Competitive Or Exclusionary? Epic’s ‘Seven Anti-Competitive’ Sins

Competitive Or Exclusionary? Epic’s ‘Seven Anti-Competitive’ Sins

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If you’ve ever visited Epic Systems’ sprawling, 1,100-acre campus in Verona, Wis., you may have been surprised by how rural its surroundings are, maybe even chuckling at the stark contrast between the pace of life happening inside the organization versus out.

The peaceful, bucolic farmlands would’ve likely stolen your gaze on the drive in, with one reporter describing “a meandering road through countryside, dotted with Queen Anne’s lace and farm equipment” when speaking of a 2018 Epic visit.

Yes, you’ll have seen plenty of scenes that evoke calm and serenity as those country roads take you to Epic’s home.

What you probably wouldn’t have seen upon your approach to Epic’s headquarters — or anywhere within a 50-mile radius of the organization, for that matter — are billboards, or any other form of advertising for any other healthcare technology company besides Epic. This is because, like affluent homeowners in the Hollywood Hills who buy “air rights” to ensure there is no obstruction of views, Epic utilizes its dominant market position to contractually limit any marketing or advertising from any organization who has any form of relationship with Epic (or its customers, effectively).

Yes, seriously.

But local advertising exclusivity is just one, tiny aspect of how Epic diligently promotes and protects its position, both as the tech giant in the greater Madison area and the leading electronic health record (EHR) system nationwide.

In follow up to the first article in this series — Epic’s Antitrust Paradox: Who Should Control The Levers Of Healthcare Innovation? — part two below digs into seven aspects of Epic’s behavior that may raise antitrust eyebrows.

Epic did not respond to requests for comment regarding the issues and questions raised below.

Taken together, these seven seemingly anticompetitive sins beg the question: Is Epic just being shrewdly competitive, or outright exclusionary, in the way in which it obtains and maintains its EHR market dominance, especially among large hospitals, health systems and academic medical centers (AMCs)? And, if the latter, what should happen next?

Seven Levers Preserving Epic’s Dominant Position
When does competition cross over to an unfair monopolistic advantage? For Epic, there are seven areas worth the public’s consideration and exploration, EHR customers and users (including institutions, clinicians, third-party vendors and patients), and the healthcare innovation community writ large.

1. Artificially Increasing Third-Party Developer Costs

Until recently, Epic allegedly allowed its customers to provision limited access to contracted third party developers. The third-party and its employees would purportedly be required to sign non-disclosure agreements (NDAs), non-compete agreements. Each third party employee was reportedly limited to only work on a single customer’s Epic instance, which raises questions as to how efficiently third parties could support its customers.

Several technology CEOs pointed to changes to how Epic allows third parties to work with and integrate with Epic following the introduction of Information Blocking rules. In several cases, while Epic allowed continued access to some information, it allegedly disallowed companies from accessing other previously accessible information, citing that the names of the products were protected intellectual property not to be shared with potential competitors.

The resulting effect for some is that some hospital customers must hire their own employee with knowledge of both Epic and third party products. This introduces friction and costs to both customer and companies, and increases project time to get started from 16 weeks to one year on average.

Consistent feedback from both technology executives and health system executives was that Epic may be the best EHR, but it also could be difficult and expensive to work with.

2. Non-Competes And Right Of Refusal

Epic CEO Judith Faulkner has talked about the importance and benefits of in-person interactions among employees. This is why the overwhelming majority of Epic employees live and work in Wisconsin.

One other reason the company only hires and employs staff in Wisconsin? The state’s historically corporate-friendly approach to non-compete agreements. Between its non-competes with employees, non-solicitation agreements with customers and consultants, and aggressive HR and legal teams, Epic has a stranglehold on IT talent that is relevant to hospitals and the surrounding ecosystem of technology companies and professional services firms that represent 60% of net patient revenue.

The result, according to a recent story in Wisconsin’s own Isthmus magazine, is an incredible story of thousands of highly educated and trained health technology workers stuck in an artificially constrained job market controlled by Epic. Beyond the company’s non-compete (which includes an incredible 4,500 named partners, customers and competitors) is Epic’s “all efforts” pledge, which requires employees to focus their time solely and exclusively on Epic matters, limiting any aspirations they may have to innovate on their own.

