In the rolling hills of Rona, Wisconsin, just outside of Madison and far from the usual software epicenters, you will find one of the biggest tech campuses in the United States. It is home to a company called Epic Systems. You may not know Epic, but there is a very good chance that they know you. Over 80% of Americans have at least one electronic health record with Epic. If you've ever used my chart, that's Epic. They make the software used by many of the biggest and best health care systems in the US, and they now operate in 15 other countries too. Epic does have rivals like Oracle and MetaTech, but for decades it has been the biggest player in this industry. The campus sits on 1700 acres. There is an underground auditorium that seats 11,000. There are playful sculptures all around, and the inside of the office buildings are dressed like movie sets. Alice in Wonderland, Harry Potter, The Wizard of Oz. So who's the wizard behind the curtain at Epic? Judy Falkner, also known as Judith Ruth Falkner. And if you take away my middle name, I'm Ruthless. Falkner founded Epic in 1979, and is still the CEO. Epic is an unusual company, and as you will hear today, Falkner is an unusual leader. And I'm not sure that Ruthless is the right word. I have the one house, one husband, one dog. One dog? I would want more than one dog, but the husband is that. One car. What's your car? I have a 2016 Tesla. I like its self-driving. I find that between it and me together were better than either alone. Which software is more reliable at updating regularly your Tesla software or Epic? The difficulty in my mind with the Tesla upgrades is every now and then I say, "Testly, you need better programmers." It was only once that I called them on it. My Tesla, when I would move it into Auto Drive, would cross the WL line and go headfirst into the cars coming at me. Wait, what? Say it again? Yes. That's what it would do. This is how long ago? Not long after I bought it. I'd be going home, it was Hilly. I'd put it into Auto Drive. I would be at 35 miles an hour, quickly go to 60, cross that WL line and go straight at the cars. Wow. I think what it was trying to do is because it was Hilly, it thought that maybe the road was going to end, so it was going to save me by going into the other lane. I don't know what it was thinking. I called them about it. They sent someone to ride in the car with me and saw that that's indeed what happened. Then they brought another car to see if it happened on that car too. It did. Same thing happened, so it was a software and not the car. Did you get that treatment because you're Judy Falkner of Epic or because you just drove a Tesla? I think it's because of Tesla people realize that was not a good thing to do and they did react quite appropriately. What would be the equivalent of Epic software doing that and has that ever happened? Not my knowledge. We tested very well before it goes out, but we have reports that everybody is supposed to ride their code red flags. If something is wrong, you have to ride red flag up about it. Most of the red flags are about things that can be fixed and don't make a big difference. Every once in a while, a red flag will either be a clinical error or a financial error. And those things we jump on them right away. Later on that night, and even the next day, I couldn't stop thinking about this story that Falkner told me about her Tesla. Not because it was a scary story, but because of how she told it. I think most people, if a critical piece of tech failed them like this, they'd get pretty dramatic retelling the story. This absolutely crazy thing happened and if another car was coming, I'd be dead. Judy Falkner is at her core a coder, a programmer, a computer scientist. So when she told the story, she focused on the parameters. It was hilly. I would be at 35 miles an hour. I would quickly go to 60. She tried to identify the underlying error. It thought that maybe the road was going to end, so it was going to save me. She replicated the error. And she supervised the fix. The Tesla people realized that was not a good thing to do and they did react quite appropriately. This kind of temperament is probably a big benefit when you're running a software system like EPEX. They oversee a vast dynamic data set that underlies one of the most complicated, critical, and expensive industries in the world. Judy Falkner is one of the most successful female entrepreneurs in history. So why haven't we ever heard much from her? As I understand, you don't do much of this interviews. I try not to. Yeah, why? It's time consuming. You can mess up and just be embarrassed by what you do. So therefore, it's a little bit nerve-wracking because you don't know if you're going to mess up or not. And also, consider I'm a techie, math and computer science. Techies by their nature are usually introverted. So I'd rather crawl under the table than be interviewed in most situations. But sometimes it's fun. When the people are fun, then it's fun. Today on Freakin'omics Radio, we will try to have fun and we'll also try to figure out the code that runs Judy Falkner. This is Freakin'omics Radio, the podcast that explores the hidden side of everything, with your host, Stephen Dubner. In an episode we made earlier this year called Can AI Save Your Life? We spoke with Bob Wachter, who is chair of the Department of Medicine at the University of California, San Francisco. When it comes to AI and medicine, electronic health records are really important and he was explaining how one company had come to dominate that market. Epic won this market. This was a little tiny company started by Judy Falkner in the basement of an apartment off the University of Wisconsin. It's a really