of Epic. This is an early career programmer going directly to the president, and that says enough on its own.

David: And the president is running this patient web project.

Ben: Is kind of a computer architecture person himself. And the conversation is about, I want a more interesting project. Can you give something we’re cutting edge to work on?

David: Give me something more challenging. Out of that is born the initial idea for MyChart. I think they started working on it in 1998 and then launched it in the year 2000.

Ben: It becomes the first integrated patient portal. Truly, this is a very fair thing to say. This is insanely innovative for as many reasonable barbs get thrown at the company. Some around, oh old technology, and oh the UI is kludgy and all this stuff. Come on. MyChart in 1999 was really cutting edge. People immediately got it. Once you could access your own medical records from home, from your own computer directly without talking to anyone, you were never going back. The world changed overnight.

David: It was a little bit like Zillow in real estate. As soon as you can look up how much homes in your neighborhood and your friends and neighbors homes sold for, you’re never going to go back to not being able to do that.

Ben: We’re going to have some rich debate later about the pros and cons of EMRs, and are we better off today than we were? But I just can’t fathom being in a world where I don’t have a way to access other than going to the physical building and asking them for my records or placing a call and asking them to call me back.

David: Records used to have to get faxed back and forth when you moved or changed providers. It was brutal. But the other really compelling use case for MyChart, especially when it first launches and even through to today, is managing family members’ care.

You have elderly parents who are using the health system as you do as you get older and you need to help manage that. But you don’t live in the same city. Or even if you do, having MyChart access to family members was huge and starts this whole patient-side virality now for the company.

And then for their customers, I imagine initially it was very scary to roll this out. Once they add self-scheduling into MyChart, this becomes the greatest thing for hospitals. The workflow savings of calls that had to happen to scheduling appointments are huge.

The other big thing is no-shows. Before MyChart and self-scheduling and the wait list that MyChart manages for patients, if a patient is a no-show that was lost revenue for you as a hospital system. That was a big hole in your daily revenue operations. Now, you can automatically fill that in with another patient on the waitlist.

Ben: We’re foreshadowing this, but everyone adopts this. Basically today there are 191 million active users of MyChart. And this is deduplicated. There are active, unique users of MyChart today.

David: On the back of this, they launch MyChart in 2000, EpicCare Inpatient in 2001. The company crosses $50 million in revenue. They feel like, okay, we’re finally ready for the big leagues.

Ben: Just to contextualize that $50 million of revenue, they’re up to 88 health systems now. They really are starting to penetrate the market just going one by one by one by one to all these different hospital systems and selling them their software.

David: So they’re ready for the big leagues, and then in 2003 they get a call not just from the biggest player in the biggest league, Kaiser Permanente in California.

But before we tell the Kaiser story, which completely transformed the company…

Ben: This is a great time to thank friend of the show, Fundrise. The Fundrise team is awesome, and they are big Acquired listeners just like all of you. They’ve been evolving since we first worked together about three years ago. At the time, Fundrise was mostly known as the US’ largest real estate investment platform for retail investors. However, they were watching technology markets get larger and larger than ever thanks to Moore’s Law, and technology of course took over every industry…

David: Like healthcare.

Ben: …and the team there was really feeling like, it really is a shame that all these tech companies are staying private longer, and that means that retail investors can’t get access. So in 2022, they launched their move to bring the democratized model they had developed into venture investing, which was a pretty contrarian idea.

David: This had been tried in the past but never really worked. Fast forward to today. Fundrise has invested in great companies like Databricks, Canva, Anduril, Ramp, fellow friends of the show Vanta and Anthropic, and also ServiceTitan, which just went public last December.

Ben: It is crazy what Fundrise has done. They’ve taken a retail platform that any American can invest in, and gotten pre IPO access to some of the best private companies in the world. They have enabled access to all the value creation that’s been locked up in private companies.

David: When the ServiceTitan IPO happened, thanks to Fundrise, tens of thousands of regular investors got to celebrate alongside VCs, LPs, and employees. Timing really is everything here. Fundrise is doing this at a moment where thanks to AI, there’s more value than ever being created in the technology sector of the economy.

Ben: You can go check out the full portfolio that Fundrise is building at fundrise.com/venture, and if you are a growth stage founder looking for a great Series-C or later investor, get in touch and tell them that Ben and David sent you. This is a paid endorsement for Fundrise, and all investments can lead to a loss.

All right, so David, Kaiser Permanente, the biggest of big fishes comes knocking.

David: Kaiser Permanente is this fascinating organization that was started and is headquartered here in California, that is a fully integrated “managed care consortium.”

What that means is that essentially they are both your health plan, your insurance, and your hospital system all in one. It’d be like if an insurance provider married up with a hospital system and said, this is our captive hospital system. You as our members are only going to go get your care here, and we control the whole system. It’s the closest thing that you can have to a single payer here in the country.

But importantly, they do also need to work with and interface with Medicare as they have their own Medicare Advantage plan. Patients, customers, once they get older, they transition to Medicare Advantage through Kaiser.

Ben: Got you.

David: Now, at the time—here we’re in 2003—Kaiser was the largest single hospital system in the entire country. Thirty hospitals, 400+ clinics, 11,000 physicians, and 8½ million patients that are part of Kaiser here in 2003. They decide that they’re going to put out an RFP for a whole new, integrated, entire Kaiser system–wide EMR system.

Ben: This is when you really should start to think, okay, EMRs are not just medical records, or medical records tied to billing and scheduling.

David: This is the operating system for this industry.

Ben: Someone described it to me as the nervous system for a healthcare system. You’ve got 20 hospitals, a bunch of doctors, a bunch of administration people. The whole thing is tied together by these unbelievably complex tentacles everywhere piece of software with thousands of different screens and levels of authorization, authentication, roles, and permissions. It is incredibly hairy, and is the single nervous system that the entire organization runs on.

David: Calling it an operating system is taking it too lightly. It’s like your operating system plus your ERP system plus your applications on top of your operating system. It’s your everything.

Ben: It’s quite reasonable. Even though we refer to these things as EMRs, to start thinking about EMR as a feature for a constituency of the whole system.

David: So in 2003, Kaiser puts out an RFP for a new, again “EHR,” but really new nervous system for all of Kaiser, and Epic wins the deal.

Ben: Epic was a little company. Just a few years before, they were a $50 million company.

David: And after they signed Kaiser, they go to $162 million in annual revenue, so transformative. Probably more than doubled their revenue overnight.

Ben: Interestingly—let’s talk prices for a second—the headline number as everyone reports it, is a $4 billion deal. They call it a $4 billion three-year project, and that Epic’s portion is around $400 million. Of course, not all in one year, but the way these things work is there’s a big implementation that costs a bunch of money up front, and then there’s the ongoing license that (I think) eventually would transition to subscription. But at this point it’s licensing to use the software.

It’s just funny to see these headlines because the $4 billion number, not only do they capture many years of the deal and the implementation, but they also roll in there the headcount of the hospital employees that have to do the work, and they roll in there the potential lost productivity from all doctors across the health system who have to ramp on the new software.

David: Which is a real economic impact by the way.

Ben: For sure.

David: But it’s not like Epic got $4 billion out of this.

Ben: No, and I always chuckle because every single one of these numbers looks huge. Multi-billion dollars. Oh, even if it's a small health system, a $300 million project. It ends up resulting in nowhere near that much money to Epic, but this is how the industry has decided to talk about the size of these deals.

David: Yeah, it’s funny. We should start talking about the size of Acquired and…

Ben: Fourth and fifth degree tertiary impacts.

David: We are a billion dollar business.

Ben: Just think about all the business that our customers do when Acquired listeners… But to your point, it is actually fair. If Kaiser is going to engage in switching their central nervous system over several years, it’s going to be net $4 billion of impact to them.

David: The story of how this goes down is wild. At the time, Kaiser’s two main centers of gravity were northern California and Southern California, and they were almost like separate companies under the Kaiser umbrella. Had different systems, had their own EMRs, different management, of course talked to each other and part of the same parent organization.

Ben: Wasn’t there an almost cousin organization that was Northwest? Like this stepchild?

David: Yes. I don’t know if it was just Northwest or they had maybe some other smaller regional operations at the time, but they had a Pacific Northwest, small region based in Portland, Oregon. Today actually, Kaiser has large regions through a large part of the country. They’ve grown a lot since then.

But in this small little Portland region, they had started using Epic for their ambulatory clinics, so like not even inpatient stuff in the hospital, but their outpatient clinics. And at the time the northern California and Southern California big factions were battling each other. They’re each trying to develop their own proprietary EMR systems with software consultants, with Accenture and stuff.

Ben: There was this era where hospitals thought that EMRs should be their IP that they develop and have a competitive advantage over other hospitals because their EMR was better. I don’t know what the thinking was, but people wanted to own their own EMRs.

David: I think there may even have been some pipe dreams of like, oh, we’re going to commercialize this and sell it to other hospitals. It seems like not a core competency that hospitals should be doing.

Anyway, within the Kaiser system, though, there was a fairly high degree of rotatable of physicians, of doctors. If you were a doctor in Portland with Kaiser Pacific Northwest, and you wanted to move or your family had to move down to California, you could transfer pretty easily to Northern or Southern California Kaiser.

This was happening, and as physicians from the Northwest started coming down to California, they’d feel like, man, what are you guys doing? You’re spending all this money with Accenture and blah-blah-blah, all these consultants to try to roll your own. We’ve got this thing called Epic up in Portland that we’re not even using at the hospital, and it’s way better than the stuff that you’re trying to build.

Finally after a year or two of this battle between North and South, they finally agree. All right, ceasefire. Let’s come to a truce. We’re going to ditch our competing projects and we’re going to bid this out to third-party vendors. They hold an RFP for a new EMR, for all of Kaiser, one integrated system, and they pick IBM. IBM’s going to come in and do this big $4 billion project for Kaiser.

Ben: Nobody gets fired for buying IBM. We’re at the end of that era, but it’s still a little that era.

David: This is only 2003 here. This bid might’ve even happened before 2003. So IBM comes in and the project fails. Doesn’t work.

Ben: This is not uncommon, especially think about ERP, the number of times you’ve heard oh failed ERP implementation and some CEOs explaining on enterings call. Yeah, we’d lost hundreds of millions or billions of dollars and we actually didn’t even switch systems. This thing does happen in the hospital world, too, and Epic has bet the whole company on having a reputation for we don’t have failed implementations. And that wins deals.

David: Totally. I think this is one of the most important reasons why their customers love them.

Ben: We’re going to say this a bunch of times in the episode. Their customers love them. When we say customer, we mean hospital CEO, CIO (the Chief Information Officer), and CFOs. When we refer to their customers, that’s who we’re talking to.

Obviously, the Chief Medical Officer and all of the physicians, nurses, and care folks are a part of that. But a part of my research has revealed the customer is the hospital administration.

David: I doubt that’s even a controversial statement probably at Epic themselves. I think they consider the customer to be the CEO, CIO, and CFO of their customers.

So the IBM project fails, and maybe it’s worth another word on that too. It’s not like this doesn’t impact the physicians and the staff of the hospitals and poor performance for the hospital as is in the case of this failed IBM implementation. Massive detriment to the physicians. This must have really, really sucked for them. They want stability too.

Ben: And the physicians provide the value at hospitals. Therefore you need to make the physicians happy to retain your administration job. They have the leverage in the organization because they provide the core competency. But still you’re not going in and pitching the doctors when you’re going in and trying to land a customer.

David: You could think of a hospital almost like a media company. The doctors and the nurses and the clinicians are the on-air talent. The on-air talent are not the ones at Disney or Universal or wherever who are making the business decisions.

Ben: And in this case, the medical staff is involved, but they’re not the decision maker.

David: So, okay, Kaiser’s now got to rebid this project. And by this point in time, enough Portland doctors had come down to California and sung Epic’s praises. They’re like, all right. We should take this little company seriously. They start the RFP and it comes down to Epic and their big main rival Cerner.

Now, we haven’t really talked about Cerner so far in this episode. Part of Oracle today, as we will get into later. Cerner was a much bigger company.

Ben: Interestingly, started right around the same time, right?

David: Yeah. Wow, I think it started the same year as Epic, right? 1979.

Ben: Yup, by Neal Patterson.

David: By Neal Patterson in Kansas City, Missouri. Unlike Epic, which took the no venture capital, no acquisitions, single platform, stay private forever route, Cerner took lots of acquisitions, raise capital, go public, get big route.

Ben: Which could have worked too.

David: It did work too.

Ben: It did work for a long time.

David: At this point in time, Cerner is almost a billion dollar a year revenue business. They’re a public company way, way, way bigger. They’re international, et cetera. The RFP comes down to the two of them.

Ben: It’s worth saying before they were acquired by Oracle, it was a merger of 24 different companies. Put a nice little wrapper on it and call it Cerner, but a lot of companies along the way.

David: A different path than the one Judy took, let’s say. But that’s not to knock it. It is, and especially back then, was a good, really competitive product. The obvious choice for Kaiser here in 2003 would’ve been to go with Cerner.

And they actually try to go with Cerner. Supposedly at one point, they come to both companies, to Cerner and Epic, and they say, look. Cerner, we want to go with you for inpatient in the hospital since that’s your bread and butter. This is the most important thing. This is the big business. We trust you. You’ve been around forever.

Epic, hey, you’ve got inpatient now, but you only just launched that in 2001. You’re new at this. You are good at ambulatory, at outpatient. You’re doing a really good job for us in Portland. We want to split the baby here and do one system with Epic for our outpatient clinics and one system with Cerner for our inpatient clinics.

Ben: Oh yeah. That always works.

David: And Judy says no. That is a bad choice. That is the wrong choice to make. I don’t care if you go with us or them, but to do the right thing for your patients, for your whole system, to make billing work, have this all function correctly, and have patient records transferred between your ambulatory clinics and your hospitals, which you really, really need, you should just pick one of us.

Now, this was a little self-serving on Judy’s part because Cerner was not good at ambulatory.

Ben: . It’s a calculated high risk decision.

David: However, definitely super ballsy to do this. But she knew that Epic had a good product in both. The problem was just that their inpatient product was still new, so didn’t have trust yet in the marketplace. But she’s still a pipsqueak. Cerner’s a billion in revenue at Epic is somewhere slightly north of $50 million at this point in time.

They go a little further in the process. At one point there’s a technical due diligence meeting where Kaiser asks both companies to come in and present to them about how their systems are going to handle all the volume of concurrent data transactions that Kaiser has. Remember, 8½ million patients, 11,000 physicians, is a high volume system here.

Ben: And listeners, this is a great story. This is the 11th hour of the deal. This is, hey, we’re pretty close to a decision, but we haven’t made it yet. Can you both come to the same building, sit in different conference rooms, and throughout the day we’re going to bounce back and forth and keep spending an hour with each of you, formulate some questions from hearing the other pitch, and then come back and ask you those questions.

If you’re on one team or the other, you can learn through the questions, what is being pitched in the other room and why am I suddenly being grilled on this new topic.

David: The Epic team is doing their planning and getting ready for all the preparation for this really big meeting. The team had decided that the way they were going to handle this question was to do a theoretical presentation about how Epic’s architecture worked, the single system, and theoretically how much load could the system handle all at once?

The story is that Carl Dvorak (the president) flew into California the night before the pitch, meets with the team, sees this plan, and is like, guys, no. We need to model out in Excel exactly what Kaiser’s transaction flow is going to be throughout the day in this system and how our system will process it, and prove to them that we have far in excess bandwidth capability to handle their system and it’ll never go down.

Ben: Because I think they had done it at a theoretical formula level. But Carl knew that Epic had the advantage here, that they actually could, if they played it all the way out and really built out the spreadsheet show, actually we’re going to be more performant for you.

David: So he and the team pull an all-nighter the night before the presentation. I don’t know if Judy was there as well—I assume she was too—come in, and they show the model during these meetings that Kaiser is having back-and-forth between the two teams.

As the days go on, it becomes really clear that Cerner has not done a similar level of modeling and can’t actually prove to Kaiser that their system is going to be able to handle the transaction flow. I think this was the moment when the tide turned, that Epic was like, oh yeah, we’re going to win this thing.

Ben: But it still wasn’t obvious right away. I think they earned big points there. But my understanding is that Kaiser still went to Cerner and said, we’re interested. Can we do an equity deal on top of this? Can we take part of the company in exchange for basically giving you this big deal? I think Cerner said yes.