Health systems have started grumbling about the effects of Epic’s non-compete restrictions.

And among the 4,500 companies listed in Epic’s non-compete: UnitedHealth Group (the nation’s largest health insurance company), Pfizer, Amazon, Microsoft, and hundreds of consulting and health technology companies.

Epic’s customer contracts also contain provisions limiting health tech job market liquidity: “Epic may choose not to work with or provide training for any former Epic employee employed by You or working with You… if such employee is hired less than 12 months after [Epic employment].” In other other words, health systems must think twice about making any new hires for roles that may interact with Epic’s software.

Epic also allegedly leverages its market power to place restrictions on hiring between third parties and Epic customers during periods when customers are implementing Epic. Given that Epic implementations last for 12 to 24 months on average, but can extend much longer for larger organizations, this restriction effectively limits job mobility for hospital IT staff for years on end.

The company appears to view the hold it has over the health tech market in a benevolent light. It has begun advertising an “Epic Corps” service, providing “seasoned Epic staff for leadership staff augmentation” to its customers. The branding is a clear imitation of the Peace Corps logo. Query whether Epic employees who have served their time and partake in the Epic Corps program would feel akin to Peace Corps volunteers and agree it’s “the toughest job you’ll ever love.” Epic did not respond to requests for clarification as to whether, like Peace Corps, members of the ‘Epic Corps’ are volunteers, or whether Epic Corps is offered at no cost to customers.

In sum, Epic’s reach is not limited to thousands of its own employees, but to tens and perhaps even hundreds of thousands of employees across the country. As described by one industry executive who regularly interacts with both Epic, its customers and IT staff of both, “Epic is slowing innovation. It is limiting career growth.”

3. Raising Fees

Information Blocking rules established by the 21st Century Cures Act have created an expectation that providers and their IT systems will share electronic information without requiring ‘special effort’. The purpose is to lower costs and usher in an era of actual interoperability, to help generate a return on the government’s $35 billion investment.

Under the new regime, IT systems such as Epic are allowed to impose fees to third parties for accessing its system, but there are limitations. Fees must be (i) consistently applied, (ii) based on verifiable cost data, and (iii) not based on whether a requestor is a competitor.

Epic has updated its fee structure in at least one area based on the new rules. But the effect has been the opposite of what Congress was looking for in at least a few cases. Several industry executives pointed to these changes as increasing the costs of their transaction fees with Epic. In one case a company that has been working with Epic for years has reportedly seen API fees rise by 70X to >100X.

CEOs noted that, in many cases, Epic had competing products that likely would not be able to bear the costs of these transaction fees while maintaining financially viable.

4. Bundling, Tying And Pricing Practices

At the same time that Epic is (at least in some cases) increasing fees to third-party developers, it is going to mutual customers of those third-party developers and offering what appears to be below cost pricing for its competitive product. In many cases, it appears to be price bundling what it markets as new, distinct products, in with its core EHR software.

Industry CEOs pointed to Epic offering these new competitive products at no cost to customers, although expressed uncertainty regarding how Epic could do so for extended periods of time.

In other cases, industry executives pointed to Epic bundling new product offerings with preferred maintenance status on its core EHR product.

Universally, the executives and CEOs respected Epic’s competitive and pricing strategy. It certainly is effective, according to them. Also universally, they are looking for a level playing field.

5. Picking Winners And Losers

Epic’s App Orchard was a wonderful development in Epic’s history, according to third-party developers who were seeking a clear way of understanding how to work with Epic, integrate their products, and market that integration to hospital prospects.

In December 2022, Epic announced it was shutting down the App Orchard, in favor of its new “Connection Hub”, so it could better help customers separate the “signal from the noise” among the myriad technology solutions.

The effect may indeed help separate hospital customers separate out the signal from the noise. But it appears that it is Epic, not necessarily its customers, determining what constitutes “signal” and what constitutes “noise.” And from several conversations with both third-party developers and health system customers, it sounds as if part of Epic’s decision comes down to whether Epic itself has plans to compete in a given product area.

It’s been difficult to gather much information about what Epic’s new third-party program actually is, the overarching objectives of the program, who is eligible to participate, what the criteria are for participation, who makes those decisions, and how those decisions are made.

