Competitive Or Exclusionary? Epic's “Seven Anti-Competitive Sins”

“Everybody is scared to talk about Epic, because Judy can kill your company.” An established health tech CEO who does business with Epic and mutual hospital customers.

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).

Epic has created a complex web of contractual constraints that prevent employees, customers, ... [+] consultants, and third parties from a host of activities

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 should raise antitrust eyebrows.

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?

When does competition cross over to an unfair monopolistic advantage? For Epic, there are seven areas worth the public’s consideration and exploration, including policymakers, 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 allowed its customers to provision limited access to contracted third party developers. The third-party and its employees would be required to sign non-disclosure agreements (NDAs), non-compete agreements. Each third party employee was limited to only work on a single customer’s Epic instance. As one CEO who has many mutual customers with Epic explained, “This limited how effective my staff could be. It meant I had to hire a new employee for each customer using Epic, which is costly.”

This CEO explained that Epic changed its policy several years back to disallow the company from having access to certain Epic products. The reason? The names of some of the products the company previously had access to were now considered by Epic to be protected intellectual property. The timing of these changes were roughly coincident with clarification of Information Blocking rules and Epic’s introduction of its own competing product.

The resulting effect is that now a hospital customer must hire its own employee with knowledge of both Epic and the company’s product. This introduces friction and costs to both customer and company, and increases project time to get started from 16 weeks to one year on average.

The CEO otherwise respects Epic, explaining, “Epic is probably the best EHR… but it’s expensive to try and work with them.”

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 leverages its market power to place restrictions on hiring between third parties and Epic customers. In a Forbes review of an Epic contract with a third party, Epic stipulates “...You agree not to solicit for hire or hire for such position any employee from a customer’s Epic project team until the later of four (4) months after any relevant go-live or when rollout is complete.” 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.

The logo for Epic Corps looks very similar to the Peace Corps logo

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. “Just look at their API fees. They’re totally unsustainable,” described one industry executive whose company integrates with Epic and shares many mutual customers.

In another case, a company that has been working with Epic for years has seen API fees rise by 70X to >100X. The company’s CEO notes that Epic now has a competitive product that could likely not bear the costs of paying the same API fees, explaining, “You can see how they’re making it impossible to have a competing solution.”

This CEO also provided evidence of a mutual (with Epic) customer doing its own research to identify alternatives to the company’s existing workflows, finding that by using Epic’s system in different ways, the customer could save significant expenses. Notably, the resulting savings would merely bring the customer’s costs down to levels prior to Epic’s fee changes.

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.

“Epic has absolutely been going around to our customers and offering their product for free. I don’t know how it works, whether it’s free for a period of time, or whether they just slip in enterprise license fee increases in the out years,” said one prominent health technology executive whose company now finds itself competing with Epic.

Another CEO confirmed the same around free software, and added that Epic bundles free professional services with the offer. “They [Epic] are specifically targeting my reference customers and the enterprise CIO they have a deep relationship with,” explained the second CEO.

One former CEO and current investor and advisor has seen Epic’s bundling strategy play out in multiple instances, including one in the context of an established company. “We competed against Epic. Our attorneys told us we couldn’t bundle. Yet Epic clearly was bundling its offerings, and winning in the market as a result,” the former CEO described.

Yet another CEO confirmed the bundling strategy, but was more specific about how Epic was bundling new products with maintenance fees on the core product. “We have mutual clients [with Epic] who tell us Epic has offered to ‘give us gold status on our maintenance contracts if we adopt a new product,’” the CEO described, going on to explain that Epic is creative at finding ways of leveraging their relationships and install base to compete effectively.

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.

“Whatever the antitrust rules are, they should be applied to everybody the same way, including Epic,” noted the former CEO and current investor.

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.

“Epic wants to be very careful about areas they develop themselves versus those they look to Partners or Pals for. Ambient listening, for instance, is hardware, software, and artificial intelligence intensive. So they partnered with Abridge for that,” explained one health system executive.

A third-party developer CEO concurred, noting that “Epic is proactively identifying spaces it’s not interested in [developing its own products] for the Partners and Pals program,” now referred to as its “Workshop.” The CEO noted that the change in December 2022 has resulted in fewer Epic resources available to work with third parties, and a lack of clarity for third parties around how to characterize their relationship with Epic or how to market to customers.

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

“Epic sucks all the air out of the room” - a longtime health technology investor

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 is probably the right word. The Epic customers will wait,” explains one former CIO.

As one current CIO described, every member of his staff manages multiple vendor relationships, integrations, and maintenance. Across hundreds of IT staff, the complexity can become overwhelming. If the 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.