David: The story as we heard it at least, is that at the last minute then right before the decision, Kaiser came to both companies and said, hey, we’d really warrant in your company. We’re the biggest health system in America. This is the biggest contract you’re going to get. We want some equity in your companies for working with us. Apparently, Cerner did offer them 10% of the company for this deal. That’s how important this was.

Ben: So they come to Epic and they say…

David: Come to Epic and they’re like, well what do you have to say about that? Judy’s like, no. We’re not going to do it. We’re not going to do it for you. We’re not going to do it for anybody. And it’s the wrong thing to do. If we did it for you, we’d have to do it for all our big customers, and then that would turn out poorly for you too. So absolutely not. And they still picked Epic in the end.

Ben: Through that, through the architecture bake-off and through the know you have to pick one of us. Epic still won out and stuck to their guns all the way through that negotiation.

David: Which I think really should just tell you how important the stability and continuity of the system across inpatient, outpatient, and billing is, because Epic is the only one that can offer that.

Ben: By the way, earlier when I said 24 different companies merged together to create Cerner, I forgot that this chart that I’m looking at predates when Cerner then bought Siemens. So then there are another 12 companies that had merged together to become Siemens that merged also into Cerner.

David: We’re going to come back to the Siemens acquisition in a minute. I think that was 2014 when that happened. But yeah, this is key. This is why Epic wins.

So they win the deal, basically doubles or triples revenue overnight. The LA Times writes about the deal when it gets announced. “Because of its scope, the Kaiser Epic System could become the Model T of its industry. Not the first of its kind, but the first to reach masses of people.”

Once this happens, Epic gets elevated to the new gold standard. If you’re a hospital system, if you’re a CIO or a CEO looking to rebid your EMR, well Kaiser, the biggest system in the world just chose Epic, and they chose it over all of these reasons not to. There must be something really good in there, like of course you’re now going to consider Epic. And of course Epic is going to perform really well in these evaluations.

Ben: It helped a little bit at first, but after the go live, a few years in, after the whole implementation took place, and they didn’t tip over, and it did go well, that was really when the floodgates opened in that 2006, 2007, 2008 timeframe.

David: So by 2007, Epic has hit 500 million in revenue, so another 3x what they were doing once they added Kaiser, and 8x what they were before Kaiser, almost 10x what they were before Kaiser. They’re really starting to transform into a big company.

Ben: I spoke with one former employee and I was asking what were the inflection points in the company. This employee said, oh, after we won the Kaiser deal, we had been hiring like 10 kids a month out of college, and it now felt like hundreds a month were just flowing into the doors so we could scale.

David: Which will bring us in a minute to Epic’s epic, shall we say, Verona, Wisconsin campus.

Ben: Yeah, and one thing, just for our storytelling narrative there we skipped over, was there’s another thing that happened in the early 2000s that reads a little bit as an alternate history for what could have happened at Epic.

Imagine you’re a small company. A big company comes to you and says, can we co-develop a new product together? You can distribute it to your customers, we’ll distribute it to our customers under our brand name and everything, but you get some of that revenue. We’ll build this with you and it really will charge your business up.

If you don’t know any better and you’ve never done it, it sounds appealing. Maybe we should do that. There are many instances of it working, so that’s extra tempting. My favorite weird example of this in history of it not really working is the HP iPod. Do you remember this?

David: Oh yeah, that’s right. I do remember this. I think I might have had one. No, I have one of the U2 iPods, the red and black one.

Ben: Listeners, Google it. It’s this really odd thing. It’s an HP brand on the back of an iPod that tells you all you need to know about what a weak position Apple was in at the time, that they were willing to let HP put their brand on something entirely created by Apple, to get HP’s distribution, and get some cut of that revenue. Of course, it would’ve bootstrapped their ecosystem since it used iTunes and all that.

That’s basically what happened here. Philips, the Dutch company, comes to Epic and says, we want to do something focused on the radiology segment. You do a lot of the development work. We have the customer relationships and distribution.

David: Because they’re probably selling the machines.

Ben: Yes. We, Phillips, will get a license to Epic’s whole IT system. Everything that you already sell we want to sell also, and we’re going to market that as Philips’ Externity Enterprise to our customers. They’re going to buy a Philips-branded version of Epic.

David: Interesting. I imagine Philips probably has a lot of customers, not in America too, like in Europe, so this is a way to go international.

Ben: Right, so Epic starts hiring people in the Netherlands. They build up this team. They spend multiple years or at least a year building it out. I think they even launch it. The whole thing ends up folding. Within a year or two of coming out, it was a really expensive detour, and the company develops this intense scar tissue for partnerships.

Partnerships at this era to the Epic team means: (a) stuff I can’t control outside my organization, (b) big risk, (c) never in our history do we have an example of it working. This is an uncontrollable dependency, and they internalize this scar tissue as stay focused on what we can control, go directly to the customer, don’t try to do any fancy partnership integration stuff with other people.

That’s oversimplifying it, but I think it’s still reasonable to say that some of the DNA of what Epic would become—and they would take tons of errors for this closed, not interoperable, blah-blah-blah—stems from this failed partnership.

David: With Philips, totally. They’re now partnering again, finally, but 15–20 years later.

Ben: Yes. Thanks to Health API Guy for the tip on that.

At this point in the late 2000s, Epic is eyes on the prize, we’re building everything ourselves, we can get big customers on our own, we can stand firm and not negotiate, not have to give up pieces of our company, the price is the price, and we know that we’re going to deliver. So it’s time to invest in our future. How do they invest in the future?

David: The Verona campus. For the probably minority of you listening, who know anything about Epic as a company or been involved with them in the past, if you have, you almost certainly know about their corporate campus.

There are two stories of how the campus came to be. First is Judy’s son, by this point in time, is actually working at Microsoft in Redmond as a developer. Judy and Carl had always been inspired by Microsoft’s way of doing things.

One time when Judy’s visiting her son, she’s like, hey, can you go give me a tour of the campus in Redmond? We’re thinking about expanding. We’re outgrowing our space. I want to see what it’s like there. She’s really impressed by Redmond as I think anybody who goes there would be.

Ben: Especially in this era. It was pre-Googleplex. It was the fairytale tech campus.

David: It was Google before Google. She’s like, this is like a college campus here. The atmosphere that you’ve got.

Ben: Sports field, tons of buildings, all of them are pretty short—two, three, four storeys—a lot of outdoor space, walking space, everyone gets an office. This is perfect.

David: Judy comes back and basically copies the campus strategy of Microsoft, almost exactly.

Ben: They had been in that renovated schoolhouse. If you think about where they came from, then what they now have the opportunity to build, they had renovated the schoolhouse to be nice, but…

David: That was well before they were a half-a-billion-dollar-a-year revenue company.

Ben: Exactly.

David: So she goes out and buys 1000 acres of farmland in Verona, Wisconsin, which just like Redmond, is a bucolic-looking suburb about half an hour outside the city in Madison. Or I guess maybe Redmond was bucolic before Microsoft, but got it built up. But just like Microsoft owns Redmond, Epic owns Verona, spiritually. So they build this incredible campus there.

Ben: And what is very different about it from Microsoft is it is not utilitarian the way that the Microsoft buildings were. A thing that was already happening at Epic was this fairytale whimsical thing that you can see in their product names. But David, what was the story we heard about the schoolhouse fireplace?

David: Okay, so this is the second story of the Epic campus. Like you said, Ben, before Verona, the headquarters was in an old school building in Madison that they’d bought and renovated. As they were renovating it, the designers decided that in one of the main conference rooms they were going to put a fireplace in there to make it feel more homey.

Ben: Like a Wisconsin lodge.

David: I don’t even know if the designers did that, but I think Judy and the company were like, well this feels like a Wisconsin Lakes lodge. Let’s lean into it. They decorated it like a lodge. They brought snowshoes, furs, and an axe that they put on the wall and stuff. It ends up becoming the most popular room in the building. Anytime customers are coming to Madison, they always want to meet in the lodge conference room. Now they’re building this new campus institute, he’s like, oh, well let’s take the lodge idea and…

Ben: Really blow it out.

David: Maximize it.

Ben: So they inject this fairytale-ness times 10 when they’re building out the new campus. They hire the same firm that did the Disneyland California Adventure renovation in 2008.

David: I think it’s even more on the nose on that. They hired two architecture firms. One is that, and then they also hired the firm that built a lot of the Redmond campus for Microsoft.

Ben: Oh, is it really? Wow. And it’s crazy. It’s Alice in Wonderland stuff. It’s Harry Potter–inspired stuff. It’s Wizard of Oz–inspired stuff. Just google pictures of the Verona campus for Epic, and we’ll link to some in the show notes too. It’s bananas. But it is extremely attractive to new hires coming out of college, who want to feel like they’re still in college, and want to go work for a company that seems fun and interesting.

Epic is this two-sided culture that seemed to play well together somehow, this goofy, whimsical fairytale thing and this hard driving win at all costs, performance-oriented, fierce competitor. It just is both. To understand the company, you have to hold in your head that the DNA is both of those things concurrently, and I think it’s because that’s what Judy is.

David: Yes, 100%. That is completely spot on. I had in my script here the question of all this is why on the campus, and that is exactly why. We are hiring super smart, young, hungry, new college grads. How are we going to attract them to Verona, Wisconsin? Well we are going to create a paradise for them.

Ben: Some interesting stats. It’s 1700 acres, 410 of them are the campus, the rest is the farm. It now covers 89 buildings. There are 4 indoor auditoriums with 18,000 seats total. The big one, Deep Space, is the world’s largest subsurface auditorium.

There are 11,400 seats. This is an auditorium. This is two Radio City Music Halls full of people smashed together in one giant auditorium underground on a corporate campus. The number of seats is much closer to a Chase Center. It’s much closer to a basketball arena than it is to any other auditorium that I can think of. It goes down 74 feet beneath the surface.

The whole logic behind it is when they built it, they thought, oh we’ll never grow to 11,400 people. We can have our all hands in here, no brainer. But this can also be the place where we have all of our customers and our whole ecosystem can come here. Of course, now they don’t actually fit in there because they’ve outgrown it. Not even all their employees can come to all hands there.

The logic for building it was that they had a movie theater that they used to do their monthly all hands meeting, and they wanted to have this opportunity to do it on their new campus too. It’s wild. When you look at it, you just can’t believe the scale of this building.

David: All right. I think now is the right time, while we’re talking about the campus and Epic culture, to really talk about Epic culture.

Ben: Yeah, because the first thing that you have to understand is Judy refers to it as a software factory. When you keep looking at it and you’re like, why is it so weird? The biggest takeaway is in Judy’s mind, since they don’t ever go buy any other companies and they don’t have any competencies at the company other than making software, what they are is a factory that churns out software. They take in software developers and they turn that into software for the medical industry.

David: That’s funny. Apparently, she was just ahead of her time with…

Ben: The AI factories?

David: Was it NVIDIA and Dell calling? Yeah, AI factories now.

Ben: Absolutely. It starts to click and makes more sense when you think, well what would a factory for turning developers into medical code, medical applications look like? Well, Verona, Wisconsin.

David: While we’re on culture here, one of the most amazing things about the campus is Epic has a list of 10 commandments. The Epic 10 commandments is like Moses in the Bible here. They have them posted in every bathroom and in every break room across the entire campus. It’s open to the public. You can just go in and see the 10 commandments other than the bathrooms there.

The 10 commandments are number one, do not go public. Number two, do not acquire or be acquired.

Ben: By the way, those first two things, you don’t need to communicate that to employees. Only the CEO can do either of those things, so it’s just funny to put it as commandments. That shows how deeply Judy feels it needs to run in all the employees.

David: And I think the other big motivation for doing this and having it there in the bathrooms, is every customer who comes to visit, it’s right there to the customers too. We will never go public, we will never be acquired, and we will never acquire another company. You can trust this is one system forever.

Okay, so that’s one And two. Number three, software must work. Number four, reality equals expectations. Number five, keep commitments, even the unspoken ones. Number six, focus on competency. Do not tolerate mediocrity. Number seven, have standards, be fair to all. Number eight, have courage. What you put up with is what you stand for. Number nine, teach philosophy and culture. And number 10, be frugal. Do not take on debt for operations.

Ben: Zero of those pertain to healthcare. When I was looking at them, I kept thinking, oh, I’m going to find something here about every life is important, or the patient is at the center of everything. No. This is how to run a company. This is my opinion on how to run a company, period.

David: And I think specifically to your point, this is a pretty good way to run a software factory.

Ben: So these hang in the bathroom. Other interesting things about the campus, they have wedding bells that will play campus-wide when a new client is signed. Just showing that that’s the type of commitment that this is. It’s a, we’ve now married this client for the rest of our lives.

David: It’s like the wedding march. That’s their version of ringing the gong.

Ben: We haven’t really talked that much about what it is like to be an employee there, so this is probably a good time to do that. This is an insanely awesome training ground if you are a smart, ambitious person out of college.

People accuse them of being cult-like. But there are ways in which that’s a good thing. They take you fresh out of your career and they teach you everything. When I say everything, I mean how to take notes.

There is an Epic way to take notes on a yellow legal pad. There is an Epic way to write emails. These are hardened practices over the years that they just believe through iteration, through testing, through data.

David: Probably going all the way back to Neal, Meditech, and the three days in Boston.

Ben: This is the best way to do this, period. We’re just going to teach everybody the best way to do everything, and everybody is going to be reasonably robotic. We can trust that once we squeeze you through the Epic System, when you come out the other side, you are able to operate in a way that works really, really, really well in our machine, where people can really trust each other.

Because of that high level of trust, there are very few middle managers. You understand the system that everybody else works within, and you don’t have to corral chaos. Most of the people that are hiring are right out of school, so they’ve been there for a long time.

They don’t have budgets, which you can only do when you have a high trust environment like this. There are some financial controls of course, but Judy’s got this great story that she used to go see customers and they’d say, oh this is the right thing to do. I just don’t have the budget for it this year, so we’re going to push it next year. She’s like, that’s stupid.

Or they would tell her, can we squeeze this in this year? Because if I don’t spend this money, I’m going to lose it in my budget. And she would say, well that’s also stupid, so at my company, we’re not going to have budgets like that.

They’re super light on titles. You might have a business card, whether you’ve been there 20 years or 6 months, that says implementation, that you hand to a customer when you go and do an engagement. Everyone does immersion trips, where the software developers, everyone is required to spend time in clinical settings like operating rooms to directly observe workflows.

David: I think when you start you have to do five of them, and then you do more every year.

Ben: Wow. Y Combinator preaches, go talk to your customers, spend time with customers. Epic’s been doing this forever. This is the Epic way that (I think) the rest of the world woke up to and startups internalized as doctrine. But every person in the company, spending time in medical settings, talking to customers, hugely valuable.

On the developer side, there’s a super prescriptive software methodology that they use to minimize bugs. You go through this intensive training for six months when you join, and then when you start programming, the whole system is designed to run minimizing the number of hours between when a line of code is written and then when it is tested, so if a bug is found, then you drop everything as the original developer and you fix it, so that you still have the whole context fresh in your head. You don’t go months, then the system gets tested, and bugs aren’t allowed to compound into bigger problems this way. They get caught right away.

David: And I believe the rule is that every developer must fix their own bugs.

Ben: That’s my understanding too. It’s this method of software engineering that places way more importance on a zero bug environment because lives are on the line than other ones. You’re not necessarily going to ship software the fastest way. You may not even ship the most innovative, clever, amazing cutting edge. You’re just going to make sure that you’re shipping bug-free software.

David: Well I think the reasons are twofold. One, it absolutely is right that lives are on the line. If an order for the amount of dose in a prescription gets messed up because of a bug, a lot of people are going to die.

And also the complexity required for the revenue cycle and billing for your customers is of paramount importance. You cannot have bugs there either, or at best the hospital’s going to lose a lot of revenue opportunity. At worst, they’re going to get sued for federal crimes, for medical fraud.

Ben: Great point, so that means you need a…

David: Highly robust system.

Ben: Yes. The work done as an implementation person at the company is insane. It’s like military-level logistics. You’re handling multiple customers, all of which are among the most complex systems on earth.

