Why Epic Might Refocus on the Ambulatory EMR Market

Mr. H posted the following yesterday:

From Barry: “Re: Epic. A market research report suggests that Epic is backing off its push for inpatient installations and going with an ambulatory-only sales approach to plant the seed for future inpatient sales.” That was reported by two consultants quoted in the report, with an additional consultant saying that Epic is getting some pushback from customers who question whether they’re getting their money’s worth.

Why might the market leader choose to pull back? A few possible reasons come to mind:

  • They may have hit a capacity constraint. The critical path to revenue in this business runs straight through a long implementation process. Even if you win 100% of the deals, you have to find consultants to staff the implementation teams, and these are in short supply. Thank HITECH for moving the constraint from the health system capital purchase committee to the headhunter staffing the implementation team.
  • They may have crossed the midpoint of their target market segment. The Bass diffusion model generally predicts that peak unit sales occur when 50% of the target market has adopted a product. From that point on unit sales decline year over year, or the total number of customers increases at a decreasing rate. If this is the case, it would make sense for Epic to ease up on the throttle a bit and focus their efforts on other segments.
  • They may be choosing price over quantity. Epic built its reputation in the inpatient world by being very careful about choosing its early customers and maintaining an air of exclusivity. An exclusive, customer-intimacy-driven business model does well in the left end of the demand curve where the customer’s willingness to pay is sufficient to fund the attention the vendor is willing to give. But a sufficient degree of success saturates the high end of the market and forces the vendor to look lower in the demand curve for new business. Epic may be taking a look at the margins of that business, as well as other brand-related factors, and simply saying “No thanks”.
  • They may be recognizing the disruptive threat posed by low-end competitors in the ambulatory market. Epic is winning because of their inpatient/ambulatory integration. They started in the low end of the market, the ambulatory side, and grew the capabilities of their offering to the point where they could begin to compete in the inpatient world, and then they began having great success displacing the incumbents. Established inpatient vendors have struggled to cram their solutions down into the lower-end ambulatory market. This dynamic typifies what Clay Christensen has termed “low-end disruption”, that low-end players are more likely to evolve and displace high-end players than vice versa. If Epic is smart, they’ll recognize that a free or very-low-cost ambulatory EMR like eClinicalWorks or PracticeFusion could evolve and do to Epic what Epic did to Cerner, Eclipsys, and McKesson.

Time will tell whether Epic really refocuses its efforts on the ambulatory market. Even if it does, chances are that in order to fend off a disruptive threat by one of today’s low-end players, Epic will need to tweak its business model to enable SaaS delivery of its products at a very low cost with little to no configuration required.

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