Picked up by HIStalk

Looks like HIStalk picked up my recent post on Epic over the weekend. I’ve been an avid reader of Mr. H since 2004, so to say I’m excited about the mention would be an understatement. To all the folks clicking through, please feel free to weigh in with a comment or even subscribe!

Mr. H says:

I’m not convinced Epic is changing strategy at all just because a couple of unnamed consultants speculated as such (Epic has always sold ambulatory-only deals), but if they are, I’d infer the opposite. Epic has not hit the predicted wall on scalability, customers keep giving its products industry-leading KLAS scores, nobody is de-installing or grumbling about value, and prospects keep signing up in droves despite high project costs.

First, I want to be clear that I have no evidence that Epic is refocusing on the ambulatory EMR market. I’m not saying that Epic has hit a wall, that its customers are not happy, or that they are grumbling about lack of value. My post was a speculative response to an HIStalk post about an alleged shift in Epic’s sales strategy. My intent was to say “If in fact there has been a shift, here are some potential reasons why a market leader would have made that decision.”

Mr. H continues:

Each time Epic sells an ambulatory-only deal, it (a) deprives a competitor of a new sale, and (b) plants a flag that has a decent percentage chance of yielding an easy inpatient sale down the road.

We’re in agreement on this point: Whether Epic considers its primary competitors to be high-end (Cerner, Allscripts, Siemens) or low-end (eCW, PracticeFusion, Amazing Charts), it makes sense to claim as many ambulatory customers as is economically feasible in the near term.

If anything, I suspect Epic is gaining confidence given the near absence of significant competition and is willing to ramp up sales, which by definition means they will be selling to smaller hospitals and practices.

The problem with this thinking is that in chasing smaller customers a vendor acknowledes saturation or diminishing returns in the upmarket segments. There is a fixed cost to landing a deal with any customer, plus the opportunity cost of the potential customers you aren’t chasing. It just doesn’t make sense to take 90% less revenue against those costs if you have better options on the table.

The company’s favorite statistics involve not the number of hospital customers it has, but rather the percentage of physicians and patients using its systems. I think they want that number to keep rising for reasons beyond financial, and any change in strategy can be attributed to unchallenged dominance rather than newfound desperation.

The interesting point here is that these percentage metrics tend to favor a vendor whose strategy is to pursue the largest customers, those who have the most patients/physicians/beds per hospital. A conscious decision to move downmarket means that each win moves these metrics less at the margin. And I don’t think I cast a downmarket move as “newfound desperation”. It could be a rational business decision based on feedback from the market under the four scenarios I originally described.

Finally, I’d caution against leaning too heavily on data from KLAS or other common sources to make inferences about current vendor strategies. The problem with most third-party sources of customer information is that they are only lagging indicators from a strategic perspective. A vendor makes a strategic decision, they operationalize the strategy, they close some deals, they do the implementation work, and 6-12 months later those new customers fill out some surveys. Cycle time: 3-5 years. These reports may contain clues about vendor strategies from 2008, but not from today.

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