Peter Drucker famously referred to hospitals as the most complex form of human organization that we have ever attempted to manage. You have to understand all these dependencies at the customer and the status of a dozen interrelated things on a daily basis. You really are in this high adrenaline, high stakes leadership role as a really young person.

You can work 10–12 hours a day, but a lot of them love it because you’re winning. You’re doing really big things right out of school, you’re doing it with other really bright people, so they really try to get high IQ, high EQ, often very sweet Midwestern kids to take these customer-facing roles.

David: I think also because the flat organization, you’re also doing it alongside other senior people and learning from them directly. Like the story about Carl and Sumit—Sumit as a young programmer working on a project with Carl, the president who’s also a programmer leading the team—that happens.

Ben: If you’re an ambitious, career-focused person, there is nothing more fun than winning in a high stakes environment with other high performers as a team. That plus the whimsy encapsulates pretty well the Epic culture. The result of that is it becomes the number one thing in your life.

If you talk to a lot of these people who spent time there or still work there, you’re all in and you’re in the middle of nowhere. This is the other job the campus does. You’re not really getting exposed to other things you could leave and go. They make it very easy for your whole life to become epic.

David: You could drive to the big city of Madison. I know we keep making comparisons and it’s a direct one with the campus here too, but the company that this reminds me the most of is those early days of Microsoft. This is exactly what being at Microsoft in the 80s and 90s was like when we talked to people doing that research,

Ben: And I heard from some people, too, when I was researching for this, two or three times Palantir came up of these bright-eyed, bushy-tailed smart young people, where you’re deployed into these really intense environments, but you know your stuff, you’ve been through the training, you’ve been through the process, you’re armed with good tools, and you’re going to go make it happen.

The other side of this is it is up or out. They aggressively trim bottom whatever percent of performers and they work you really, really hard. With the vast amounts of new hires, they’re trying to figure out if you’re going to cut it. It’s more cost effective to replace you than keep you as dead weight. You have lots of attrition in the first few years, but you know that once someone’s been there for a while, they’re good. You can count on them.

Their method of hiring is crazy, and this is more common now to give out programming tests as a part of the hiring process.

David: Oh, this story is so good. Can I tell it?

Ben: Yes, please.

David: We mentioned that Judy’s son was a programmer at Microsoft, and that’s how she went to visit him, part of the inspiration for the campus. His involvement in the company actually predates him becoming a programmer at Microsoft or even an adult.

In the late 80s, Judy was hiring software developers, and found that interviewing them just wasn’t that predictive of whether they were going to be great software developers or not. Meanwhile, her son (I think) was in seventh grade or something like that, and was doing these programming competitions around the state. She was talking to him. It was like, well you do these programming competitions and there are these tests, and then you’re winning some of them. That’s a pretty good judge of whether you’re a good programmer or not.

Ben: They’re reasonably predictive.

David: Do you think you could write one of these types of tests for me? I can use it at Epic and test software developers as we’re hiring them, and see if they’re any good.

Ben: And for 18 years, listeners, that was how they tested to determine if someone should work at Epic. Many, many times—I don’t know if the number is close to 100% or some large percent of the time—they just don’t interview you. They believe that their tests are predictive enough that that’s it. You can get a job offer, you come visit campus and all that, but like you get a job offer after scoring high on this test.

And it’s not just that test. There are other tests. There’s a Rembrandt test. They’ve got a bunch of tests. It’s all systemized and cataloged, and everybody takes one on the way in.

David: For every role in the company, yeah.

Ben: The culinary team we heard takes not full software developer tests, but logic tests on the way in.

David: Amazing. But yeah, Judy’s teenage son wrote the first test that is now no longer being used. I think the answers have gotten out on the Internet, but for a long time was used. It’s a funny story, but this was in the 80s. This was way before Google was doing this stuff. This was really out there hiring practices at the time.

Ben: So we’ve talked a lot about the internal culture. The most important thing that we haven’t really dove into yet is how it touches the outside world. The Epic culture is completely customer-obsessed. And I mean that the way we talked about customers before.

There’s a great quote from Jeff Gautney, the Chief Information Officer for Rush University System for Health. He says, “You get what you pay for 100% of the time, despite Epic being ’not cheap.’” You see that echoed over and over and over again in these customer conversations as reliable. It worked. They didn’t over promise on something. It is fully integrated at this point. No one gets fired for buying Epic the same way it used to be true about IBM.

David: Customers are always number one, everything.

Ben: They vote. The way that they pick the next things to build is when all the customers come to campus for their annual conference, they ask for ideas and then they vote, and take customer input as a way for figuring out what are we going to do next.

David: There are basically only three roles at the company. There’s software developer, project manager who are the implementations managers doing the new active implementations for new customers, and then there are technical specialists who do ongoing customer support.

There’s not a sales or marketing department. There are eight or so “salespeople,” in the company who only react to inbound requests, and they all came from either project management or tech specialist. That’s the whole company.

The technical specialists are the biggest group in the company. Every single customer of the 607-whatever hospital system customers that Epic has, every single customer has their own technical specialist teams for every single product that they use. If you’re a hospital system, you have your own technical specialist team for your EpicCare, EMR, for MyChart, for Resolute, for Cosmos, for you name it, anything you use, you have your own dedicated team for that.

Then on top of that, every customer has their own dedicated BFF (best friend forever) who is a single person within Epic, and their sole job, their only job is to make sure that you as a customer are successful with their products.

This means they do things like they grade you as a customer every year, benchmarked relative to what other customers are doing and how you’re doing with the Epic tools. They will send separate report cards every year to your CEO, CIO, and CFO, and they will grade you one through five on a bunch of dimensions. Then they will show you benchmark data against other customers at your peer set of relatively similar sized hospital systems, how you’re doing.

Ben: Wow, that’s crazy.

David: I’ve never heard of any other company that does stuff like this.

Ben: Well, they have a lot of leverage in the customer relationship. I think at this point in history, 2025, when the customer wants to do something a certain way and Epic wants to do something a certain way, ultimately Epic is customer-focused, so they will do whatever the customer wants, but they’re going to lay out very compelling convincing arguments why their way is the correct way. What this leads to are things like a standard package.

A lot of times when people are setting up Cerner, every implementation looks completely different. Epic is highly opinionated. Please use as much standard stuff as you can so that we can easily push out updates, or we can easily add-in new modules for you, or interoperability all works exactly the way that we’re thinking it should.

They have a strong negotiating position with customers when they’re saying, ah, I think you should do it this way. Because at some point they may choose to just say, you know what? I don’t think you’re ready to be a customer yet. I think we’re going to focus elsewhere this year. We’re going to pick up only 10–20, maybe 30 new customers.

David: And we’re happy to wait.

Ben: We’re happy to wait until you’re ready to work with us. And they actually have the leverage to pull that off now.

David: To your point about the standard implementations, I believe this is the only way that you can get discounts on pricing with Epic, is by doing either fully or mostly standard. I think there probably are some tiers based on how standard your implementation is, and the more you deviate from it, the more you have to pay.

Ben: I could see that. I know if you stay up-to-date on things like database maintenance and versioning and all that, then they give you discounts.

David: So all of this sounds epic accruing power for Epic, which it is. There is also this almost altruistic part of the company and their customer relationships. And I think this comes from just Judy and who she is as a person.

Ben: Altruistic capitalism does feel like ultra competitive, ultra value maximizing. Altruistic capitalism is how I would describe the company.

David: I think that’s how you sum up Epic. This altruistic piece is despite certainly being expensive, they basically never raise prices once you’re a customer. They do, but their average yearly increase is about 2% across the board, so below inflation. Compare that to lots of other software companies out there. They’re not raising prices 2% every year. They also do things like they have never, in its entire history, changed the price of MyChart.

Ben: We got told this multiple times. I think that’s a red herring. We don’t know what the bottom line price looks like. We got told one piecemeal. It’s not like we have a full contract in hand of what it looks like to be a customer and add up all the sub components.

David: Good point.

Ben: Two points to make. Yes, they’re customer-obsessed. Yes, they’re listening. But yes, of course it’s to do what’s in Epic’s long-term interest. The core functionality of if you’re a customer, the reason you pick Epic is to turn an interaction with a patient into as many dollars as possible for the health system without risking downside.

David: With the lowest risk possible.

Ben: That is why the customer is picking them. What is Epic trying to do? Epic is trying to win deals, stay in forever, and achieve world domination. They do these very interesting things that feel very customer-focused, and are, but are also very valuable for Epic.

They’ll recommend alternative third party new pieces of software to their customers. Some new thing comes out, oh it’s 2020. Telehealth is suddenly really important. Here’s a HIPAA-compliant way to do Zoom. By the way, we’re going to start working on our own telehealth thing. It’ll be out soon. You should feel free to use Zoom right now. By the way, when our new module comes out, it’s just going to be free to you. You’re already a customer, it’s just going to be free to you.

You’re certainly not going to go around shopping for some new thing when you know that it’s just going to come for free to you, and you’re not going to take it right away because it’s going to be too bare bones, but at some point it’ll get good enough where you can say, oh yeah, I’ll just adopt the Epic version now, part of my enterprise-wide agreement. It’s this amazing bundling strategy that certainly reminds me of the Microsoft episode.

David: You’re totally right.

Ben: I think that’s the right way to look at it. They’re customer-obsessed because in the long-term, that is the right thing to do for Epic also. This is not a new realization.

There is a Jeff Bezos quote, and I just thought of it. I don’t have it in my notes, but it’s something about in the long run, there is no difference between what the customer wants and what Amazon wants. I distinctly remember him saying this in 1999 or something, some really old video.

Epic is absolutely customer-obsessed. Again, CEO, CIO of hospital systems because if you deliver for them, you deliver for Epic in the long run.

David: Well, that’s like—

Ben: That’s the goal of running a company.

David: Theoretical underpinning of capitalism, right?

Ben: Right.

David: All that to say, it is a very fascinating corporate culture and organization.

Ben: All right, so listeners, if you know anything about this industry, you know that we haven’t gotten to the important part yet. We’ve gotten to the Kaiser deal, that was a big deal, and got to moving to Verona.

It’s an important part to understand the culture, and it’s this cutesy thing that most journalists who write about the company latch onto, oh cool campus, like I should go take some pictures and write a cool story about campus.

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 and causes a whole bunch of good and a whole bunch of bad to happen.

But before we do that, this is a great time to thank good friend of the show ServiceNow. ServiceNow has been working on something really exciting. CRM. Now, I know we’ve talked about ServiceNow as the AI operating system for the enterprise, but what you might not know is they’ve also quietly been building a billion dollar-plus CRM business for years.

David: And part of the reason it’s been hiding in plain sight is because ServiceNow has always been one single platform for all your company’s data and operations. It’s a totally natural consequence that ServiceNow is also one of the best ways for the whole enterprise to access and interact with customer data.

Ben: It’s fascinating because ServiceNow approaches CRM from a completely different angle. Traditional CRM systems were built decades ago, primarily to record data and report on activities, not to take action or connect customer facing teams across your business. ServiceNow believes the new age of CRM is not just about selling, but also about delivering service across the whole totality of your organization.

David: Oh, you mean delivering service, now?

Ben: Hey yo.

David: But yes, exactly. Think about it. If you have separate systems for sales, service, and operations, you end up with what ServiceNow calls human middleware—employees manually updating different systems with the same information. But ServiceNow is all just one platform and one single source tree.

Ben: Ah, sounds like a familiar strategy.

David: Kind of like what we’ve been talking about this whole episode. Service or sales interactions automatically get updated everywhere on ServiceNow because it’s just one platform. So since ServiceNow is already your enterprise operating system, shouldn’t it also be your CRM?

Ben: And timing is everything with the rise of AI agents. Let’s say a customer contacts support about a delayed shipment. In traditional CRM, you might log the complaint, but the root cause remains hidden in your operation system. With ServiceNow’s modern CRM approach, AI agents can seamlessly access your data across departments from inventory to logistics, to consumer history, and not just track the issue but actually resolve it. It’s not just about managing customers, it’s about connecting your entire business to serve them better.

David: So if you want to learn more about ServiceNow’s modern approach to CRM, go to servicenow.com/acquired and just tell them that Ben and David sent you.

Ben: Okay, so we’re coming through the 2000s here. We just got through the Verona campus. You know everything about Epic’s culture now, or at least everything that we could discern from the outside anyway. And we’re in this pretty interesting era in 2006.

We’re in the Bush administration here in America, and Bush says in a state of the union, “For all Americans, we must confront the rising cost of care, strengthen the doctor patient relationship, and help people afford the insurance coverage they need. We’ll make wider use of electronic records and other health information technology to help control costs and reduce dangerous medical errors.” Wide applause.

David: This is one of the craziest things to me in doing the research. The narrative out there, and certainly in as much as I knew or paid attention to any of this, was that Obamacare and the Obama administration were the ones who really pushed EMR adoption and meaningful use and all this stuff that we’re really going to get into. Totally bipartisan, totally started in the Bush administration.

Ben: Just to give you a little look into how much the window changes of which side represents which party. The next paragraph, George W. Bush also says, “We will do more to make this coverage portable, so workers can switch jobs without having to worry about their health insurance.” It’s crazy. If you’re a Republican during the Obama era talking about having coverage that’s portable across employers, that’s a scary thing to be talking about just four years later.

David: So funny.

Ben: You’re starting to get these political wins of, hey, everyone wants a good system for electronic medical records. We think in the abstract there’ll be a lot of good that comes from it.

David: Well, I think there’s an even deeper motivation than that. In 2006 already, I think everybody knows in America the current healthcare system sucks. Yes, there are great things about it, but overall this is cost disease run rampant, huge portion of GDP, massively inefficient. We want to try and fix it.

Ben: How to fix it, we don’t all agree on.

David: How to fix it, we don’t know. But this promise of digitizing it and incentivizing EMR adoption is held forth as a promise that can deliver us from this problem. Right?

Ben: It feels like a step in the right direction.

David: At the time, only 13% of healthcare facilities in America had an EHR system at all. This is a massively not digitized industry here in the mid-2000s.

Ben: Which I think there’s some pushback on that 13%. People would say, well the definition of EHR just changed, so actually there were a lot more than 13% that had it, but that’s the best data that we have is that.

David: Fair enough.

Ben: Okay. Now before we get to the actual legislation and what happened, there’s one other concept to have in your mind, which is interoperability. This word comes up every time Epic comes up or any EHR comes up, and it’s worth knowing the buckets.

There’s the first and easiest interoperability, which is Epic to Epic at a different hospital. I want to transfer my records from one hospital to another. They also have Epic. It’s the same technology that should transfer easily.

Two is Epic to another EMR that’s at a different hospital. Epic to Cerner, Epic to Meditech, Epic to Allscripts, Epic to some home-rolled system. You can imagine the technical reasons why that would be harder.

David: They have different architectures. All the other ones arguably, except Meditech, don’t have a single database, et cetera.

Ben: And standards have not been quite as standard in this industry as they are in SaaS software. Easier B2B software mode.

Now, before we get to the third category, let’s just think about some of the incentives that are probably at play here. Epic transferring to themselves, fine, easy. A hospital transferring to a different hospital, you can imagine these places are competitors. They’re businesses. They may not want to support that unless it’s really in the patient’s interest, but they at least can be sensitive to it. Epic to another EMR at another hospital, well not only the hospitals maybe don’t want that. Maybe Epic doesn’t love that either.

David: Interests are aligned against this happening. Epic doesn’t want that, and the hospital doesn’t want that.

Ben: And they talk about a lot of good reasons why. Actually, we do want that. But let’s just call a spade a spade and say there’s no business reason why Epic would love for that to happen, other than of course it’s in the patient’s interest and everybody really should do what’s in the patient’s interest because we all get care from multiple places.

Then there’s this third category, Epic to third-party application that want to use data from Epic, or sit on top of Epic, or interoperate somehow with Epic. As a company, they have been very, very careful about this one over the years. And for good reason.

You don’t want patient data to leak. Epic has publicly referenced the fact that they have never had a Cambridge Analytica situation because they’re very, very careful about sharing data with other application developers. But the result of this is that it’s been much harder to integrate with Epic as an application developer than you would be used to in any other software category.

David: And again, very justifiable reasons why that should be the case—we’re dealing with HIPAA data here—but also massively in Epic’s interest for that to be the case.

