Acquired Podcast Episode Summary: Epic Systems (MyChart)

Podcast Information:

• Title: Acquired
• Hosts/Authors: Ben Gilbert and David Rosenthal
• Description: Every company has a story. Learn the playbooks that built the world’s greatest companies — and how you can apply them.
• Episode: Epic Systems (MyChart)
• Release Date: April 21, 2025

1. Introduction to Epic Systems

In this episode, Ben Gilbert and David Rosenthal delve into the story of Epic Systems, a quietly dominant player in the U.S. healthcare software industry. Nestled in rural Wisconsin, Epic has become an indispensable part of healthcare operations across the nation, particularly known for its patient management software, MyChart.

Ben Gilbert introduces Epic as an "unusual company in so many ways," highlighting its lack of traditional marketing and sales strategies. Instead of aggressively pursuing customers, Epic often declines potential clients, maintains fixed pricing, avoids venture capital, and has never engaged in acquisitions over its 47-year history ([00:57]).

2. Founding and Early History

Judith Faulkner, the founder of Epic Systems, is portrayed as one of the most successful female entrepreneurs of her time. Born in 1943 in New Jersey, Judy's early interest in mathematics and self-taught programming laid the foundation for her future endeavors.

During her time at the University of Wisconsin-Madison, Judy collaborated with Dr. Warner Slack from the medical school to develop a program that optimized doctors' on-call schedules. This project evolved into Chronicles, an integrated patient database system, which became the core of Epic's offerings.

In 1979, responding to growing demand, Judy founded Human Services Computing, which was later renamed Epic Systems in 1983. The company's initial focus was on serving complex academic and training hospitals, slowly building a reputation for reliability and integration ([36:00]).

3. Growth Milestones

Epic's growth was methodical and steady:

• 1987: Launch of Resolute, Epic's billing module, addressing hospitals' critical need for streamlined billing processes.
• 1992: Introduction of EpicCare Ambulatory, the first graphical user interface-based EMR, making it user-friendly for outpatient settings.
• 2000: Launch of MyChart, an innovative patient portal allowing electronic access to medical records.
• 2001: Release of EpicCare Inpatient, completing the suite for both outpatient and inpatient systems.

A pivotal moment came in 2003 when Epic secured a monumental deal with Kaiser Permanente, the largest hospital system in the U.S. This deal catapulted Epic's revenue from $50 million to $162 million, marking Epic's transition from a modest software provider to a major industry player ([67:00]).

4. Company Culture and Values

Epic Systems is often described as a "software factory", emphasizing rigorous software development and high standards. The company's campus in Verona, Wisconsin, inspired by Microsoft’s Redmond campus, features whimsical, fairy-tale-like architecture designed to attract young, ambitious talent ([93:35]).

Epic operates under a set of "Ten Commandments" displayed across its campus, emphasizing principles such as:

1. Do not go public.
2. Do not acquire or be acquired.
3. Software must work.
4. Reality equals expectations.
5. Keep commitments, even the unspoken ones.
6. Focus on competency and do not tolerate mediocrity.
7. Maintain high standards and fairness.
8. Have courage—what you tolerate is what you stand for.
9. Teach philosophy and culture.
10. Be frugal and avoid operational debt ([100:05]).

The company's flat organizational structure and emphasis on continuous learning, including mandatory immersion trips in clinical settings, foster a high-trust, high-performance environment.

5. Market Position and Dominance

By 2024, Epic had grown to serve 607 customers encompassing 3,200 hospitals, 590,000 physicians, and handling data for 325 million patients worldwide. Epic's consistent delivery and customer satisfaction have resulted in it never losing a customer since its inception, further solidifying its market dominance ([181:01]).

Competitors like Cerner (now part of Oracle Health) and Meditech have faced challenges, especially with complex mergers and acquisitions that often led to integration issues. In contrast, Epic’s all-in-house development and single-database architecture provided unmatched reliability and integration, making it the preferred choice for top academic and large hospital systems.

6. Impact of Healthcare Policy (HITECH Act)

The HITECH Act of 2009, part of the American Recovery and Reinvestment Act, provided $36 billion in incentives for the adoption and meaningful use of Electronic Health Records (EHRs). This government push significantly accelerated EHR adoption, increasing it from 13% of hospitals in 2009 to 95% by 2014.

