This
is the big question: How far can Dane County ride Epic’s success?
Done
right, we’re talking about the foundation for Dane County’s 21st-century
economy being built on the medical software industry: lots of good-paying
information technology jobs that fuel an expanding housing market, a glittering
downtown with hip restaurants and music clubs, a rising tax base to fund new
community services and a lot more resources to deal with the serious problems
of poverty.
Call
it the “Epiconomy.” Madison advertising executive Andy Wallman, who
coined the name, should trademark it. “Epiconomy” nails the fact that
Epic now drives the Madison area’s prosperity.
Founded
in 1979 by its mastermind Judith Faulkner, Epic Systems Corp.is the
world leader in the burgeoning health-care software market. The privately owned
Epic has 6,800 employees at its Disney-like headquarters in Verona and recorded
$1.66 billion in sales in 2013. The company is renowned — notorious, say its
critics — for hiring only the smartest young people and working them hard.
Salaries for these twentysomethings range from an estimated $60,000 to $100,000
a year.
More
are coming. Lots more.
“They
could have as many as 10,000 employees by 2018,” says Madison planning
chief Steven Cover, who was among top city officials briefed by Epic’s chief
administrative officer Steve Dickmann in mid-January. (The media-shy company
declined to be interviewed for this story.) Epic expects to add 800 positions a
year for the next four or five years, Cover notes.
“They
have an international operation that is growing very quickly. This will fuel
their continued growth,” he says.
As
heartening as that message is, the good news doesn’t stop there. Epic will
continue to run its worldwide operation out of its nearly 1,000-acre Verona
complex.
“There
won’t be a European headquarters,” says Cover. “Their international
operation will be staffed and operated from here.”
It’s
big news that Epic will not decentralize its operation with regional
headquarters. But for Dane County, the even larger payoff hinges on the answer
to that opening question: Will Epic’s success give birth to an even larger
health industry?
The
optimists see that steady stream of brainy Epic expats who leave the mother
ship after three or four years sticking around Madison to form their own health
IT companies. This in turn will draw entrepreneurs from across the country who
want to share the Epic magic.
As
it is, the Madison area already has six times the number of software writers as
the national average, says Aaron Olver, the city’s director of economic
development. Credit Epic’s huge investment in software research and
development. Data prepared for the Madison Region Economic Partnership show
that IT workers are making, on the average, $89,844 a year.
“Epic
will be our equivalent of Microsoft in Seattle, of Dell computers in
Austin,” predicts an upbeat Mark Bakken, founder of Epic-focused Nordic Consulting. This is a familiar
comparison for Epic watchers in Madison. But others, especially those who have
worked in bigger tech markets, are more cautious.
Larger
IT markets like San Diego and Silicon Valley “have a different juice”
than Madison, says Mike Klein, founder of the tech-focused WTN Media in Verona.
“It’s a different energy, and it’s a higher energy.”
But
count Klein among the Madison optimists. “The opportunities for
health-care businesses,” he says, “are just exploding.”
Madison’s manufacturing age
A
dramatic rebooting of the Madison economy has happened before. In the late 19th
century, John A. Johnson was the Judith Faulkner of his day. This Norwegian
immigrant lived a storied life as a bartender, farmer, legislator,
philanthropist and progressive civic leader, as described by David Mollenhoff
in Madison: A History of the Formative Years. Johnson’s breakout
achievement was as an industrialist who brought the manufacturing economy —
and its high wages — to a reluctant college-and-government town that seemingly
was being left behind in the industrial age.
Johnson’s
implement factory on the 1400 block of East Washington Avenue manufactured
finely designed plows and cultivators that capitalized on the explosion of
wheat farming in the Great Plains. “They were shipping — literally —
trainloads of plows called the Bonanza Prairie Breakers from that site,”
Mollenhoff says. Across the street, Johnson built the Gisholt Machine Tool Co.
(ShopBop now occupies part of the old complex), which cranked out the
high-value machines that ran America’s factories.
Between
the two plants, Johnson employed 600 workers. Note that Madison’s population in
1900 was only 19,156. La Crosse, Racine and Sheboygan all had more people.
Milwaukee’s population was 14 times bigger. But a state report showed that
Madison had the highest per capita wage of them all, crediting its high-value
farm implement and machine tool factories. Thanks to John A. Johnson, in other
words.