Ben: It’s very convenient as a strategy. As for that first scenario (Epic to Epic), it’s actually awesome. They have this thing called Care Everywhere. Today, there are 20 million patient records exchanged daily. I used it as a part of prepping for this episode to join all my MyChart accounts across the three health systems I have in Seattle. It just seems to work pretty well.

There’s a great story of how it actually happened and how it came to be. Judy made the call personally that Care Everywhere wasn’t a thing or shouldn’t be a thing where their customers could pick and choose if you were enabling it. It worked across all Epic customers, even if they were your local competitor.

Here’s the story. One of the first customers to accept that new software that came with Care Everywhere, unknowingly agreed to the interoperability feature. He later admitted that he would’ve declined it if he realized that it was included in the contract that he was signing.

David: This is the CEO of that health system who later admitted that, yeah.

Ben: Of that hospital. And Judy described it as pure luck that Epic was actually able to move ahead. After that win, they then made it mandatory for all of their customers, and they retrofitted old versions of the software to support Care Everywhere so every Epic customer in the US has it and can share with every other Epic customer in the US.

This is their talking point of, hey actually we have lots of interoperability. We launched this thing called Care Everywhere. It shares millions and millions of records all the time.

David: They talk about, hey, we are the biggest sharer of medical record data of anybody.

Ben: So coming into 2008, that’s the historical baggage that you should know about in Epic land, of they believe they’re doing a lot of interoperability in the way that they like to do it. Almost no one is great at interoperability. I saw some transcripts of talking with hospital administrators who are interoperability in this industry is just laughable, period. No one’s incentivized to share with each other unless they absolutely have to. It’s not easy. These are incredibly complicated systems, and there are lots of risk.

David: One CIO put it to me in an interesting way when I was chatting about this with him. Because it’s patient data and health data, there’s this, we feel like interoperability should be a thing. You should be able to share your data everywhere, and sure, of course you should. I don’t want to discount that whatsoever.

However, he was like, imagine this was a different industry. Imagine we’re the airline industry. Does United share their customer data with Delta?

Ben: Even though it’s customer friendly to do so?

David: Even though it’s the customer’s data, no. Of course not. They never would. Do I feel great about sharing my patient’s data with my competitor down the street? No, of course not.

Ben: This is where you really start to feel the friction. I’m sure you’re listening to this and you’re emotionally getting charged up at this point because you’re feeling your inner capitalist think, well it’s a business. They should do the things that make sense for them as a business.

You’re feeling your inner human being who is part of a society that has your own health needs thinking, well maybe, but this thing shouldn’t be subject to the bad parts of capitalism. Maybe this thing should function differently. Business interests feel yucky to me, that business interests are governing the way that things get done. You should feel that tension because this is one of those bothies.

David: Well that describes the whole healthcare industry. Make no mistake. This is definitely a for-profit industry. It’s highly regulated and there are all these issues.

Ben: Okay, so we’re into the meat. 2008, the great financial crisis happens. At some point we should just do a whole episode on the great financial crisis, the collapse and the government bailouts, and how we managed to figure out how to not collapse as a nation and a global. We pulled out of it and it was amazing. Took some time, but we pulled out of it.

David: But one element of pulling out of it, just like during COVD, is the government said, all right, we need…

Ben: Stimulus, baby.

David: …stuff. We need stimulus. We need programs that we can throw money at the economy.

Ben: Interest rates go to zero, money out all over the place, turn on the printers, figure out how to get people doing productive stuff and reward them for it.

David: And there’s the monetary policy stuff of interest rates to zero. But there was also the fiscal policy stuff of we need to helicopter money into the economy.

Ben: So the question is, when you’re going to helicopter money into the economy, you could mail everyone checks. That happened during COVID.

David: Not an ideal way to do it.

Ben: A more productive thing to do that calls all the way back to the Civilian Conservation Corps in the FDR New Deal era is we want to look for shovel-ready projects. What are things that we just all agree on are good ideas for the country that should happen? And let’s just pass some legislation that rewards the crap out of people with free money for doing the things that we think are a good idea anyway.

The hope is you get this double whammy. You get the money distributed, which is just a goal. You’re just trying to create jobs, trying to create economic motion, and you get something accomplished that is widely agreed upon to be a good idea. Oh my gosh. A shovel-ready project right here, electronic medical records. Let’s do it. Let’s just figure out how to finally make that a thing.

So the goals: (1) fiscal stimulus to stimulate the economy after the great recession, (2) promote the adoption of electronic health records, (3) promote the use, which is different, the actual use…

David: The meaningful use.

Ben: …of electronic healthcare records. Not only do we want people to become users in your system that never log in. We want them logging in all the time using the stuff, and promote the adoption of interoperable standards so that providers could share patient data nationwide. These are the goals of the HITECH Act.

David: The 2009 Health Information Technology for Economic and Clinical Health Act.

Ben: I love how they name these things.

David: I know. Which gets folded into the almost trillion dollar American Recovery and Reinvestment Act.

Ben: The mechanics. In 2009 when the bill is passed, there is $27 billion available in direct incentive payments to hospitals that implemented electronic medical records. If you include broader incentives, other health IT projects, data exchanges, training, the total actually comes to $36 billion.

This is amazing. Imagine if you’re a software startup and the government just starts mailing checks to your customers, not only for signing up and becoming a customer and paying you money but then paying them even more for actually using your software, it’s the best thing that could happen if you’re a software vendor.

David: This is the government going to your customers and saying, hey, I’m going to give you money, but it’s a dedicated use credit card. The only thing you can use this money for and you must use this money for, is to buy this software startup’s products, and then you must also use them. If you don’t buy it and you don’t use it, not only are you not going to get the money, I’m going to penalize you and you’re going to have to pay me money.

Ben: Carrot and stick. Specifically, it amounted to $44,000–$64,000 per physician in incentive payments over a few years for adopting it. Now, that actually went to the hospital, but basically, you get paid for how many physicians are doing this.

David: Imagine a huge system like Kaiser with 11,000 physicians. It’s a lot of money.

Ben: 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.

First, meaningful use was a carrot and then as a stick, so after the stimulus ran out, David, as you were saying, after about five years, health systems would face meaningful financial penalties for not meaningfully using health IT software like EHRs.

There’s a KFF article entitled Death by A Thousand Clicks that has a quote on this. “The EHR vendor community, then a scrappy $2 billion industry, griped at the litany of requirements, but stood to gain so much from the government’s $36 billion injection, that it jumped in line,” as Rusty Frantz, CEO of EHR vendor, NextGen Healthcare put it—NextGen is one of the top 10 Epic competitors—“The industry was like, I’ve got this check dangling in front of me and I have to check these boxes to get there, so yeah, I’m going to do that.”

For everyone that wants to, just think this was the most amazing thing ever for Epic. Yes, it was obviously not very good. They had to do a bunch of hoop-jumping through to make sure that it was exactly the thing that the bill was going to reward. Everybody in this industry had to make sure that they spent a bunch of development time and a bunch of reprioritization in the company to make sure that it was exactly the thing that HITECH was saying that it needed to be.

David: It’s more nuanced than this is really good for Epic. Of course it was really good for Epic, but really it’s that this was really good for the entire EMR industry. The competitive dynamics within the industry are almost like a separate question.

Ben: Well, okay, so who’s it going to benefit the most? Probably the most reliable one. If I wasn’t going to do this before and now I just have a check dangling in front of me as a hospital to implement an EHR, I want the one with the integration that’s 100% going to work. I’m taking no risk.

Also, that Epic one? I think someone told me before that it was an expensive one. Well I guess it doesn’t matter that it’s expensive anymore because it’s free, so I’m just going to buy the good one.

David: It’s effectively free.

Ben: Epic, by being the high price, high value vendor, and the one that you could count on working with the lowest risk, were going to win in this situation.

David: That’s a great point. It’s like you’re getting a stimulus to buy a handbag, and you could get the Target one or you could get the Birkin bag, and they’re all free.

Ben: It’s not exactly like that, but it rounds to that. It also is interesting because it basically rewards the most reliable software, not necessarily the most innovative software. You end up not taking any risk in situations like this because you’re not going to get rewarded unless you actually stand the system up and then start getting meaningful use, so you end up with the one that’s just going to work.

What did HITECH actually do? We’ll go through each of the goals. Did it accelerate usage? Absolutely. Market penetration of electronic healthcare records went from 9% of hospitals in 2009 to 95% by 2014. It’s insane. David, what other markets have you ever heard of that saw usage go from almost nobody to almost everybody in five years?

David: Certain categories of software during the pandemic.

Ben: That’s a good point.

David: I would imagine maybe Zoom during the pandemic is the closest thing.

Ben: To be an Epic employee at this moment where suddenly your category is just free for all your potential customers, it’s crazy. Digitization was great for patients, even though a lot of doctors will complain about it. It is totally amazing to be able to message your doctor about something and pull up your own records electronically, as we talked about with MyChart.

David: Schedule your own appointments. You have all of the above. Manage your family’s care.

Ben: Absolutely. Okay, so then the next goal, cost reduction. There are stats both ways on if EHRs generally reduce costs. We found one stat that claimed that costs in hospitals went down by 10% with the introduction of EHRs. There are also arguments that the adoption of EHRs may actually have accelerated the ordering of unnecessary care as well as increased billing codes for either more codes or higher dollar codes for the same procedures.

That’s the counter argument to did it decrease costs in the system. The critics of EHRs say that basically more stuff is getting ordered from exam rooms for the exact same procedures than was happening before. Frankly, that’s the goal of hospitals buying an EHR. Part of it is revenue maximization.

David: Again, these are commercial entities. Even though many of them may be nonprofit organizations or part of a university system or what have you, at the end of the day, this is revenue being generated by a hospital, with a management team and with its primary staff being doctors and nurses who like to make money. The reason you go to medical school to be a doctor or a nurse is to get a good job and make a good living.

Ben: And the prestige of it and you want to help people, but it’s a high-paying job. There’s a great read called An Epic Dystopia. I will say this article presents a one-sided view of things.

David: This is The American Prospect article?

Ben: Yup. But there’s a quote. One doctor, for example, stated her supervisor regularly contacted her and said something like, “That appointment was a 2. Don’t you think it might be a 3?” Obviously in this case, a ’3’ could bill more to insurance than a ’2.’

Or someone else gave me a quote, “Hey, if you did X, almost certainly you did Y in that appointment. If you use those codes, you could charge more. And if you have a system, a computer system versus not having one, it’s more likely that you are billing for more stuff.” That would be the counter argument to this mass implementation of EHRs, saving costs for the system.

Data interoperability, not really. The legislation was prescriptive about meaningful use. It really wasn’t prescriptive about data standards that people talked about—that’s a goal of the legislation—but it’s not like there were incentives for data interoperability the way there were for meaningful use. So people follow incentives.

The data interoperability did not really happen, which was very convenient for Epic, who had a whole system that they made themselves and they didn’t really need to integrate with anyone to make the software suite useful. So again, as the leading player in the industry and the one that can do everything themselves, they didn’t need interoperability, and it wasn’t explicitly rewarded so customers didn’t prioritize it either.

David: And there is a fact pattern that opens Epic up certainly to criticism here, which is that Judy was on Obama’s health IT council through all of this, which was advising the Obama administration on the HITECH Act.

Ben: And other competitors had people on other committees too. It’s not like she was the only one with a voice in government.

David: I was going to say, that is a convenient fact that gets left out by a lot of people making that argument, or that all the competitors—Cerner, Allscripts, et cetera—were all on those councils too.

Ben: But let’s just look at the data interoperability thing. It didn’t happen, but it’s happening more now 15 years later. At least we have the foundation of digital records, so that as pushes and shoves happen, to make it more interoperable. Without operability, you can’t have interoperability.

David: And I think for me, that’s my takeaway of the HITECH Act and meaningful use here, at least when it comes to the industry of EHRs. Anytime you’ve got government coming in and distorting a market, you’re going to get weird stuff happening. Especially anytime you have government coming in and regulating how products are to be developed and used in a market, you’re going to get really messy stuff happening.

Ben: There were two really bad side effects here. One, by literally defining what is meaningful use, Congress not only accidentally designed the software and specified the features, but they also accidentally told doctors how they needed to do their jobs.

Doctors are running around now clicking nine things that they never needed to click before. Some of which are poor implementation by their hospital system, some of which is because the software is really complex, but a lot of it is just making sure that—

David: This is what the legislation requires.

Ben: Yes, complies with meaningful use so that the hospital then doesn’t come and get hit with a financial penalty.

David: This is the most unfortunate aspect of meaningful use, I think.

Ben: I think it’s the second most. I think the biggest one is they increase the regulatory burden of practicing medicine, period. Now since hospitals can face big financial penalties, there are all these mandatory fields and workflows everywhere forever, even after the stimulus runs out. It just generally increased the operational overhead of the whole industry.

The thing to optimize for now is hitting the MU definitions legally rather than the spirit, which is to help doctors and patients get more out of the system. You end up with things like health systems merging with other health systems because the cost of doing business is higher, which is a preexisting trend, but it’s certainly an accelerant. There’s more overhead, more burdensome regulation, just more crap in the system, more waste.

David: So all that unquestionably bad. At the same time, what’s the alternative? We’re going to be in the paper-based system? That’s not good. At least we have adoption here.

Ben: At least we have adoption here is what a lot of people have chalked this up to. It’s definitely better to be digital. Is this the best form of digitization that could have happened? No. Is digitization overall good? Yes.

David: And I think if you zoom way, way, way out, you give the most credit to the government and the legislators who created all of this. Was the goal actually a jobs program and an economic stimulus for the country? If that was the goal, A+. A lot of jobs got created because of this.

Ben: 18% of our GDPs worth of jobs are in this field, so it’s now a huge part of our society as people who work in medicine, for better or for worse.

David: And related fields to medicine like IT administrators, Epic administrators at hospitals. These are a lot of jobs and these are a lot of good jobs. And play it one step forward, these are all domestic American jobs, not dependent on imports, not dependent on manufacturing, that have created viable great career paths for a lot of people in this country. From a policy standpoint, maybe not bad.

Ben: Nah. I hate it, David.

David: Oh, I’m not saying I love the idea of jobs programs. I’m just saying if you zoom way out of what was the goal of the government in doing this? Did they succeed? If that was the goal, they succeeded.

Ben: It was good to create fiscal stimulus for that period of time where we really needed it. Should the government be in the business on a durable basis of using taxpayer funds to prop up industries and create and maintain a bunch of jobs in those industries? No, absolutely not.

It’s a very low bar for what you’re saying. Did it stimulate the economy? Mailing checks would’ve stimulated the economy. I look at this as, yes, it stimulated the economy and it had the free stapled coupon of we got some amount of electronic medical records, even though they’re not interoperable and even it’s not the best system we possibly could hope for as a country. It’s a better one than we would’ve had otherwise, and it came for free with the stimulus checks.

David: So back to the Epic story here.

Ben: What did meaningful use do for them? Well, interestingly, if you just take a step back and say, what is the byproduct of the government paying off a whole industry to adopt something new? What you’re basically doing is pulling forward the future and saying, this was all going to happen eventually. We want to make it all happen right now.

David: To be clear, I think especially after the Kaiser win, Epic was going to become the dominant player anyway, absent of meaningful use. They were starting to run the table on competition.

Ben: That’s the question, they were starting to. But what you definitely do when you throw $36 billion at the problem is you say, we’re going to close the door on anyone that might become a dominant player after this. The current competitive set is now what we’re dealing with, and we think the current competitive set is good enough that this is shovel-ready enough that we want the best ones to get implemented everywhere. These are stuck in there for multiple decades.

David: The switching cost here is enormous.

Ben: That’s a fair trade-off. I don’t even think it was that intentional of a trade-off that they made by passing this legislation, but it is definitely true that a new EHR that may have been more theoretically innovative in some way that could have come after HITECH wasn’t going to happen, at least for a long time.

David: Because you pulled forward so many RFP processes to a single point in time. The majority of them chose Epic, which they probably would’ve anyway, but a lot of those processes would’ve happened in the future, at which point in time other competitors may have emerged.

Ben: There’s no greenfield bidding for those theoretical, future innovative competitors that everyone’s bidding against your current system.

David: I buy that.

Ben: But that’s nitpicky. It’s a little bit like, for whom are we holding the door open? If you’re looking for a smoking gun on regulatory capture, I think the right way to characterize this is as regulatory tailwind rather than regulatory capture. I don’t think the folks at Epic loved it either. My impression is they felt like they were going to take this market and now they had to do it in this Frankenstein style way.