The former CIO understands the inclination, but has a deep philosophical problem with this approach. “It [Epic’s practice of communicating product releases in advance] stifles innovation. In healthcare, every day you delay is a day someone may suffer or die,” the former CIO explained.

7. Vertical Manipulation and Collusion

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.

“Epic has helped bring IT out of the proverbial hospital backwater and made the CIO a first class citizen,” says one longtime health tech CEO who has worked with the company and mutual customers.

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. “Epic is the great coordinator, the convener of stature. They do an excellent job of building a community [of users] and getting that community to share ideas, results, and best practices,” described a former hospital CIO with experience working with Epic.

Epic’s strategic use of its community increases its stickiness with that community. All of which is a good thing, except for two considerations: 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.

The problem 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 therefore raises 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.

Collusion in Action: One IT Exec’s Story

The unusual relationship between Epic and its community of CIOs and IT leadership may best be told through one hospital executive’s story. Responsible for a strategic and growing part of the hospital business, the executive has been working with one technology company, which is already integrated with Epic, to meet the hospital’s needs.

Recently, the hospital merged with another system, and the resulting organization made a choice to consolidate EHRs under Epic. That was fine, since the company already integrated with Epic as well as other EHRs.

Soon, a product team from Epic came to visit the hospital executive and team to pitch their own competitive product. The hospital executive found the Epic product team to be courteous, nice, and honest. “You could tell they [Epic’s product team] were trying to do the right things,” explained the hospital executive.

One of the “right things” that the Epic product team did was being forthright about what functionality currently exists, and what work remains to be done. Based on this information, the hospital executive’s team recommended holding off on trying the Epic product for now, and both sides communicated the joint decision up to their respective organizations.

What followed was an emergency in-person meeting requested by Epic’s leadership to the hospital CIO for the next Monday. In that meeting, Epic’s leadership disagreed with its own product team’s statements and asserted the product was much further along. The hospital executive also subsequently heard that Epic was willing to offer the product and supporting services at no cost. The CIO decided to move forward with Epic while maintaining the existing relationship with the technology company for the time being.

The hospital executive Forbes spoke with doesn’t have a vested interest in either the current technology company or Epic, but is concerned about the team’s ability to be effective moving forward and the impact on patients.

“I think our work is very important for patients. And [the work] doesn’t stop. It continues to evolve, and our current partner has been nimble, co-developed with us, and it’s been a real partnership,” the executive noted. The executive is concerned that Epic’s leadership oversold and oversimplified the development work and timeline it’s on, and explained that, for the time being, hospital resources will be deployed to prove or disprove Epic’s functionality over time.

Based on peer feedback, it sounds as if the end result may be to disprove the Epic functionality: calls to two academic medical centers who both tried the Epic product revealed that both have decided to try out other solutions after finding the Epic product lacking.

“I’ve been doing this kind of work for 20 years. I haven’t come across this type of a political situation before,” the hospital executive said in closing.

If Epic hasn’t attracted antitrust scrutiny yet, it will. Federal agencies — from the DOJ and FTC to the OIG — have a duty to safeguard consumers against harmful or monopolistic powers, including those served by the EHR market.

There are also a few proactive steps that Epic can take to reduce the severity of its seemingly anti-competitive practices, as discussed in part one of this article series.

But the bigger question that we as an industry (and as individual citizens) must answer with our actions, is if having one company controlling the levers of healthcare innovation is good for society or not?

And if not, will it even matter?

As the country has seen in multiple lawsuits filed to thwart platforms’ power in recent years (Meta and Microsoft, Apple and Epic Games), the rulings tend to be in favor of the large platforms. These outcomes may explain why FTC chair Lina Kahn has taken a different approach in how the agency positioned its case against Amazon, as detailed by The Washington Post – focusing on the specific practices it deems as being anti-competitive, while putting consumer impact and interests at the center of its argument.

In that respect, any federal scrutiny against Epic for alleged anti-competitive behavior should take into account key learnings from past and ongoing cases against tech platforms. Perhaps most importantly, the impact on patients – all 305M of us whose data give Epic as a company and its third-party partners any value – should help guide the argument.

That brings us back to whether Epic is acting in good faith in how it competes, or if there are nefarious forces at play. As the CIO of an academic medical center that works with Epic noted, “Epic’s belief in the advantages of a closed system are near religious.”

And as Judy Faulker’s aggressive rallying of the health system troops against federal Information Blocking rules shows, there are some strong indications, and plenty of industry proclamations, that the faith may not be entirely good.

Note: details from the above descriptions have been withheld to protect the anonymity of the CEOs and companies which Epic now competes with as well as hospital executives who work with Epic.