Epic benefited immensely from this initiative due to its robust and reliable software offerings. The HITECH Act not only rewarded Epic's existing strengths but also entrenched its position by making interoperability a secondary focus, allowing Epic to maintain its integrated system without significant pressure to adopt disparate standards ([114:50]).

However, the episode also touches on criticisms, such as increased administrative burdens on physicians, leading to burnout, and the lack of true interoperability compared to other industries.

7. Future Innovations and AI

Looking ahead, Epic is venturing into innovations like Cosmos, an anonymized database containing 295 million patients’ data across 15 billion patient encounters. This platform aims to facilitate research and enhance patient care by providing comprehensive, accessible data for Epic's customer base.

Additionally, Epic is exploring ambient AI solutions to alleviate the burden of data entry on physicians. Collaborations with companies like Microsoft (Nuance), Abridge, and Suki are paving the way for AI-driven scribing and streamlined workflows, potentially transforming the clinician experience and further embedding Epic into healthcare operations ([219:46]).

8. Succession Planning

As Judith Faulkner approaches her later years, Epic has implemented a robust succession plan:

• Voting Shares: Fully controlled by Judy until her death, ensuring the company's independence.
• Non-Voting Shares: Owned by Judy and her family foundation, with plans to transfer Voting Shares to a Purpose Trust posthumously.
• Trust Administration: Managed by three constituencies—Judy's family, five senior Epic managers, and three customer CEOs. This structure ensures continuity of Epic’s founding principles, prohibiting the company from going public or being acquired ([236:12]).

9. Challenges and Criticisms

Despite its dominance, Epic faces several challenges:

• Regulatory Scrutiny: Ongoing antitrust lawsuits accuse Epic of monopolistic practices within the EHR market.
• Information Blocking Legislation: The Cures Act mandates data interoperability, allowing alternatives like screen scraping, which could undermine Epic's integrated system approach.
• Market Saturation: With the majority of U.S. hospitals already using Epic, future growth relies heavily on international expansion and diversification into payer and pharmaceutical sectors.
• Competition: Although Cerner was once a formidable competitor, its acquisition by Oracle and subsequent challenges have lessened its market presence, indirectly benefiting Epic.

10. Conclusion and Final Thoughts

Epic Systems stands as a paragon of vertical market software excellence, demonstrating how relentless focus, integrated system design, and customer-centric philosophies can build enduring market dominance. While the company enjoys significant advantages like high switching costs, scale economies, and a robust culture, it must navigate evolving healthcare regulations and potential antitrust actions to maintain its leadership.

Ben Gilbert and David Rosenthal commend Judy Faulkner’s unique approach to building and sustaining Epic, positioning it as potentially one of the most valuable vertical market software companies in the world. The episode underscores the intricate interplay between corporate culture, market strategy, and external policy in shaping Epic’s trajectory.

Notable Quotes

• Ben Gilbert ([00:57]): "Epic is a very unusual company in so many ways. They do no marketing. They basically don't do any sales either."

• David Rosenthal ([02:38]): "Judith Faulkner, in starting one of the most valuable companies in healthcare, is the most successful female entrepreneur in history."

• Ben Gilbert ([52:07]): "We sell them a separate educational license, too. I think they treat the university hospital and the academic classroom as separate."

• David Rosenthal ([175:57]): "Why did Epic win? Because they are serving one category of user exceptionally well, unlike horizontal software companies."

• David Rosenthal ([220:22]): "Epic 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."

Further Resources and Contacts

• Subscribe to Acquired: Join the email list at Acquired FM Email for episode updates and additional content.
• Join the Slack Community: Discuss episodes with other listeners at Acquired FM Slack.
• Watch ACQ2: Dive deeper with interviews at ACQ2 Podcast.
• Upcoming Event: Save the date for Acquired’s NYC event on July 15 at Acquired FM NYC.

Special Thanks To:

• JP Morgan Payments
• ServiceNow
• Crusoe
• Fundrise

Featured Contributors:

• Brendan Keeler (Health API Guy)
• Mike Pfeffer (CIO, Stanford Medicine)
• Judy Faulkner (Founder, Epic Systems)

Final Note: This episode of Acquired offers an in-depth exploration of Epic Systems’ rise to prominence in the healthcare software industry, highlighting the strategic choices, cultural ethos, and external factors that have shaped its journey. For listeners interested in enterprise software, vertical market dominance, and the intersection of technology with healthcare policy, this episode provides valuable insights into one of the most influential companies in the sector.