David: It definitely made the product worse.

Ben: It made the product worse. It increased burdens for everyone. It made it more sure that they were going to win the market because if something’s going to happen five years from now where it could happen now, you’d rather it happen now and it be certain.

David: But they certainly don’t love it that doctors have to check 57 boxes on every patient visit.

Ben: All this compliance burden and the software being frankly hard to use once it’s…

David: Legislated?

Ben: Yeah.

David: Product development by legislation, which to be clear isn’t just Epic. It’s all of them.

Ben: And also, just the complexity of software of this magnitude with this many different screens and participants and all that. A big criticism is that it takes time away from patients.

There was a 2016 study that showed that entering data into eh r consumes about two hours of doctor time for every one hour spent providing hands-on patient care. There’s all this other research around doctors now work 11–12 hours a day. They’re constantly responding to messages, which again is a hospital configuration thing. There’s a way to triage messages.

David: Another downside to the HITECH Act and meaningful use is that before digitization and moving all this activity from hospitals into the EHR, there were a lot of regulations and guidelines that maybe weren’t always followed, and that was for the best in the hospital.

Things like, it’s supposed to be doctors themselves who put in orders for pharmacy, for meds, or for scans or stuff like that. But in the old world, before everything moved into the EHR, doctors were supposed to do it, but they would have their medical assistants do it. If you’re seeing 20 patients a day and a whole bunch of them need scans or meds or whatever, you can just be like, hey, medical assistant, do all this, and they can do it during the day.

Ben: I’ll sign them all later.

David: Exactly. But now, once everything’s digitized and in the EHR, that means that the rules have to be followed because they’re tracked. That means that all of a sudden doctors don’t have as much help in slack in the system as they used to.

Ben: It’s interesting. This is the thing that ends up contributing to doctor burnout. But you do have to compare it to how it used to be. There was a great old study from 1970 that found that communications activities such as managing physical records accounted for 35%–39% of total hospital operating costs. That’s not the doctor’s time, but especially in the paper world, it was always a huge amount of cost and time from the hospital.

David: You’re shifting around the burden of this a little bit and creating more burden through all the meaningful use regulations. But this is not a new problem.

Ben: You know who else doesn’t love it? In 2017, Obama himself told Vox that he felt that the HITECH legislation did not live up to what he wanted. Here’s his quote: “The fact that there are still just mountains of paperwork, and the doctors still have to input stuff, and the nurses are spending all their time on this administrative work, we put a big slug of money into trying to encourage everyone to digitize, to catch up with the rest of the world, and that’s been harder than we expected.”

The quote, I actually don’t think it was at all about catching up with the rest of the world on digitization. I think we were a leader there. But if the hope was that we could somehow downgrade our costs to be in line with the rest of the world, that would’ve been great, and that did not happen.

David: One of the CIOs I talked to had a great quote on this. He said that, “Meaningful use in the HITECH Act wildly succeeded at digitization of the industry. It did absolutely nothing on the digital transformation of the industry. We digitized, but we didn’t transform in the way that I think people were optimistically hoping for.”

Ben: That’s interesting. The good news is that it can still come now that all the records are digital.

David: Now that we’ve digitized, yes.

Ben: You actually can do interesting things with the data that you couldn’t have done before.

David: And we’ll talk about when we get to the end of the story in a couple of minutes. The promise, at least right now, of AI and ambient AI in making a lot of this onerous process just disappear for humans.

On the back of all of this, Epic continues to win epically. In 2011, they hit a billion dollars in revenue. They keep winning all the big systems that come up for RFP. Johns Hopkins, Cedar-Sinai, UCSF, list goes on and on and on.

For Epic’s competitors, they had always been merging and consolidation had always been happening. But now with meaningful use being in place, consolidation really picks up. Which again, all of which is just going to accrue to Epic’s advantage because consolidation in this space means the products get more complex, they don’t work as well altogether as a suite, and Epic’s advantage just becomes all the more pronounced.

So 2008 Allscripts merges with Misys. 2010, that new Allscripts entity then merges again with Eclipsys. They keep on acquiring smaller players. Today, that company is called Veradigm. 2011 Meditech acquires LSS Data Systems. And then in August, 2014, one of the big ones that we’ve already alluded to happens. Cerner buys Siemens Health for $1.3 billion.

Ben: That starts the downward spiral for Cerner. That’s my understanding.

David: I heard in the research that even today in 2025, customers will still refer to themselves as either Siemens customers or Cerner customers. It’s still not fully integrated.

Ben: Meanwhile, I think post-Oracle acquisition, Oracle’s trying to rewrite it all anyway.

David: And that’s not going well, which we’ll come to later. This leads us right into the Department of Defense contract.

Ben: The motherload of all opportunities if you are an EMR.

David: VA contract, oh boy. The motherload of all opportunities. Or if you are an American taxpayer, the motherload of everything that is wrong with governmental waste in America.

But before we get into that story, we have some happier and better news to tell you, and that is to thank longtime friends of the show, Crusoe.

Ben: Thank you Crusoe for giving us a moment of levity here, and a moment of excitement and optimism looking to the future. Crusoe is not just an AI cloud platform. They are actually re-imagining how AI infrastructure gets physically built from the ground-up.

David: In the past we’ve talked about Crusoe’s climate-aligned approach, powering their GPU data centers with stranded energy. But what’s truly unique about Crusoe is that they’re a fully vertically-integrated AI infrastructure business. Crusoe’s founders, Chase and Culley, realized early on that in order to become the best AI cloud platform, you actually need to build the entire stack from sourcing the energy to building the data centers, and ultimately providing the end AI cloud service layer.

Ben: The best example of this is the giant 1.2 gigawatt AI data center that they are building in Abilene, Texas. They broke ground in just June of 2024 on an empty field, and now within a year they are about to turn on the first few buildings. Bringing on new capacity of this size in less than a year is crazy fast for the industry.

David: And to put that 1.2 gigawatts in perspective, if you take the entire data center capacity located in Northern Virginia today where 70% of the world’s internet traffic flows through, all of that is only 4.5 gigawatts. Crusoe’s single AI factory in Abilene will be more than a quarter the size of what powers a huge portion of the Internet today. And that’s just one of their locations.

Ben: Crusoe handles all of the incredible complexity of building physical AI capacity, so that their customers can just focus on innovation, not infrastructure. They just announced two new services to do that. Their managed inference service frees developers from managing servers, and their auto clusters service eliminates the operational burden of model training.

David: When you’re thinking about where to run your AI workloads, make sure you consider Crusoe. Because they operate and innovate at every single layer of the physical stack, Crusoe delivers unmatched price to performance, speed to market, and a platform that customers can rely on for years to come. It’s an incredible company, and Ben and I are excited to be investors in their recent funding round alongside NVIDIA, Founders Fund, and a whole slate of other great investors too.

Ben: That we are. To learn more, head on over to crusoe.ai/acquired. or click the link in the show notes. When you get in touch, just tell them that Ben and David sent you.

Okay, David, the DoD debacle.

David: The 2015 DoD debacle. The Department of Defense decides that they’re going to bid out a global EHR contract for all of their hospitals and healthcare across all branches of the military. Now, this is (at the beginning) just active duty US military, so separate from the VA system which comes later, the Veterans Administration, all the veterans of the US military.

This deal in 2015 is up until this moment in time, the biggest healthcare IT contract of all time. It ends up being a $4.3 billion deal, so even bigger than the Kaiser deal. It remains the biggest until two years later when the VA contract does go out. That is a $10 billion deal. Now, Epic of course bids on both of these contracts, and as you would expect, just like with Kaiser, it comes down to Epic and Cerner.

Ben: But not directly, because just to add to the insanity of this system, it’s basically impossible unless you bid on government contracts all the time to bid on a government contract directly. You need to pony up with one of the companies that subcontract off of someone who makes their bread and butter all the time by contracting with the US government.

David: They each choose their partners. There are all sorts of drama around this. Basically the knives come out on all sides, as we shall see with Cerner. If you win one or both of these contracts, this will keep your company going for years and years and years.

Drama aside, Cerner ends up winning both of these contracts, the DOD and the VA. 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. It’s really, really bad. The DoD system, the active duty system, only just fully went live late last year in 2024. This contract got bid out in 2015, so that is a nine year implementation process. The VA system is way worse. It is nowhere near fully live today.

Ben: And Cerner won both of these?

David: Cerner won both of these as a subcontractor won both of these. The VA system was bid out in 2017. The latest announcement from the VA about this project is that it will be live at all VA sites by, this is a direct quote: “As early as 2031.”

Ben: What?

David: Even the most optimistic scenario that they’re saying, which seems very unlikely, is this is a 14 year project.

Ben: The latest I have seen is that it’s still not live. They actually gave an ’as early as 2031.’

David: Now it is live at a few sites. It’s not like nothing has happened over the last decade. But oh my God, if as an American citizen or watcher of America, you were disgusted by the whole meaningful use thing, if you are an American taxpayer, this is just beyond disgusting.

Ben: So why? What took so long? Or what made it so expensive?

David: I don’t really know. I think it’s a combination of a lot of things.

Ben: Or I guess what are the incentives?

David: Well, it’s really unfortunate, but there’s an old saying that you make more money on failed government contracts than successful ones. I think that’s probably the incentives that are applying here.

Ben: Oh because as long as the contract doesn’t end and you’re still implementing, you can still keep finding more costs.

David: You can still keep getting paid. Now, I think it would be unfair to blame Cerner for this. Maybe some of the blame lives on them, but they’re a subcontractor to big government primes that are the GC here.

We talked about this on the Lockheed episode. This is just how the military industrial complex works now. You’ve got the compounding layers of bureaucracy of the government, the military EMRs generally as we’ve talked about. This is just a rat’s nest of awfulness of bureaucracy. You’ve got these multi-decade now projects with many billions of taxpayer dollars going into this. Still not live. Just freaking brutal.

Ben: Do you think Epic is glad they didn’t win?

David: Well, here’s the thing. Epic of course was part of this process bid on the RFPs, and I’m sure would’ve loved to have won them.

Ben: Because even the $10 billion initial price tag before the overruns is twice Epic’s revenue today, this transformative for your business in the best case.

David: Yes, kind of like Kaiser was transformative for Epic back in the day. That’s it. Talking to Epic customers, CIOs, and the research, they are down on their hands and knees, thankful that Epic did not win this deal.

Ben: Because Cerner just got dragged so into the process.

David: So into the muck here. And there were a lot of other compounding factors happening here. Cerner, we’ve talked about, already was now post Siemens, would you say 36 companies that had been acquired, get pulled together to make Cerner. Neal Patterson, the founder, CIO, and longtime leader right around this time, he gets cancer and then he passes away in 2017, so your founder and your leader is passing away in the midst of this very complex process.

After that, Cerner cycles through a whole bunch of different leaders over the next few years. Meanwhile, Epic is unburdened by this DoD and VA shitshow (for lack of a better word), and they just keep winning deal after deal in the large system providers.

Ben: And in their own way. This is a testament to how Judy thinks a company should be run. We’re going to stay extremely focused. We have a very particular playbook. We listen to customers. We meet our promises.

David: We’re hardcore about our software engineering and our product architecture.

Ben: When our customers find new use cases, we develop that software too. She runs a company in an unconventional way, and that unconventional way is proving to be the right way to win this market.

David: After the DoD deal, Epic wins Partners Healthcare in Boston, which is the new entity of Harvard and Mass General (MGH), and the original big research institution. They win all of the Mayo Clinic, all of their hospitals. That’s one of the biggest contracts. Again, outside the DoD craziness. They win Cambridge in the UK. They win Intermountain Health. Recently, they win CommonSpirit Health. The list goes on and on and on.

2018 Epic hits $2.7 billion in revenue. They announced that they have all 20 of the top academic hospitals in the US News and World Report rankings, which is critical for them because winning the top academic hospitals means that all the new doctors and nurses that are coming through getting minted by these institutions and trained, are all trained on Epic.

Ben: I think they sell them a separate educational license too. I think they treat the university hospital and the academic classroom as separate. I’m sure it helps to be in the hospital, but I think you also buy it as a school.

David: I’m sure that’s right. But also a huge part of medical education is practicing in the hospital.

Ben: And I think now 90% of med school students train on Epic.

David: That is the current statistic. 2019 Epic hits $3.2 billion in revenue. Then finally December, 2021, as we’ve been alluding to, Cerner gets bought by Oracle for $28 billion.

Cerner, as we talked about, was and still is a big company. They’ve acquired all these companies over the years. There’s a lot of revenue there. They’re big international and they have the DoD and VA contracts ongoing, which is a lot of money coming in. They’re doing maybe call it $5.5 billion a year in revenue, maybe a little more. But that’s been flat to declining since 2018.

Oracle again acquired them in 2021. Oracle now no longer reports Cerner’s financials as a separate segment within the company. They talk about Cerner and Oracle Health being a “headwind” to overall growth and profitability for the company. There’ve been a lot of layoffs within Oracle Health.

Maybe it’s too early to tell, but I think this is probably one of Oracle’s worst acquisitions of all time. You’d be hard pressed to find an analyst who would say that this was a great acquisition by Oracle, shall we say?

Ben: Yes, to put it lightly.

David: Meanwhile, this is all just great for Epic and totally reinforces Judy’s whole thesis of company building in this space, and her whole story to customers of one single integrated platform that is hardcore about software development, that is 100% customer-focused, that will never acquire another company, never go public, never get acquired. You can see why it’s just this warm hug embrace to their customers out there.

Ben: It becomes more and more different than everyone else in the market the longer time goes on. And the lesson here, which is really interesting, is they started slow, They started really slow.

They did things in a way where they almost built up momentum for the future, in a way that would pay off 20–30 years down the road rather than inorganically trying to take shortcuts and pull the future too far forward into today.

The first 20 years looks like an unimpressive company because they were just building strength, building muscle, growing the way that you need to grow in order to be as bulletproof as they are today.

David: That’s such a good point. I was trying to square in my mind earlier when we were telling the meaningful use story, how on the one hand it really was obviously good for Epic, an accelerant, and it further cemented the market dynamics where they were already emerging as the leader. On the other hand, when you talk to people within Epic, they’re very mixed on meaningful use.

Ben: I could never figure out if that was lip service of, oh, it didn’t help us that much. But when you look at the graphs of customer accounts and of revenue, it was going great.

David: It did pull forward some growth, but the trend lines, we’re going to get here anyway.

Ben: It’s not like it was some big massive step function in two years. That is not how the graphs look.

David: As we told the story, they had the better product, they had the better customer offering, they were on the way to winning anyway. I think to your point here about they’ve always been just philosophically allergic to artificial growth. I wonder if that’s part of why, to the extent they are serious about really being ambivalent about meaningful use, that’s the reason why.

Ben: They want to win slowly.

David: They absolutely want to win.

Ben: And they’re going to win. But they want to do it slowly because it will help them win harder in the long run if they win slowly.

David: Meanwhile for them, I think things have never looked brighter, basically. There are some risks that we’ll talk about, but they’re now starting to sell international and build that as a real market. It’s not huge, but it’s (call it) 10%–15% of the business now. 2023 they went live at London’s Guy’s and St. Thomas’ NHS Trust, which was (I think) their biggest ever single implementation and happening in the UK. The UK is becoming a real market for them.

Ben: Interesting. There’s another big tailwind that’s happening for them. You’ve probably been hearing from me over the course of this whole episode. There are tailwinds that don’t make you feel good, but they’re still tailwinds for Epic’s business. The acceleration of the trend where hospital systems are merging and rolling up all the smaller local practices.

David: Oh, totally. It’s just an excuse to rebid.

Ben: There are a bunch of reasons this is happening, but one of them is the Affordable Care Act. That also increased the compliance burden of practicing medicine, which was already really heavy from all the regulations over the years, including HITECH adding big penalties for HIPAA, for violating HIPAA.

That’s another thing we didn’t talk about in HITECH. That was one of the things that came stapled onto it, was even more strict oversight on HIPAA. You now require scale as a local medical practitioner, to be able to afford the compliance burden.

What that means if you play it out is all healthcare or most healthcare gets provided by these mega giant hospital systems rather than community clinics, which really benefits Epic, because their strategy from 30 years ago of going over the biggest and most complex health systems now looks totally genius because Those are the only customers really left standing.