More recently, the company unveiled the new third party offering, renaming it Showroom. As Forbes detailed, the site now includes enhanced capabilities designed to “help Epic customers to help ‘connect into the Epic ecosystem’ and ‘assist with the adoption of new technology.’”

The new showroom does away with ‘Partners and Pals’ in favor of ‘Connection Hub,’ ‘Toolbox,’ ‘Workshop,’ and ‘Cornerstone Partners’, among others. Notably, Abridge is included among the ‘Workshop’ category, under which Epic notes, “These developers and Epic work together to create new technology.”

It is unclear how the co-creation process works, who is in charge, and how ownership of the resulting technology intellectual property works. Epic did not respond to requests for comments regarding these questions or if Epic has any equity interests in the companies included in the ‘Workshop’ category or others.

Regarding the shift from App Orchard (to Connection Hub) to Showroom, there is a risk for Epic of appearing to be the industry player picking health tech’s winners and losers — which should raise some eyebrows, especially in an era when there is bipartisan support for open access, unfettered competition, and innovation.

6. Chilling The Market For Innovation

One of the unique effects of Epic being privately and tightly held is the freedom the company has to make product roadmap announcements well in advance of those products actually becoming available. For publicly traded companies, every new initiative, investment or product has a shelf life that starts the moment it is announced (and oftentimes, before): outside investors expect investments to generate returns quickly, and if they don’t, the project gets mothballed.

Epic has a history of seemingly leveraging the combination of its private status and its relationship with its customer base (more immediately below) to great, and perhaps anticompetitive, effect. The company has regularly announced future products it has not yet developed, but either intends to or has started development on.

The result, for overworked hospital CIOs and IT departments, is to begin freezing the market for a given product area. “Chilling effect” was used by multiple technology CEOs to describe the outcome of efforts.

The effect is understandable from a CIO perspective: it is the IT team who must manage multiple vendor relationships, integrations, and maintenance. Across hundreds of IT staff, the complexity can become overwhelming. If a CIO knows that Epic is bringing a new product to market in a year or two, the IT department will do its best to shut down attempts by clinician leaders or others to bring in another vendor that can address the issue today.

7. Vertical Manipulation

The Meaningful Use program demanded a massive investment in change management on behalf of providers, while simultaneously elevating the role of health system CIOs. Boards were interested in tracking progress; with everything digitized, system uptime is mission critical; with increased clinician enthusiasm for new solutions, system integration became paramount.

Both technology executives and health system executives highlighted the importance that Epic has had regarding elevating the role of the CIO.

Speaking with executives and investors across the spectrum of healthcare, virtually every one points to the phenomenal mutually beneficial relationships that Epic has fostered with hospital CIOs and IT leaders, pointing to both Epic’s role as a convener as well as the job it does facilitating information sharing among users.

These may be good things, but two considerations are worth taking into account: first, the hospital IT department (and by extension, Epic) now effectively serves as the gatekeeper to (rather than developer or order-taker of) innovation efforts; and second, neither the CIO, nor the IT department, nor the hospital itself, is the end consumer. The end consumer is the patient.

Hospitals and hospital CIOs should be free to choose the software companies they work with; some may make wise decisions, and some will make poor decisions — exactly as expected. And in a competitive market, individuals and organizations will benefit or suffer as a result of those and other decisions.

An issue that arises is that many hospitals do not operate in a competitive market. Article after article point to the problem.

The issue of Epic’s cozy relationship with hospital CIOs may therefore raise antitrust policy questions when coordinated behavior between the two may impact consumers who do not have options when it comes to where they go for hospital care. More questions are raised when considering a whopping 145 million Americans get their health insurance through public programs including Medicare, Medicaid, or CHIP programs.

What Happens Next?
Although much has been written about Epic’s success in the market, less has been written about how its position in the market affects healthcare innovation. Given Epic’s size, scale and influence, it is fair to question whether its actions will attract policymaker or regulatory scrutiny.

Yet even if its actions attract scrutiny, most recent court rulings suggest that regulatory action may not be the answer. As seen in lawsuits filed against large technology platforms such as Meta, Microsoft, and Apple, rulings tend to be in favor of the companies.

A common theme that emerged about Epic was the degree to which the company believed in a ‘closed system’. A question for all of us, then, is whether we as individuals, patients and citizens agree, and if not, what actions we might take to encourage a more competitive, open and innovative market.

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