As
Mollenhoff writes, Johnson’s success prompted the “Madison
Compromise,” which ended the city’s decades-old resistance to factories by
creating an east-side industrial district whose footprint is still visible
today. The city, which had been languishing with its singular economic reliance
on state government and the university, now had an industrial jobs base to
carry it into the 20th century.
“The
agriculture implement and machine tools industries comes as close as anything I
know to matching Epic’s transformative impact on Madison,” says
Mollenhoff.
It’s
worth noting that Johnson, like Faulkner, benefited from activist liberal
policies. In Johnson’s case, it was the Homestead Act giving free land in the
West to settlers who farmed the prairie. Some 430 millions acres were settled
and 225 million acres plowed in the last three decades of the 19th century,
writes Mollenhoff.
In
Faulkner’s case, it was President Barack Obama’s decision in 2009, as part of
the economic stimulus package, to subsidize the health-care system’s move from
paper to electronic health records, called EHRs. These incentives may wind up
costing $19 billion (or far more depending on the estimate). No company was
better situated to land these hospital and doctor-group contracts than Epic.
“Epic’s
secret sauce is that Judy Faulkner saw this coming,” says UW-Madison
business professor Mark Covaleski. “So the wind is at her back.”
When
the stimulus kicked in, Epic already had 30 years of experience in developing
an integrated software package for medical providers. Faulkner’s little company
began with a modest database program for the UW-Madison psychology department
and piece-by-piece built out from that platform.
Today,
Epic’s suite of software covers everything from patient scheduling to billing
to clinical documentation for the dizzying number of specialty clinics found in
the biggest hospitals. Online portals for patients to review their care are
also part of the package. Pre-stimulus, Epic already had Kaiser Permanente, the
giant California health system (36 hospitals and 533 medical offices), and the
highly regarded Cleveland Clinic among its trophy clients.
About
half of all Americans now have their medical information stored in an Epic
digital record. Klein expects the figure to hit two-thirds in a few years.
“Nobody
ever got fired for buying Epic,” notes Bakken, whose consulting company
helps medical centers optimize their Epic software. “They are the premier
system.”
Software revolution
All
this puts Madison and Dane County in a powerful position. The steady stream of
Epic employees who leave the company — reportedly 1,200 a year — has fueled
the staffing of the first impressive wave of Epic spin-offs in the Madison
area. These are the health IT consulting companies like Bakken’s Nordic, Vonlay and BlueTree Network.
Bakken
reveals what must be the dirty little secret of corporate IT: “Most companies
spend from $5 to $7 on consulting for every dollar they spend on software. You
would love it if it worked right out of the box, but it never does.”
At
age 49, Bakken is a serial IT entrepreneur who founded and sold Goliath
Networks before starting Nordic in 2010. His timing was impeccable. He caught
the rising tide of the EHR boom and today has about 400 employees (most are
Epic expats) in its news headquarters on Regent Street. Impressively, Nordic
has secured $38.5 million in venture capital from investors in Boston, New York
and San Francisco, defying the conventional wisdom that the money guys only
invest in their backyards.
Sorting
all the electronic health data will eventually transform the practice of
medicine, Bakken says confidently.
“Right
now, we’re still in the hunter-gatherer stage of patient care. We’re literally
trying to document what the heck happened when someone gets sick. When was your
last tetanus shot? What diseases did your parents have? Eventually, it’s going
to be why did it happen? Someone will analyze the data and figure out if the
cause was behavioral or genetic.”
Treatment
will depend less on physician hunches, he says, and more on the outcomes of
10,000 other people who had similar symptoms. Whoosh! The
sound you just heard is the door opening to new fields of medical research and
innovation: “Population Health,” the data-driven care of large groups
of people, and “Genomics,” another Big Data offshoot that promises
personalized treatment tailored to a sick person’s genetic data.
At
the Wisconsin Early Stage Symposium, held last November at Monona Terrace
Convention Center, Bakken predicted all that crunched EHR data would provide
safer and more efficient (and automated) treatment. “Software will
revolutionize health care, like it has with every other industry,” he
said.
Two
of those bright young Epic expats who shared the stage with him — Niko
Skievaski, 27, founder of the 100 Health
incubator, and Dan Wilson, 28, founder of Moxe Health software — agreed.
“Over
the next five years we’re going to see massive change in the health-care
industry,” Skievaski said.
“This
will be the greatest shakeup in health care we’ve ever seen,” Wilson concurred.