I actually think this is one of the most messed up things in the US healthcare system. Aside from the really big hard to negotiate with private health insurers who have gotten a lot of power over the ecosystem, you now have also really big local pseudo monopoly hospital systems. This consolidation is not good. This consolidation will not lead to prices coming down, let’s just put it that way.

David: But you see why it’s been happening. You and I entered doing this episode expecting to be like, ah, the hospitals are really the bad guys. They’re charging so much money.

Ben: I don’t think the hospitals make very much money.

David: They don’t make much money at all. They’re barely surviving, which is why they’re merging.

Ben: Any money that the very successful ones are making, they tend to plow back into growth. Like we’ve been talking about, hospitals need scale in this day and age. It’s new buildings, it’s acquiring other practices locally. Everyone is just chasing scale because they constantly are having to do business with other scale players, so they need to size up to do that.

David: That brings us to the other big (I think) potential growth vector for Epic going forward that they’re absolutely pursuing. They have enough scale on the provider side now that they can start going to the other big players in the system, the payers, then also the biotech and pharma side, and (say) we actually have ways that we can work with you guys now and offer compelling products to you.

They call this the system of connectedness or the “grid of care” that you might sometimes hear from Epic. This is building products for and working with payers, the insurers, pharma companies, and other stuff like home health companies or post-acute rehab, et cetera. But really the big opportunities are payers and pharma.

One example of this is prior authorizations. Prior authorizations are a huge problem in the American healthcare system. This is when a doctor thinks that a patient needs either a medicine or a procedure, that the payer, the insurance company says, well you can’t just go do that.

Ben: It’s expensive enough that you need to ask us first on a case by case basis if we’ll cover it for this person.

David: Exactly. We need to prior authorize this. 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.

Ben: I would argue this is an area where you are seeing one of Epic’s favorite business strategies. We sell the main thing to a hospital system. We see what other vendors they’re using. We figure out if they should also buy that from us if we have some competitive advantage other than just a single vendor to be able to do it. Sometimes just being a single vendor with the same offering is enough. But then they try to figure out if they can also do that and include it in their enterprise agreement.

They want to sell everything to the hospital and be the single IT vendor. The hospitals do still buy other IT services. So the Epic playbook is to go from selling a hospital one thing to figure out how to then sell the hospital everything. Then once you’ve exhausted that, then figure out who else you can sell stuff to. That’s why they’re looking into payers and pharma companies. It’s how we can leverage the asset that we have to then now that we saturated this market, sell to other customers too.

David: Fair point.

Ben: All right, so that basically brings us to today. If you’re in this ecosystem, you’re going to say there are 50 things that Epic does that you didn’t talk about. That is true. There’s no chance that we could talk about all of that in this episode.

But there is one really cool, interesting thing that they are doing right now that we do want to talk about as we catch up to today. Then we’ll give you the stats on the business today, and we’ll talk about the future and then we’ll do our analysis. They launched something a few years ago called Cosmos.

David: This is pretty cool.

Ben: This is awesome. They’ve realized, okay, there is data on patients that is owned by patients and hospitals, not by us. That lives on a bunch of different servers. Some are on-prem at hospitals, some are in our cloud, some are on AWS, some are on Azure. But either way, there’s all this interesting structured patient data stored in EpicCare instances.

Can we anonymize that and get it all in an Epic-hosted instance of something very queryable and very useful for a bunch of activities? They did it. It’s called Cosmos. Cosmos has 295 million patients worth of data in it, all anonymized.

David: I think that across those 295 million patients, there’s data from 15 billion individual patient encounters. So structured data from a doctor encounter 15 billion times with patients.

Ben: It’s crazy. We were asking the question earlier, do EMRs or EHRs really benefit patients? There are some arguments that aside from how awesome it is to just access your records at home, there are a bunch of stats around, yes, it benefits patients.

It’s patient safety, it’s patient ease. There are studies that say 45% of patients reported improved quality of care with EHRs while only 6% notice decline. Epic has a stat in 2023, its system prevented 66 million potential adverse drug interactions and 250,000 potential surgical errors.

All of this seems very plausible. If you’re tracking all this stuff digitally, you can do intelligent things that improve care. But on top of that, more interestingly, what if all of the data was actually in one place and you could do stuff with it? What is the value of having something digital versus paper?

David: This is the utopian dream that people have always had, that the Bush and Obama administration had. Epic is finally doing it.

Ben: One very clear, interesting illustrative example is to imagine there’s something wrong in the water supply, but all the records are on paper. Unless you’re going and pulling individual files and then looking at some specific test result across a whole bunch of people, which you probably need a research grant to do, to actually go and sit down and pull all these individual files, you’re not going to find it.

But if you have a whole database full of information and you can quickly and easily look horizontally across a whole bunch of records, this is Flint, Michigan. This is how they figured out there was a water problem in Flint, Michigan, and you would not have found it in a paper-based world. 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, and it’s accessible to any institution for free that contributes data in.

So all the Epic customers, anyone who opts in, gets access, inquires about it for research, or cool stuff like I have a really unique patient who has some crazy condition I’ve never heard of. Has this ever happened to anyone else in the world? And what was the result?

David: This is what’s really cool. They’ve productized this and made it free, so that any of their customers can just turn it on. Ben, exactly like you’re talking about, I’m a doctor, I have a patient, there’s something going on. Cosmos can surface to me, hey, here are other examples of similar cases, anonymized.

Ben: They call them lookalikes, I think?

David: Yeah, lookalike patients throughout the history of everybody that’s ever been on Epic. Here are the doctors who treated those patients, so this has already happening quite a bit (I think) with rare diseases and crazy cases.

Ben: I think so too. It’ll be useful for clinical trials. It’ll be useful for research. I do think it’s free right now, which is pretty interesting. We’ll have to see how they price and package it in the coming years. But yeah, you’re right. This is like the utopian dream of, wouldn’t it be cool if we had all this data in one place?

David: And then that really presage is something we’re going to talk a lot about in analysis, which is, wow, imagine what you can do with AI with this data. But we will get to that in a minute.

Ben: All right, so the business today, let’s just make sure we’re all on the same page on where things stand. They have 607 customers with 3200 hospitals in between them. As you know, they’ve never lost a single one, which is insane. They add 10 to 25 new health systems as customers each year. Their customers represent 590,000 physicians and 495,000 staffed beds.

David: And that’s across 325 million patients?

Ben: Worldwide. Yup, 280 million of which are in the US.

David: So basically almost all of America gets seen in some part of their healthcare by an Epic system.

Ben: That is correct. In revenue, last year in 2024, they did $5.7 billion, which grew 13% year over year over the last 5 years, and 16% last year from $4.9 billion to $5.7 billion.

David, I wanted to bring something up with you. They actually do less revenue than I would’ve figured. For people that are like, $5.7 billion is a lot. What are you talking about? If you divide it by their number of customers, it comes out around $10 million a year a customer.

If you live in the enterprise software world, that’s not crazy. This is the central nervous system of these giant health systems. This is what everything else relies on. They run their entire business on this. It costs a lot of money because there are all these people administering it.

I talked to someone at a mid-sized health system that said there are 100 full-time employees administering Epic at her hospital system. But Epic actually only captures about $10 million a year of the value created, so there’s this interesting dichotomy of, yes, it’s a lot of spend, but the minority of it actually goes to Epic.

David: It is this element of, I know I said altruistic earlier when talking about the company. You’re right, it’s not altruistic. But I think it’s really, really important to understand. It's a very long-term orientation. They could charge their customers a lot more money. They definitely could.

Ben: They didn’t used to be able to. I think they used to saturate willingness to pay. Now that they’re this dominant, they probably could. There are so many costs that get paid out to the consultants, the Accenture, Deloitte, IBM, Nordic, the post implementation people, the optimization people, the headcount internally, the lost revenue from doing the switch and taking that downtime. This costs health systems a lot. Epic actually just doesn’t capture that much of it.

I’m not as convinced that they have room to take price as much as I’m surprised they don’t capture more of the overall value of a central nervous system for a hospital system. They could probably capture some more, and as we get further and further in the future and they get more and more dominant, they certainly will gain more pricing power.

David: I think they could. Again, to your point of on average, $10 million a year cost for a piece of software that is so absolutely vital to your business, I think they could capture more. And I think part of the reason they don’t is they never want to give a customer any incentive to rebid or consider another solution. It’s like the Jeff Bezos quote about AWS in the early days, that he wanted to be an irrational and irresponsible decision not to use AWS.

Ben: Oh, to pick someone else, yeah.

David: I think they want it to be an irrational and irresponsible decision for a healthcare system not to use Epic.

Ben: I think that’s right. Just one other number to throw out to analyze this on a different vector. When I said $5.7 billion top line isn’t that big of a number in healthcare, United Healthcare, which owns an insurance company and a hospital system, does $400 billion a year in revenue. That’s wildly apples to oranges because they’re actually administering care in the case of their hospital system, so it’s a different thing.

But that company does $35 billion in EBITDA. United Healthcare’s profit dollars are six times Epic’s entire revenues. 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. Or even maybe better put, of having that big of a revenue pool in the industry.

I came into this episode expecting to be like, my God, this company just mints money, and for how much people talk about it, is such a part of the healthcare system. I just expected it to have more cash moving through it.

All right. Other quick stats, 14,000 employees. Today, the market share is only 42% of hospitals, but it’s the largest and most successful hospital, so they actually have a bigger share of all care performed. 58% of ambulatory physicians now use Epic. 79% of the US ends up using Epic in one way or another.

In terms of profit, we heard a few different estimates. There are EBITDA margins somewhere between 30% and 35%, so just to be conservative, we’ll take that at the low end and say about $1.7 billion in EBITDA if those estimates are correct.

Then that brings us to what is Epic worth, which is a silly question because if you own shares, it would be very difficult to ever sell shares to anyone other than the company itself. So what’s the point of valuing something that you can’t own, and what’s the point of owning something that’ll never provide a financial return?

David: There’s never going to be a liquidity event for your shares.

Ben: But it’s worth doing. We started this episode talking about Judy’s one of the most successful, if not the most successful female founder of all time. Forbes has a list of this, of the most wealthy self-made women. I think their estimate is silly low.

David: Wildly wrong.

Ben: In 2021, Forbes estimates her net worth to be $7.6 billion. Implying that the company is worth $15 billion. That is a ludicrous valuation for Epic. If you do the very conservative thing of looking at Cerner’s EBITDA multiple of 30 times when Oracle bought them, and you assume conservatively again a 30% EBITDA margin at Epic, that would give you a number of $51 billion, valuing Epic at $51 billion.

But come on. Epic’s revenue streams are way more durable than Cerner’s. And Epic is growing while Cerner was going through a hard time. You could get to a similar number of that $50-ish billion if you just slap a 9x revenue multiple, which is a reasonable public market software comp. But this company has insane durability.

David: It’s missing the point that I think this is maybe the most durable software company in history.

Ben: My guess is if this is public, which it never will be, investors would value it somewhere in the $100 billion neighborhood, giving Judy’s shares a value of about $50 billion, making her the wealthiest self-made woman in the world, and one of the most successful entrepreneurs, period. That would put Epic in one of the most valuable 150 or so companies in the world, right along with Shopify, Arm, Lockheed Martin, and Starbucks.

David: Another thought exercise to come at this question is if in some alternate universe, Microsoft or Google or Amazon, or, I don’t know maybe even Berkshire Hathaway, maybe Apple, if they could acquire this company, how much would they be willing to pay for it? I think $100 billion is on the very, very low end of that spectrum.

Ben: That’s 4% of Apple or Microsoft. Of course, they’d be willing to pay 4% of themselves for this.

David: There’s the market. There’s the durability of the revenue and the profits.

Ben: Oh, I see. You’re arguing that on a financial basis alone, yes. And also the strategic value on top of that.

David: And the strategic value, both in terms of becoming the most important partner to this huge industry, to the biggest players in this huge industry in healthcare. But then also just the data in the AI world that we’re in today. My God, Cosmos, 15 billion patient interactions. You think Google or Microsoft or whomever wouldn’t pay a lot of money to own that. Of course they would.

Ben: Part of me is like, Ooh, thank God. Judy’s putting it in a trust.

David: All that to say this is never going to happen. So the final chapter of the story here is Judy’s 81 years old. What is going to happen at some point in the future? Even if she’s the next Warren Buffet here, we’re still talking about in the next couple of decades. There will have to be a transition.

Like you said, Ben, she owns about half the company economically and 100% of the voting shares. She has been transferring her non-voting shares into her foundation called Roots and Wings, so she signed the giving pledge and is transferring her wealth into the foundation. They then sell those shares back to the company at a price that changes every year, and that funds the foundation.

Judy has announced that upon her death, all of her voting shares, so the 100% voting control that she has at the company, will transfer into a “purpose trust” that will be administered by three constituencies: (1) Her family—her husband Godon if he’s still alive, and their three children, (2) A set of five longtime senior managers from Epic, and (3) I believe three customer CEOs, CEOs of big customers.

That group will manage the trust. In the trust bylaws are several things: (1) the company can never be sold or taken public ironclad. That can never happen. (2) The next CEO of Epic must meet two criteria.

Ben: Oh, be a software developer, right?

David: Yes. (1) Must be a long time Epic employee, and (2) must be a software developer.

Ben: I love the idea of the CEO being someone who came from the core skill of the company. It’s very Costco. You think about all the Costco CEOs have been people who were core to Costco’s operations over the years, and had worked there for 30+ years. Nike’s heyday was when a guy who started in sneaker design ended up running the company (Mark Parker). There’s a beauty to when that happens.

David: There is a playbook to this.

Ben: One last thing to know about Epic today, looking forward, we talked a lot about interoperability and their notorious lack of partnership or ability to access their data or integrate with them in the past. A lot has changed. But there would be a whole nother four hour podcast on specifically how there are many programs, each with different methods of integration, different names, different standards. They’ve all evolved over the years.

They come with things like revenue shares back to Epic. And if it is the rare true partnership, they can also come with warrants to own a chunk of your company. But the bottom line is you actually can do a lot more building on top of it, integrating with Epic, than you could have 10 or 20 years ago.

David: All right. That’s our Epic story. Should we move into analysis?

Ben: Let’s do it. The first part of analysis is a section called power, which we have shamelessly ripped from Hamilton Helm’s book Seven Powers. The question is, what is it about any given business that allows them to achieve persistent differential returns, or to be more profitable than their closest competitor on a sustainable basis?

There are seven of these. There’s counter positioning, scale economies, switching costs, network economies, process power, branding, and cornered resource. As usual, we have to separate the takeoff phase from the phase that they’re in today.

David, I’m curious. Do you have one for the takeoff phase? Do you feel like you can analyze why in the takeoff phase they gained power?

David: Well, it’s funny. They didn’t take off for quite a while.

Ben: And I might argue they didn’t actually have any power during the takeoff phase.

David: Yeah, I don’t think so. Ultimately, their biggest point of differentiation being the single platform, didn’t matter that much in that phase. Everybody else was starting up new, and they hadn’t built that much without it. There wasn’t that much computing adoption among hospitals generally, so didn’t really matter.

Ben: I think what was happening is they had this nascent market in the proto EHR world, where they were able to sell something small enough at enough of a profit to be self-sustaining while they bided their time and built out the bigger suite.

They were able to basically use time as a resource that most people don’t flex. Most entrepreneurs want to do something in a short period of time, usually because their capital structure demands it. You launch a platform and try to get other people to build the applications because you’re in a really, really dynamic, fast changing market. Or you launch an application on a platform that somebody else built similarly because you’re in a dynamic changing market.

Epic’s market was developing slowly over a long period of time. They were willing to run a small business for a long period of time, and then grow into building all the functionality for the eventual huge market that wanted all the functionality tied together.

So then what powers do they have today as the scale incumbent?

David: A lot is the answer. A lot. The most obvious one is switching costs. This is the biggest switching cost piece of software ever.

Ben: Ooh, that’s interesting. Is that true? Do you think it’s bigger than people’s ERP instance?

David: For sure. This is like an ERP on steroids. This is the most important nervous system for your entire business. Oh yeah, and by the way if things go wrong or it goes down, people die.

Ben: That’s a very good point. People spend, including all the opportunity costs and everything, hundreds of millions or billions to put this in. Are there any ERP or CRM implementations that cost $1 billion, $5 billion, $10 billion?