remarkable story. I think they won because they were the best. The best was partly integration. Judy's theory of the case was we're not going to bolt on 37 different tools by a bunch of different companies. We're going to own the entire thing and that is going to allow us to provide an integrated solution and medicine is so complex and there's so many moving parts that if you don't have an integrated solution, the thing's not going to work very well. That integrated solution part is really interesting, especially if you are in the software or healthcare IT industries. There is a fascinating Harvard Business School case study about Epic. The acquired podcast did one of their excellent four hour deep dives into Epic. I made the trip to Wisconsin hoping to learn more about Judy Falkner herself. For someone who doesn't know what Epic systems is, doesn't know who Judy Falkner is, doesn't know what you built and how. What's a short description of it? Usually people understand and we say we do elect try to call records for doctors. We enable it so they can communicate one to another. If you leave Massachusetts where you went to University of Massachusetts for your care and you come here and you go to University of Wisconsin, they'll share your record. Assume you've approved of that and they'll share the critical clinical information to make sure you're safe. I understand that to be true and I understand that to be a good description for the layperson who doesn't know. You actually do, I mean that would be the tip of a very large iceberg, yes? Well we run an IT shop here. We have about 15,000 people here and in 16 countries and they're working hard on creating the software that helps take care of patients in all different ways. We've had my chart out for 25 years now I think but people don't know that Epic does my chart. Even people in Madison was concerned someone was telling me just the other day they were talking to somebody who uses my chart and had no idea Epic made it. What strikes me as a thesis maybe for this company and for this conversation is that Epic looks from the outside like another software firm and yet there are a lot of things about this place that strike me as radically different. My thesis is that that comes down to basically you. I'm just curious first of all what you think when I say that to you, do you feel that you're an outlier? Yes, I do. We didn't get private equity, we didn't get venture capital support us, we hired differently, we managed differently and it works very well and it works for our customers. We have never had a lawsuit from a customer which in 50 years I think is good. We've barely lost a customer ever, have you? Well we actually lost a customer once and they came back a year later. Why they leave? I think they thought that the other system might be better for them and they tried it.
and it wasn't and they came back. (soft music) Falkner grew up in New Jersey. Her father, Lewis Greenfield, was a pharmacist. Her mother, Dell, was a peace activist who helped lead a group called Physicians for Social Responsibility, which shared in a Nobel Peace Prize in 1985. - She started this health Jersey peace center at the beginning of the Vietnam War, got really beaten up for it. I also heard to people who thought she was terrible for doing that. But she was unpatriotic. - Yes, right, but she studied it. She knew a lot about what was going on. Nowadays, we're much more knowledgeable about the things that she knew then. She continued on, she moved from New Jersey to Portland, Oregon. And that's when she started working with Physicians for Social Responsibility and became the director of that area. - And their main concern was nuclear bombs? - Right, and I believe she got put in jail in her 80s for protesting at a nuclear site. She always said she hates war, but she loves the soldiers. We have a photo of her and the policeman writing out the ticket. And they're smiling happily at each other. It's a very cute photo. - I don't mean to make you and your parents sound like do-goters at the expense of all else, but my sense is, I recall this from our earlier chat that was not recorded. The phrase that I think we talked about was Tecuno Alam, the seabrew phrase, where like he'll repair the world, try to leave the world in a little bit better shape than when you came into it. Can you just talk about that concept? Is that something that's important to you? - Well, that was a concept. My mother charged me with when I went off to college. - What do you mean, charged you with? - She said that's what she wants me to do. You're going off to college now, try to make the world a better place, try to help people. And I remember thinking, "Oh, that's a big burden "to put on an 18-year-old shoulders." I remember thinking that. Now I look back at it and think she was so wise to do that. - Folkner went to Dickinson College, a liberal arts school in Carlisle, Pennsylvania. She was a math major. - Between my junior and senior year, I took a summer job at University of Rochester, it was supposed to be particle physics. When I got there, they expected me to program and I'd never seen a computer. So they gave me a four-trained book and a week's access to the computer. And at the end of the week, they said, "I was a good programmer." But to me, it was games. So when I applied for graduate school, I thought it was so neat that University was content when they're on and move me to computer science. - You didn't raise your hand and say, "No." - I didn't know you could imply for computer science. - It was a new major, yes. - It was a new major. I took probably the world's first class in computers in medicine, taught by Dr. Werner Slack. And he asked me to work