The Medical Records Monopoly

Read time: 5 minutes

Good morning! It's Friday, March 15th. Today's post examines the company that generates $3.8B a year through its medical records monopoly!


The Medical Records Monopoly

An unusual site sits in the middle of the Verona, Wisconsin farm fields— the self-described "Intergalactic Headquarters" of Epic Systems. 

This headquarters, which boasts rail cars, tree houses, and a subway system, is home to over 10,000 employees, nearly doubling the local population. 

All these amenities serve to attract top tech employees to Epic Systems and away from giants like Apple and Google.

Never heard of Epic Systems? Don't be alarmed, but the company likely has your private medical records. 

Epic Systems is responsible for the digital medical records of over 253M Americans, ~75% of the nation's population, and generates $3.8B a year!

So, What's the Business?

Epic's founder, Judith Faulkner, began pioneering the medical industry from her college dorm room in the 1960s. While earning her MS at the University of Wisconsin, Faulkner developed one of the first patient databases for a local physician's group. 

That achievement can't be understated. Before Faulkner, medical records were entirely physical, severely limiting patients, doctors, and researchers looking to transfer and analyze reports. 

With a $70,000 loan from family and friends, Faulkner founded Epic Systems in a basement in 1979 with three half-time employees. 

Epic's start was slow. The medical industry wasn't ready for the massive changes digitization would bring. However, Faulkner was patient and opted to build her company's reputation slowly. She sustained her company on just 73 clients for two decades and accepted 0 venture capital investments. 

That patience paid off in 2003 when healthcare company Kaiser Permanente contracted Epic to build its electronic record system, which cost a whopping $4B

As the only company with a track record in the digital records space, Epic took over the entire market, and revenue exploded: 

  • 2000: $50M

  • 2006: $420M

  • 2010: $825M

  • 2014: $1.7B

Epic's contributions to revolutionizing the medical industry are historic, but possibly more interesting are the company's tactics for maintaining its leading position…

How They Win: Creating a Competition-Proof Moat

Faulkner knew she would be the first to digitize medical records, so she designed Epic's software to prevent competitors from entering the market. 

All of Epic's services operate on a closed system, meaning they don't integrate well with competitor software. So, providers using Epic are unlikely to purchase additional software services from other vendors as it won't mesh with their current record portals. 

Epic doesn't hide the fact that it wants to dominate the market. In a reference document to customers entitled "Products You Can Replace With Epic," the company identifies areas where providers can either "replace or avoid purchasing niche applications." 

The only thing is that these "niche applications" aren't all that niche. Epic lists services like hospital bed management, consumer marketing, and health risk assessments as things they can and should take over for their customers. 

Key Observation: Patience + Planning

It took Faulkner 20 long years to see her big break. However, her patience was based on the knowledge that her work would be the future of the medical industry. She just needed to wait for providers to catch up and realize it.

In addition to its first-mover advantage, Faulkner set up a defensive moat around her company to ensure it wasn't just an innovator, but a market dominator.

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