David: Maybe, but I don’t think any that are so core to everything about your customer’s business.

Ben: You’re right. Even if it was really expensive to put it in, you’re still more likely to swap out one of those systems than you are your EMR at this point.

David: It’s so much more than a medical record, yes.

Ben: So that’s definitely true. Scale economies is definitely true to the thing we were talking about a minute ago. You can’t make the investments in product breadth without having the scale that you have today.

You also can’t do their clever bundling in a bunch of free stuff that you might want to use in the future unless you have the scale economies also. They just develop a lot of software that they either throw in for free or offer to you in the future, and the only way you can develop that much software is have a huge number of customers to amortize it across.

If you’re trying to start a new EMR today, you have to write a lot of software to be competitive. And that’s scale economies.

David: Network economies, yup.

Ben: You bet.

David: You bet it.

Ben: They hit this interesting tipping point where they could win just on, we’re the best, most reliable platform for a long time. Then at some point, it hits some tipping point where there is a second value proposition, which is most other hospitals are also on Epic, so your patients and your doctors will all appreciate it if you adopt Epic to make it easier to interop with the records at all those other hospitals. Is like an icing on the cake.

David: Oh, you’re talking about interop. There’s interop, but there’s also, do you think you will need to hire more doctors in the future either to grow or as your existing doctors retire?

Ben: Pick the standard.

David: Well, what do they know how to use and what are they trained on? Epic. Great.

Ben: That’s true. It’s its second network economy in addition to the Care Everywhere concept of being able to share my records across institutions.

There’s one institution in Seattle that I go to for my son’s food allergies. They’re on Cerner. I have three institutions that I’ve gone to over the years for various other stuff that are all on Epic. I don’t know why that one hospital is still on Cerner.

David: It’s really annoying to you, isn’t it?

Ben: I’m sure everyone else in Seattle is like, why don’t you just do the thing that all the other big hospitals do so that it’s all the same platform? That’s network economies.

David: It’s amazing that they have built a network economy business. Who would’ve thought of medical software?

Ben: There is value to every participant in the system, from the other hospitals to me as a patient, to doctors. If that one holdout hospital that for some reason is on Cerner just switches to Epic, it’s a definition of network economy.

I think they also have branding. They’re the most trusted of all the most prestigious institutions, so at this point, if they had no other powers and they just came in and had identical bids on the table, 100% of the time people would say Epic because It’s going to work. I know your brand.

David: Don’t get fired for buying IBM, exactly. I didn’t think about that. I was like, oh no, they don’t have branding. It’s not really a consumer brand (MyChart), but no. You’re totally right. They totally have branding.

Ben: That is in part why they built that massive auditorium to bring the whole universe of Epic together every few months.

David: I think you could argue that they do have process power, I think is the last one I would say, in their development process, the language that they use, and it being unique to Epic. This is more of a defensive one.

Ben: I think it’s about the training of young employees, the way that they make them the Epic way.

David: Well, interesting, there’s the Epic way. I buy that generally, but I think specifically you can point to their software developers who they’re hiring out of college, mostly building on Caché and MUMPS, and they don’t—

Ben: Don’t develop transferable skills.

David: It’s not like you can easily then go work at Cerner and port that over. Sure you could if you’re a great software developer, you can learn other languages and other frameworks. But if you spent your whole career all developing in this proprietary Epic system, and I should say proprietary is the wrong word, they don’t make MUMPS or Caché. A separate company called InterSystems makes them, they license it from them. But most of the rest of the industry does not operate on that. It is a bit of a process power.

Ben: I think that’s fair. All right. That does it for power.

David: Great.

Ben: Do you have any playbook themes?

David: Yes, I do.

Ben: The one that jumped right out at me was the heavy spend on research and development. This one is from friend of the show, Arvin Navaratnam at Worldly Partners, in the always excellent writeup that he does associated with these episodes that we’ll link to in the show notes.

Epic, of course, builds, as we’ve talked about a million times, their whole systems from scratch. They don’t buy companies. It’s all in-house development. The result of that is 35% of their operating expenses are spent on R&D. If you compare this to Athenahealth, a competitor that’s 10% or Oracle all up is 23%, or if you look outside this industry, it’s actually equivalent to Apple at 36% of their operating expenses of R&D. Amazon’s 28%, so 35% is quite meaningful.

David: It’s quite high.

Ben: The only one that beats them is Google at 45%. Think about all the money that Google is just dumping into R&D for all these future-looking projects, and they’re a core technology company.

On the one hand, duh, because Epic doesn’t really buy other companies or spend any money on sales and marketing, and they keep their G&A low, so what are their other expenses? Of course, it’s going to be high on R&D.

David: Unlike most companies, they spend zero on sales and marketing. If they classify those eight people that they employ as “salespeople” as headcount, maybe they spend, I don’t know, not much.

Ben: Small. But I think to get to this point that we’ve been hitting in a bunch of different ways, as long as you can win deals in the short-term early days without sales and marketing spend, and you can just spend all of your costs or as much as possible on R&D, that R&D does compound over time to give you a big competitive advantage later in life that other forms of spend do not.

David: Especially in software.

Ben: My next one is about growth. I was reading an article that said Faulkner once described her approach as climbing a mountain, not trying to see the entire mountain at once, but by focusing on the next hill in front of her. It reminded me of something I’ve read before. Does this remind you of anything?

David: I’m drawing a blank. Go for it.

Ben: In Paul Graham’s legendary 2012 essay, Startups = Growth, he’s talking about how the whole thing you need to do as a startup is focus on next week’s growth.

He then says, “In theory this sort of hill-climbing could get a startup into trouble. They could end up on a local maximum. But in practice that never happens. Having to hit a growth number every week forces founders to act, and acting versus not acting is the high bit of succeeding. Nine times out of ten, sitting around strategizing is just a form of procrastination. Whereas founders’ intuitions about which hill to climb are usually better than they realize. Plus the maxima in the space of startup ideas are not spiky and isolated. Most fairly good ideas are adjacent to even better ones.”

I just thought, I don’t know. It just jumped off the page at me that Judy, who has almost certainly never read any of Paul Graham’s writings, had this same insight. I don’t try to see the entire mountain at once. I just try to focus on the hill right in front of me. And that hill is adjacent to a bigger and more interesting hill.

David: I’m so glad you brought this up. I was thinking about Judy as this incredible software developer, who became a founder of a company, this incredible business person, and didn’t follow any of the MBA rules.

Ben: Except that she did. She just discovered them all for herself in Wisconsin.

David: Well, right. I was thinking about it. I was like, man, her story in this company reminds me of Paul Graham and Y Combinator. There are so many residences here, but they’re also like a different world.

If Y Combinator weren’t about funding companies and being a venture capital firm, and instead were espousing to founders instead of raising money, build your companies independently without capital, we would have a lot more Epic systems running around out there. But she also built this in a different era where you could do this without capital.

Ben: I think that’s right.

David: But the distance between Judy Faulkner and Paul Graham is actually not nearly as far as you would think.

Ben: It’s applying computer science principles and common sense ways of running a company that are obvious to you but contrarian to the way that most people seem to run companies, and just being a programmer turned business person to its logical extreme.

Okay. One that we did not talk about is their litigation strategy. It’s worth just touching this so people are aware. They are aggressive on defending IP, and as they would put it on defense against patent trolls, they’re also extremely aggressive on employment practices law.

They have non-competes to keep secrets secret, and they enforce them. They are also why employers can force their employees into arbitration. They won a landmark case around forced arbitration.

David: Went to the Supreme Court, I believe.

Ben: They’re embroiled in lawsuits with other health IT companies trying to use Epic software in a way that Epic believes violates terms of service. There’s not one of these, there are a bunch of these.

David: Including an antitrust lawsuit. A big one with a startup called Particle Health.

Ben: That is at a really pivotal point right now. Yes, David, they are being accused of violating the Sherman Antitrust Act.

David: And that suit is ongoing.

Ben: We just put this out there to say, this company is seemingly not shy about using the law to protect things that they believe are theirs and to deepen their moat. Interestingly though, they have never been in a lawsuit or even in mediation with a customer. There’s a sacredness to that customer relationship that they hold really dear.

David: It comes back to when we were talking about the company culture. Everything at the company is about customers.

Ben: All right. The next one is one I call enterprise sales on steroids. Normally in enterprise sales you have a bunch of things: long sales cycles, stuff where the buyer’s not the user, so you end up with a kludgy UI.

It’s not just because people don’t care, but the breadth of enterprise software is really, really wide, so it takes forever to write everything. You’re not going to keep updating it every time there are new UI trends.

On top of that, a million screens look really similar for different users for different use cases, so they all just end up looking like dropdowns and buttons. Hard to blame someone specifically for that.

There are tons of customization, long implementation times. This is enterprise sales, and enterprise software generally, not in healthcare. Then in healthcare—here comes the steroids—you have the added layer of regulation from HIPAA, and other medical system compliance stuff, and data sensitivity, and lives are on the line.

In most industries, when you’re a startup looking down the end of the barrel and you’re like, all right, I am not doing this top down enterprise sales thing. I’m going to do product-led growth. I’m going to get some bottom-up adoption. We’ll play the Slack or the Figma or you name it.

But HIPAA makes product led growth much harder, so from the great substack, Health API Guy, under HIPAA regulations, a business associate agreement typically needs to be signed by someone with the proper authority to legally bind the organization, not individual providers or employees.

David, this is something I kept thinking, why doesn’t one doctor or one practice adopt something, then get bottom-up adoption, and that’s how we’ll get the next EHR in the future? No, these are all CIO sales because they all need to be.

David: You can’t have the typical, oh, a small team within a big company is going to buy this on a credit card. Nope. Not going to happen.

Ben: And there are some exceptions. I know there’s some PLG that happens in healthcare, but it’s way, way harder to figure out how to do that than normal B2B SaaS.

And my last one, Judy is a wacky, wacky founder. So is every truly great entrepreneur that we study. She is truly N of 1. She has stated that it is more likely that she’ll die than retire, just like Warren Buffet always jokes. She’s singularly focused on making Epic great in her life, just like Ingvar Kamprad and IKEA. She’s totally obsessed with rapidly incorporating feedback from customers just like Jeff Bezos. And she believes correctly that the nerds will prevail in the long run, at least correctly for her market, her point of view, her industry. She is completely unique in the way that all the great founders we study are.

David: You foreshadowed in the intro that Judy is almost certainly the most successful, by any measure, female founder in history. I think that is actually true. I looked up to try and see who else might even come close.

You could maybe make a case for Estée Lauder. However, despite Estée Lauder reaching about $100 billion market cap during the pandemic, it’s only worth about $20 billion today. I don’t know what happened there.

Taylor Swift and Oprah, which we’ve talked about, and we did our Taylor Swift update at the Chase Center Show last year. We think the enterprise of Taylor Inc is “only” worth about $11 billion.

Ben: I love that you and I have an ongoing Taylor Inc calculator.

David: Yeah. Oprah’s less than that. Forbes currently thinks that Diane Hendricks is the wealthiest female founder in the world, or at least in America. She’s the founder of ABC Supply, which is one of the largest roofing suppliers in the country.

Ben: You know what’s crazy? This means that the two most successful female founders in America are both based in Wisconsin.

David: I know. Isn’t that amazing? I thought I was going to say that. I love that you found that too. It is a big and great company for sure. However, ABC Supply does about $20 billion a year in revenue. I assume not anywhere near Epic’s margins, so I don’t think it is worth the (call it) minimum $100 billion that (I think) Epic is worth.

Ben: Ooh, you’re now up to a minimum $100 billion.

David: Well, I’m going by my rubric of if somebody could acquire this company, what would they be willing to pay?

Ben: That’s funny. If someone offered you shares in Epic right now at $100 billion, would you pay it?

David: Ooh, good question. If I could get profit distributions from Epic, yes, I would love to hold Epic shares for the rest of my life. I would for sure pay that.

Ben: I totally agree.

David: If I were banking on a liquidity event, then no. But me personally, yeah, I would love to hold shares.

Ben: When people are speculating on the value of something, the interesting way to turn it around is always okay, are you a buyer at that price? Open your wallet. Makes it feel much more real.

David: I would for sure buy shares of Epic at $100 billion. There’s no way I will ever be allowed to, but I would love to.

Ben: That sounds like a standing offer and the show is not investment advice. In this category, man, it is crazy how powerful founder continuity can be. I was thinking about this. How many other companies have had a single founder leader for 47 years? Jensen’s 31 years into NVIDIA. Zuckerberg is 21 years into Facebook. Obviously, there are a lot running smaller companies.

David: There’s Berkshire Hathaway.

Ben: That’s actually the exception. Buffet’s been running Berkshire for over 50 years. But in Judy’s case, having 47 years to imbue the founder’s personality into the organization as it’s built all the way to this scale is really rare and really powerful.

David: And as you’ve alluded to, she really is like Jensen, she’s still running the company. She’s still highly engaged.

Ben: Absolutely. All right, bear in bull cases?

David: Let’s do it.

Ben: All right. A few different things contributing to the bear case if I were to make one. US customers had very big dollars they could pay. The market is big because: (1) the US economy and population are large, and (2) unfortunately, healthcare is a large percent of that. If the future is coming from international, that could be less fruitful, much lower willingness to pay in most countries for healthcare administration stuff. That’s one bear case element.

The other would be if this particle suit ends up getting actually picked up and there’s a material event that happens for Epic around antitrust and a violation of the Sherman Act, that’s a huge, huge problem. That is a company-changing thing if that comes to bear, so we’ll have to watch the news on that.

The third is there is legislation that happened in the last few years about information blocking. There’s an act that passed called the Cures Act that essentially says that an EHR or health system cannot block access to information. Even though Epic makes a very reasonable argument around data privacy, security, and in the long run patient safety by locking down data, the Cures Act makes things like screen scraping or chrome extensions or RPA legal as a means to extract data from Epic. There’s nothing they can do about it that is required, allowed.

David: Interesting.

Ben: At this point, I don’t know how that could really displace them.

David: What also begs the question of yeah, what would you do? Okay, you scrape Epic data, you’re not going to build Epic.

Ben: Epic has always been hypersensitive about locking that stuff down for good reasons for their customers, but also for their own durability reasons. And I think this is going to be a tiny crack in the armor.

The fear is that someone deploys to 70% of your customer base, they’re all using some Chrome extension. They’re all feeding the data into some nice UI. That nice UI is the thing everyone prefers to use. Then that UI vendor’s like, oh, instead of using Epic on the backside, you could use my own home rolled thing on the backside, but the probability of that happening is near zero.

David: Not going to happen.

Ben: I’m not that worried about that. The other thing is maybe if interoperability comes to pass in a bigger way, then you could see the best of breed applications becoming a more dominant paradigm versus the all integrated paradigm. Again, this feels pretty handwavy to describe as the bear case.

David: Well, and should that happen, they still have the Microsoft playbook, which they absolutely run. Okay, let’s even say there are better best of breed point applications out there. Great. Mrs. or Mr. Hospital CIO, you could go pay money for those. Or you could just keep buying your Epic enterprise license where you get access to all of these point applications that you need for one price.

Ben: And then the last one is paradigm shift. This is always the bear case for any dominant company. Is AI going to be such a dominant paradigm shift that it changes the needs of health systems? Or is value-based care going to be such a paradigm shift that it changes what a health system is?

Maybe you don’t go to the doctor most of the time. I have a hard time even imagining what it could be that you wouldn’t need a system like Epic. Or maybe new care delivery models will make the old type of EMRs obsolete. This requires some imagination and again, it’s very handwavy. Epic also has their eye on all of this, so it’s hard to imagine any of those things being the—

David: Right. My question to you is going to be, okay, how much do you want to talk about AI here? Or how much do you want to talk about it in the bull case?

Ben: It’s probably more of a bull case.

David: All right, well let’s do a bull case.

Ben: Great. All right. The bull case is they’ve successfully expanded from EMR plus billing to all these other specialties and modules. They basically served all those same customers, even more products.

Those customers: (a) will need more products in the future, (b) there continues to be more health systems they can sell to, and now (c) they are expanding the customer base from just health systems to other types of companies—pharma, payers, researchers—from this new dominant position that they’re in. So they’re expanding to a whole new set of potential customers who could pay them because of their dominant position. I think that’s extremely credible. They could have an even larger business.