with him and his team. And that's how I got into healthcare. - What was going on at that time in healthcare that it seemed to make sense to put together computers in medicine then? - Well, the first jobs that they gave me were things that people would spend a lot of time on and the recipients of what they were doing didn't like it. So call schedules, they would say, "Okay, you work tonight, you work tomorrow night, you work the next night." And then people would say, "You gave me the holiday evening because you don't like me." They couldn't say that about the computer. So doing some of that type of work was beginning. And then they brought me in and asked me to develop a system that we keep track of patient information over time. - And this is for a medical practice house small or large. This was at the University of Wisconsin. So it was more by department department department. So psychiatry, OBGYN, rehab medicine, different groups. - And up to this point, there were just paper files written in physicians indecisurable handwriting. - That's correct. - Yes. - And there were probably all kinds of things like prescription errors because of that, yes? - Yes, in fact, I know one doctor whose prescription got turned down because the writing was too legible and they knew it wasn't his. - What did you think of yourself then at the time as a young computer programmer? - Well, I thought computer programming was fun and game. So isn't it neat to get a major that you're working in that is just fun every day to do? - Okay. And then as you're getting into the healthcare realm, what was your thinking about that? Did you think like, oh, I could have a career in this? - No, I was just doubling down during the work I was assigned. Volkner got her master's degree in computer science in 1967. By then, she was already earning a reputation. - The people I work with, they would go around the country showing their colleagues, look what we have. And then they'd call me up and ask me to start a company. And I would say no. And that would read me again. - Why? - Had no interest in starting a company. I had no idea how to do it. So that went on for a couple of years. I would sometimes get four calls a week, start a company. And I'd always just say no. And to one day, I met a guy who had spun off lapses from the UW and he said, well, there's three things you have to do, get a good lawyer, get a good accountant, get permission from the university. So I started to do that. And then there was a group of people that I worked with who were obvious to be part of the initial company and in their off hours they would help out. - Can you just talk for a minute about doing business in this, we call it an industry healthcare, but it's different. I mean, there are other mission critical industries, but being in the business of healthcare means what to you and how do you find people who can do what you're doing with software within that? - I think that healthcare in general, the people who work in it, the doctors, the registrars, administrators are very, very ethical. And sometimes it's really hard on them, a young person when I was having dinner with someone showed up in their ED with something that could have cost the multi-million dollars and he wasn't insured. Do they take care of them? If they take care of them, they have to complete it. Do they not take care of them until I'm to go elsewhere that would hurt them? And they did the right thing, they took care of him. It's a very ethical group. I like working with it. - So healthcare is famously responsible for about 20% of GDP in this country, which. - 18, I'm told. - 18, yeah, you're right. They've been saying it'll get to 20 soon, but that's been for a decade now. - Yes, they had a hypothesis, they'd be a 22 right now, and they're at 18. I think our software helps with that. - Oh, tell me about that. - Well, it's one system. The patient can go through from one to another and you're still one patient on one system. They have told us that they save a huge amount of money by not having to have 250 separate applications that are replacing ours. I think it's important, and I think most of us who work here would hesitate to go to a place that doesn't have our software because they realize it does help save lives. I came home one day to find my husband very upset. He's a pediatrician. He was taking care of a girl who had certain problems and she was under good control and doing well and she went with her parents to another city. She got sick, they took her to the ED, and at the ED they didn't know her problem. So they treated her just like somebody who didn't have that kind of problem and she died. And he was just beside himself, he kept saying, "If they had it, they would have known what to do. "It would have been really easy. "She'd be alive." So that's when I went back here and asked some of our software developers to write a system and that would allow the information to go from one place to another so that they would know what she had. I only did that right that, but they went all around the country to our customers saying, "We're here to put this in "and make sure you get it." And they wouldn't let any of our customers not put that in. This is when? About 2007. And what is this piece of your software called? Care everywhere. Epic is increasingly the target of antitrust claims how big a part of your worry portfolio is that? Yes, that is definitely worry. There are individual systems that would like us to work with them as if they were us. I'm sorry, I don't know what you mean by that. Let's assume it's a dermatology system that someone has written. They want us to work with their dermatology system, hand in glove, as if we were our own or a