Driving
it all is a simple idea called “meaningful use.” That is, health
providers who use EHRs to improve care coordination, engage patients and their
families and reduce health disparities will get “incentive” payments
from the feds. Just billing payers for every service and good provided,
regardless of outcome, is no longer the standard.
Revolution,
it would seem, is in the air.
The business of health care
In
key ways, the Madison area seems well situated to lead the charge. Observers
point to the long-established integrated health systems (Dean-St. Mary’s; UW
Health; and Meriter Health Services) that sell insurance as well as provide
medical and hospital care — in theory, the best configuration for managing
cost-efficient care. The massive research operation at UW-Madison and its
top-rated computer science department further boost our bona fides.
Zach
Brandon, president of the Greater Madison Chamber of Commerce, makes the pitch
for a broad vision of a new Wisconsin health industry. Not just Epic and
“the acorns” that fall from its digital branches, he argues, but
“that new marriage of tech, data and bioscience. That’s the greater
opportunity.”
For
example, he says that Covance, which does drug-development testing, and GE
Healthcare, a medical device maker, should be considered as key components in
the health cluster of businesses. Both are international operations with a
significant presence in Madison.
Still,
it’s Epic that has kicked open the door. So much of that critical health data
is already stored on Epic’s electronic health records. And those super-bright
Epic kids seem like the revolutionaries in our midst.
Skievaski,
who worked nearly three years at Epic, says they give Madison a leg up over a
far larger health-industry town like Boston. Sure, Boston may train a lot of
medical students and medical researchers, many of whom work at the big
pharmaceutical companies, he acknowledges. But Epic grounds its software
writers and project managers in the operational intricacies of health care.
“They
learn the business of health care,” he says. “They learn how the
physician interacts with the software, how that impacts patient care, and how
it all affects the bottom line for the health-care organization.”
And
then they take those insights with them when they leave Epic to work for
themselves. That’s the time-honored path in Silicon Valley, Klein notes.
Someone burns out working for a tech giant and walks away with the business
idea that the big boss never followed up on. Someone else will always listen
and maybe help.
Health-industry hub
Madison
has that creative ferment now. Epic expats and lots of others are coming
together. Wilson helped organize Madison Health Tech, a
meetup with nearly 300 members. Skievaski, a key scenemaker, helped organize 100 State, the co-working space and good-deeds
collective that frequently becomes a landing zone for decompressing Epic
expats. And now the sponsors of StartingBlock, the ambitious downtown tech
incubator/maker space/coffee shop proposal, want toinclude significant
space for health IT startups.
Scott
Button, the managing partner of Madison-based Venture Investors, likes what he sees.
“Five years ago, you had Epic and no one else,” he says. “Now we
have more health tech companies than you can count on the fingers of both
hands.”
Here’s
a sampling. Propeller Health, a mobile
platform for managing asthma, has gained major financial and technical support
from Silicon Valley. The Forward Health
Group brings Big Data analytics to managing care for patient
groups. Wilson’s Moxe Health promises to enhance EHR integration. Wellbe is a
cloud-based program to help patients follow medical directions at home.Revolution EHR provides a cloud-based
electronic health records system for optometrists. Echometrixsells refined ultrasound
technology. There are more.
Healthfinch is a particularly heartening
story for Madison digital health. The company makes an app that simplifies the
EHR process doctors follow to approve prescriptions — an important time-saver,
in other words, that gives physicians more face time with patients.
CEO
Jonathan Baran says Healthfinch has secured $1.75 million in venture investment
from Silicon Valley and Chicago and has a founder who practices medicine in
Chicago. “But we decided to build our company in Madison,” says
Baran. “We made a strategic decision to not move to Chicago or to Silicon
Valley, because we felt the talent and everything else we need is right in
Madison.”
This
is a ringing endorsement, but then again, Baran says Healthfinch has all of
seven employees. Hardly a game-changer. This is typical. When you get beyond
Epic and Nordic, health IT companies ain’t that big in Madison. And the ramp-up
time for those that survive may be longer than people expect.
Consider
that after 11 years in business Epic had a grand total of 29 employees.
The Faulkner way
Something
that everyone agrees on is that Faulkner and Epic will do zip to further the
digital health industry beyond tending to their own business. That’s to say, no
venture capital fund to invest in the digital sprouts. No knighting of
preferred Epic vendors. No munificent Frautschi-like gifts to benefit the
startup community. No, nothing, nada. That’s the Faulkner way.
Nobody
likes to talk publicly about this, because no one wants to risk angering a
brilliant billionaire who wields serious power in the digital health universe.