David: Prior auth seems like the first and most obvious business opportunity for them here.

Ben: In some ways, hospitals are crappy customers because they don’t generate much profit. Insurance companies are probably much better customers if you can figure out something really compelling for them. Unfortunately, again, I feel like every time I come up with some profit pool in healthcare, I’m like, boy, I really wish that wasn’t there. I’ll have to think philosophically on why I keep feeling that way. But definitely, I end up critical of anything that becomes too profitable in the healthcare system.

David: Behind that, though, is that we as consumers feel like some of these entities are not in any way providing value to us.

Ben: I feel like I’m getting ripped off. I saw a study that said 30% of spending on healthcare, in the 18% of GDP goes to waste, truly waste. I saw another one that quantified it and said $800 billion of waste is in the system. The entire GDP of Switzerland’s worth of waste exists in our healthcare system.

David: Sounds about right.

Ben: Another interesting thing that someone brought up is they asked me how much I pay in premiums a year for health insurance for the family. I was like, I don’t know. I think somewhere in the neighborhood of $25,000–$30,000. Their comment back was like, in what world are you ever going to use $25,000 or 30,000?

Don’t imagine what’s on the bill because that’s all made up. All the numbers are made up. The top line, the negotiated rate, what I am covered for, they’re all made up. Just imagine dollars out of your pocket for healthcare and don’t even just pick this year, pick a 10-year period because stuff might come up.

You’ll have surgeries in some years but not others. What are you actually willing to pay and go out of your pocket dollars, give a doctor for everything you need over the next 10 years, and compare that against everything you’re paying into the system. If you were to be paying your own employer side, employee side, and all the out-of-pocket stuff, we’re not getting a good deal. We’re just not. And we can all feel it.

Continuing the bull case, so there’s a whole category called ambient listening. One of the biggest complaints that people have with EHRs is doctors spend too much time in front of the computers. They’re typing in notes, they’re clicky clicky on nine different dropdown boxes and alerts.

Sometimes that gets fixed by having someone in the room typing while the doctor is doctoring with you. Either way, there’s the scribe. But the doctor’s also at a computer because they just need to read the medical records, so the doctor ends up in front of a screen. They’re wasting a bunch of time typing or they’re hiring someone to type.

Oh my God, 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 that comes out of an interaction with a physician. Well, good news. It’s happening.

David: It is happening and it works.

Ben: David, there are a few companies that are partners of Epic, right?

David: That’s right. One is Microsoft and Nuance. Microsoft bought a company called Nuance a few years ago.

Ben: They used to do Dragon Dictation?

David: Yeah. They’ve always been in the voice space for healthcare. They now have an ambient AI product.

Then there are two big startups, one called Abridge based out of Pittsburgh, and then another one called Suki that have really good ambient AI products that plug into Epic, and yeah, are an AI scribe. People who use them, physicians who use them, love them. You can just focus on the patient and it scribes it all.

Ben: This would be a great solve to some of the doctor burnout, fatigue, and too much screen time that a lot of physicians are seeing.

David: That’s the bull case for this. These products are all partners of Epic, and in some cases, Epic may have relationships or warrants with some of these companies, or just revenue. You could also imagine Epic might want to build their own product to this someday. It’s a big opportunity.

Ben: Epic is the choke point of the industry at this point to decide what software innovations reach hospitals. I don’t think it’s overstating it to say if you’re developing new breakthrough software to be used by physicians in hospital systems, Epic’s the one that gets to decide, are you going to reach that customer or not.

David: Exactly. I think the basic bull case on ambient voice, ambient AI, is this is a great new product revenue opportunity. The mega bull case to borrow from our IPL episode here is one CIO was talking to me, he’s like, look, I don’t have high confidence that this is going to happen, but as ambient AI becomes better and better, is there a version of the future where the EHR “itself” just fades into the background and this all just becomes an AI operating system?

What is it primarily doing to EHR? It’s capturing data about what happened, it’s recording it both for clinical uses and then importantly for billing purposes. Then what needs to happen with that for billing purposes? Well, that data needs to get shipped over to the payer, whether that’s the government or an insurance company, and then needs to get judged and adjudicated, and then payouts need to happen.

Is there any real reason why this can’t all be done by AI in the future? Why do we actually really need user-facing software here? Or a lot of it. So yeah, there may be some future where, and this is a utopian type future, but a lot of the administrative bloat and costs in the system actually gets taken care of by ambient AI just sucking it all up here.

Ben: I’ll believe it when I see it, but it sounds nice.

David: Exactly, but a real CIO of a real big hospital system made this case to me.

Ben: It’s just so hard to believe bloat ever goes away. Getting administrative costs down is so hard. What are you going to do? Put a whole bunch of people who have good administrative jobs at hospitals out? That is going to be hard for our whole society.

David: For sure. This is the question about AI, right?

Ben: But you’re right. I think it’s a bull case if you’re a shareholder of Epic though.

David: If Epic becomes that system. All that to say, like every industry, AI has big potential here.

Ben: I think that’s fair, and that’s on top of everything we’ve already talked about. No one is switching off of them. Revenue from their install base will just continue to grow. They’ve become the standard that everyone will switch to once they get a customer. They don’t leave.

Honestly, at this point, regulation is probably also a bull case. This is what happens once you become an incumbent. Regulation tends to shut out new entrants and entrench the older companies because the older companies are the ones that have the resources to comply.

They’ve got their ears to the ground. They’ve got a ton of resources, so when new data interoperability stuff, like there’s one called TEFCA that is in the works, Epic can be the first to implement it well. That can further entrench them as they comply correctly with new regulations and new compliance.

As we talked about, there’s probably pricing headroom at this point, which may or may not be great for their customers but it’s great for Epic, and they probably can start extracting more value if they wanted to pull forward some of the future into today.

David: I would be really, really surprised if they do that.

Ben: I would too. I don’t think they will. Then the last one is becoming a platform. They really haven’t done this to date. They’ve built it all themselves. But I’m curious if they start platformizing a little bit more.

They’ve always had little things here and there (App Orchard), but I’d be curious if they at some point make a real play to be a robust platform layer upon which other applications build on top of. To your point about vertical software, maybe that’s just not the way this ends up playing out, but they have the opportunity if they want it and think it would be more valuable than their current path.

David: All right. Should we do quintessence?

Ben: The biggest question I have is why did it uniquely work in this field to build the entire platform and all the applications yourself? Any other time you get that pitched, pass. I’m not investing in that. That’s a stupid strategy. Why in this industry did it work?

David: I phrased this as a different question to myself, but I think it’s the same thing. I asked, why did Epic win? But I think it’s the same question here. To me it just smacked me in the head. This is vertical market software. This is the correct playbook to win in vertical market software, and it is very different from building horizontal market software.

Ben: That’s interesting.

David: Because in vertical market software, you are only serving one category of user. The deeper and deeper and deeper you can go into their business operations and solving their problems, the better. Whereas if you’re building Slack or Salesforce…

Ben: Let’s pick a horizontal complex piece of software. Microsoft Office.

David: Yeah. Microsoft Office. Great. Canonical example.

Ben: Or Windows actually.

David: Right. You need to be really, really, really careful about going too far into one customer segment. This goes all the way into product development. You hear all the time from really great product people and engineers at the big horizontal technology companies that the surest way to design bad products is to listen to your customers.

Ben: You internalize the feedback and then you decide what the best feature would be based on their own experience or based on collecting all the different experiences.

David: And that (I think) is generally right for building horizontal software and products. However, when you’re building vertical market software and products, you absolutely want to listen to your customers. That is what Epic is really good at.

Ben: That’s interesting.

David: You want to build exactly what they want. You want to understand who your customer is. And your customer is the CIO, the CIO, and the CFO of the hospital system.

Ben: I now agree with you. My answer, it probably just layers on top of why it’s healthcare-specific, not just vertical-specific. It is all the—we were talking about carrots and sticks earlier—all the sticks in this industry. If your software is bad, they die. The right thing is one big integrated approach rather than any risk at all of discontinuity between different applications, so that’s one.

Two is all the compliance stuff. Again, if you have any data leak, whoa, it’s catastrophically bad for HIPAA. If you don’t function correctly, oh you get your Medicare, Medicaid subsidies crushed for violating meaningful use stuff. There are just all these sticks with any mistakes. In a situation where you can’t make any mistakes, the single vendor playbook is the right playbook, even if it’s going to take 47 years to build the dominant company. You just have to write a lot of software and it all has to work together really well.

David: One of the things I was thinking about this idea of Epic as a vertical market software company, I don’t think we’ve ever really covered any other vertical market software companies on the show before.

Ben: I don’t think we have, either.

David: We sort of have. I was thinking about why that is. I’m like, oh well that makes sense. Generally vertical market software companies are not going to get that big. You’re limited by your vertical market. This is a rare case where because the market they operate in is so big, the American healthcare market…

Ben: And it’s something we all use.

David: And it’s something we all use and it’s something that is so important, you actually can get a really valuable company built serving just one end market. Then I was thinking about it and I was like, Epic has got to be the most valuable vertical market software company in the entire world. What else could possibly be up there?

I started racking my brain. I was like, Bloomberg was the only one I could come up with that could plausibly maybe be as valuable. We got to do a Bloomberg episode someday, but that’ll be our second vertical market software company that we cover. But then I was Googling and I was thinking about it. I was like, well people talk about Veeva Systems.

Ben: Yeah, Veeva, which is also healthcare.

David: They’re probably the largest public company. But I was like yep, they’re definitely not worth as much as Epic, and they’re also operating in healthcare.

Ben: They’re not worth as much as Epic?

David: No. It’s about a $20 billion market cap company.

Ben: Oh wow. Yeah, I don’t think so.

David: The only other company I could come up with in the vertical market software industry that’s also in this big league is Constellation Software, of course, fan favorite friend of ours.

Ben: But they bundled together a bunch of different verticals.

David: Exactly, there a roll-up. And I think some of their biggest companies are vertical market healthcare and healthcare IT companies within Constellation. Mark Leonard I’m sure is a big Epic fan. Or maybe not fan because he probably operates some competitors. I’m sure he has respect for Judy.

Ben: I am sure. She’s got a gold medal in the capitalism olympics, so you got to respect it. All right, that winds it down. Should we do some carve outs?

David: Let’s do carve outs.

Ben: Let’s do something fun.

David: All right, I’ve got two. I’ve got a regular carve out today and then I have a preemptive carve out.

Ben: Great.

David: My carve out today is a friend of mine turned me onto a very, very popular OG YouTube video that I had never seen. Ken Block, the rally car driver, did a YouTube video back in 2012 of San Francisco. They shut down the streets in San Francisco, and he did this incredible rally car 10 minute–long video through San Francisco.

It’s like watching the old movie bullet with Steve McQueen and the Iconic. But it’s like that with a 600 horsepower rally car driven by one of the best in the world. I can’t believe I’d never seen this before. I sit there like, my gosh. I know those blocks. I lived there. It was so cool. Amazing video. He sadly died recently in an accident, which is why I was back in the news. But I did some more research into him and I knew nothing about him before.

He was one of the co-founders of DC Shoes, the skateboarding shoes. He was one of the two co-founders. Then after they sold it to Quiksilver, he got into professional rally car driving, became one of the best professional rally car drivers, filmed this whole series of amazing videos in cities. Super awesome. I can’t believe I’d never seen it before. We’ll link to it in the show notes.

Ben: I don’t know anything you just said, so I got to go look it up because none of that made any sense to me.

David: It’s a short enough, very impressive video. Very cool to watch.

Ben: Sweet.

David: That’s my main carve out. Then my preemptive carve out is, I am so excited for the Switch 2.

Ben: Ah, if it ships, if they start taking pre-orders again.

David: Ah yeah.

Ben: Maybe by the time this comes out.

David: I’m not worried about it hitting the ship date. I think they have to sort out the US price and everything, but it looks incredible. Basically everything on our Nintendo episodes that we’ve hoped Nintendo would do with the successor system to the Switch they’re doing. Full backwards compatibility, maintaining the online accounts. System looks incredible. Shipping with a new Mario Kart. It’s going to be just awesome in and of itself. I can’t wait to have one for me.

Also my older daughter, I have been waiting since the day she was born to play video games with her. By the time it comes out, I’m thinking she might finally be ready for Mario Kart and I’m just so excited.

Ben: Sweet. Oh that’ll be so fun. All right, mine.

David: Go for it.

Ben: I just re-watched the movie Knives Out.

David: Oh yeah, good one. Daniel Craig.

Ben: Extremely fun, so good. It’s just pure popcorn. It’s visually stunning. Everyone loves a who done it? Daniel Craig’s awesome. The whole cast is great. If you haven’t seen that, you’ll really enjoy movie night.

My second one is I must be the last person to discover this album. I have been listening to the album Brat by Charli XCX. He is awesome.

David: Well you’re definitely not the last person because, don’t worry Ben. I will always be behind you in discovering music.

Ben: I just got to say, I am the oldest male list and also the fact that this came out 2024, everything about this is like a ridiculous carve out. I was watching Charli XCX at the Grammys in her performances there, and ever since, I’ve just had the album on repeat, and it’s amazing. It’ll transport you to another and much more fun world than the one you were currently sitting in in front of your computer.

David: I love it.

Ben: And then my last one is Odesza just released an album called Music To Refine To, and it is remixes from Severance. It’s just good. Leave it on lo-fi in the background while you’re doing work. I love Odessa. I love Severance. It’s my world colliding.

David: I’m grateful that all of us have you too. Keep us up to date on music here. My music is frozen in amber at 2006.

Ben: If you want to feel like you’re at a much cooler party than you’ve been invited to in 20 years, listen to Brat.

David: Great.

Ben: All right. One last thing, listeners. Remember, New York City, July 15th. We can’t wait to see you there. acquired.fm/nyc to make sure that you get the latest and you’re first to know as soon as we say what the heck is going on.

On that note, thank you to our partners this season. J.P. Morgan Payments, ServiceNow, Crusoe, and Fundrise. You can click the link in the show notes to learn more.

Thank you to all the people who spent time with us on this one. We talked to dozens of people and I think we can probably thank four or five of them specifically on air.

As always, Arvin Navaratnam at Worldly Partners for his great write-up linked in the show notes. Brendan Keeler who writes the Substack, Health API Guy, he’s awesome. Bryan Lawrence is the founder of Oakcliff Capital and was a great thought partner in this episode.

Lekan Wang, a healthcare technology investor and managing partner of JSL Health Capital. Scott Gaines, a longtime IT executive from Highland and CoverMyMeds. Patrick Wingo, the head of research at Elion, someone who has studied the health IT space very diligently and formally at Palantir.

John Bertrand, the CEO of Digital Diagnostics, an advisor at 8VC and a former Epic employee. He really helped me understand the culture and what a unique place it is to grow and develop there. And to Dr. Abed Meir, a Stanford physician and investor who used Epic firsthand before becoming an investor, and was inspired to become an Epic shareholder himself. David, I know you’ve got a few folks as well.

David: A whole number of health system CIOs who I spoke with. Huge thank you to all of you. One that I wanted to call out specifically was Mike Pfeffer, the CIO of Stanford Medicine.

Two fun ones, two of Jenny and my friends from our Princeton undergrad days who are now doctors at big Epic sites. Molly Kantor, who’s a doctor here at UCSF in San Francisco, and Carine Davila who is a doctor at MGH, at Harvard MGH in Boston. Got to speak with both of them about the physician experience using Epic.

Then finally we have a number of people to thank at Epic itself. Since there really isn’t any canonical long form piece about the company out there, we thought, we usually don’t do this, but let’s just email Judy and see if we can chat. And yes, she responded and we did.

Ben: Thank you, Judy, for spending time with us and helping us understand all the missing details we had on Epic’s company history. And of course also to Carl Dvorak, Sumit Rana, and Lee Lavonne, also from Epic who spent time with us and walked us through the history.

David: Yeah, we really, really appreciate it.

Ben: Listeners, if you liked this episode, go check out anything else in the acquired back catalog. We should specifically call out Novo Nordisk if you are into the healthcare space. You’ve also got lots of interviews available on ACQ2. Our most recent one was a conversation with Bill McDermot, the CEO of ServiceNow.

After you finish this episode, come discuss it with other smart Acquired Slack members, acquired.fm/slack. And with that listeners, we’ll see you next time.

David: We’ll see you next time.