Gregg Valley
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 to include 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. Echometrix sells 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.