(Forbes health writer Zina Moukheiber, who ran into a similar wall
of silence, says Faulkner inspires “a mixture of awe and fear” in the
people who know her.)
As
one observer puts it, Faulkner’s laser-like focus on her core business accounts
for its outsized success. She does not become distracted by a foolish search
for “golden apples.” Nor did she ever take on debt (not even to
finance what probably approaches $1 billion in campus construction) or sell a
stake to venture capitalists.
Says
one Madison tech watcher: “When Judy hears stories of how tech companies
in Madison can’t raise money, she doesn’t have a lot of empathy. She’s
thinking: ‘Go out and do it my way. Get a customer, make some money, then get a
second custumer.”
Paul
Barford, a UW-Madison computer science professor, doesn’t see a problem with
Faulkner’s approach. “Her amazing accomplishments are due to how she’s
decided to run her business. If she’s decided she doesn’t want Epic to do
venture funding, that’s totally her decision. Is that a major negative for the
rest of the community? I’d say no. I’d say she’s already doing her part.”
That
last line was delivered with a chuckle.
“Those
of us trying to grow the [health IT] industry should seek her guidance and
whatever level of support she’s willing to give,” Barford adds. “But
the expectation should stop there. Judy is all about running that
company.”
Others
see chinks in the Epic armor, wondering, for example, if cloud-based medical
records will blow out Epic’s primacy. Similarly, Epic’s suspicion of outside
software puts it at odds with the explosion in health and fitness apps —
97,000 and counting — including apps for weight loss, ovulation monitoring,
smoking cessation, stress reduction, yoga practice and a panoply of health aids
for high blood pressure, diabetes and the other diseases of the modern age.
It’s
easy to imagine how such apps could figure into a more holistic approach to
delivering health care tied to personal behavior. (How many steps did Marc take
on his walk? What about his caloric consumption? Did he take all his meds?)
“A
lot of these new app companies need to tie into electronic health
records,” says Button, the venture capitalist. “The question is
always: What will Epic say? Everyone is afraid, because Epic has a
‘not-invented-here’ culture. It would be nice if Epic would figure out how to
play nicely with this community.”
As
for Venture Investors, Button says for the first time in its 32-year history
the fund is looking to make health IT investments. “It’s really a hot
sector now and a core strength of our community,” he says.
Direct flights needed
How
far Madison can advance in the digital-health playing field is the big
question. Paul Jadin, who runs the regional development group MadRep, thinks we’re already in the top 20
health IT markets and hold the inside track to advance even higher. But he and
just about everyone else interviewed for this story points to the absence of a
direct flight to the San Francisco area as a major stumbling block.
Those
legendary financiers of America’s tech boom want to be an easy hop, skip and
jump away from their newly hatched tech babies. That doesn’t include jumping on
an uncertain commuter flight in Chicago or Minneapolis to get to Madison. (A
spokesman for the Dane County Regional Airport had nothing meaningful to say
about the prospects for a direct flight other than that he knew nothing.)
Epic
expat Dan Wilson, who checked out San Francisco, Boulder and Austin before
returning to Madison to launch Moxe Health, envisions a long 20-year climb to
fully flesh out the digital-health ecosystem in Dane County. He counsels
patience and a long-haul perspective…while simultaneously admitting he’s
wildly excited at the “massive opportunity” before the community to
revolutionize health care.
The
city, for its part, has been engaged in painstaking planning to
make the East Washington Avenue corridor the home for Madison’s emerging green
businesses and tech industries. StartingBlock is looking to build in that old
industrial neighborhood. The fact that the Constellation apartments filled up
with young Epic workers has heartened project proponents.
Of
course, there’s a fitting irony here. A tech industry fueled by the success of
Epic is taking root in Madison’s historic industrial district. That could be a
great story of urban revival. All the more sweet, it connects two titans, John
H. Johnson and Judith Faulkner, who transformed Madison.
Epic’s 12 principles
1. Do not go public.
2. Do not be acquired.
3. Expectations = reality.
4. Keep commitments.
5. Be frugal.
6. Have standards. Don’t do deals.
7. Create innovative and helpful products.
8. Have fun with customers.
9. Follow processes. Find root causes. Fix processes.
10. Don’t take on debt, no matter how good the deal.
11. Focus on competency. Do not tolerate mediocrity.
12. Teach philosophy and culture.
This list is posted throughout Epic’s sprawling Verona campus.
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