rev cycle building system. They want us to work very closely with that. One of them said, "We'll only take 10 programmers." And they thought, "Oh my goodness, do you realize you're one "of 50 in just that niche area?" And we would have to work with all 50. That would be 500 programmers, which is a lot of programmers. But the other thing is that many of our customers like our software because they can go from one to another in terms of the different pieces we all have working together. You put something in from the outside and it doesn't. You probably, you know, you go from one system to another system on your computer, they use different terminology. They might have different colors, different places on the screens, different designs. It might be education level. And one will use 10 different groupings. Another will use 15 different groupings. If it's something to do with healthcare, how do you match it safely?
So it takes a lot of work to make them work as if they're one. So how do you think about the, I guess it's a paradox, which is if you succeed in a realm like you have succeeded, then you become Olingua Franca, essentially, for many people within this big, big, big realm. That's right. But then there are critics who might be rivals, they might be regulators who start to talk about monopoly. I think that our customers should be free to work with any third party they want to work with. I have often said to them, "Folks, do you know what you bought?" Because our system is big. And sometimes what happens is they buy something that they already have bought from us. And they don't even realize that they have those capabilities that they went out for. So sometimes a lot of our job is to make sure they know what they bought so they can make an intelligent decision. We are now being hit as you might know with lawsuits for antitrustment, monopoly. It just seems so weird to have begun with three halftime people in a basement. Among the lawsuits that Epic is currently facing is one brought by the Attorney General of Texas, alleging that Epic violates the state's free enterprise and antitrust act. In another case, the New York firm Particle Health is arguing that Epic interfered with its customer contracts. And used its market power to squeeze out competition. Coming up after the break, how did Epic go from three halftime people in a basement to such a huge player? Somebody calls up from the Netherlands and says, "Can we buy it?" And we say, "Come visit us." I'm Stephen Dubner. This is Freakin' I'm X-Radio. We'll be right back. There is a question I sometimes ask in interviews. It's a cliched question, but sometimes useful, especially for someone like a CEO. The question is simply this, how do you spend a typical day? It isn't so much the specifics of their day that interests me. It's how they choose to frame the answer. And when I asked Judy Falkner this question, the frame was very Judy Falkner. Could you get a copy of those slides? There's two slides on my job. Thank you. She asks a colleague who's sitting in on the interview to go to her office and grab a printout of the slides. I'll read the list and then be able to answer miraculously because I feel like whatever answer I give without looking at the list so I know if it's right. Her colleague returns with the printouts. One of them is titled, "Typical Day, the Other My Roll Company Success." My role is company success. I've got to make the right decisions. I've got accountability for our products, our service and meeting commitments. Responsible for client happiness, profitability, the campus, succession planning, take a stance. And that's an important thing I think for CEO. You've got to take a stance on things. People call me and I have to know, "Oh, Joe knows he answered this. Mary knows the answer to that and get them on the line and help with the answer." So my job is not necessarily to know the answer. It's no who knows the answer. You plainly know everything that's going on to some degree in all these buildings, but you can't know everything. It's going on much faster than I can keep track of and I don't know even all the products we're working on because we hire bright, capable, hardworking people and they come up with new things all the time. I have a t-shirt that says, "Healthcare IT is more complex than rocket science." And we have three people who use work in rocket science and all three say, "It's right, it's more complex because it changes all the time." Whereas rocket science, there are principles that are unchanging. So I've often thought, "I should call you a musk up until you take over." So there are all these things that you do different. There are many, many others, right? You don't have titles really in the firm. We don't use them internally, externally, people can make up their title and they do, although once someone told me that he had met our chief medical officer and had to ask him who it was because we have about a dozen physicians who work here and any of them could have used that title. Epic is the biggest in the field of what you do and then when I look at your revenues, which I realize most people here don't even know. That's correct. We don't talk about it. Is that good or not good in your mind? I'm guessing it's great because they have a different focus, which is quality versus profitability or their own ownership and so on. But when I look at that the last year, I saw 5.8 billion in revenues for a firm that is so dominant in an industry that is so large, my conclusion is you are not profit maximizing at all. I agree with you entirely. All right, so let's talk about that. That's a choice plainly. That's a choice we make. We have enough money as revenue to run our company and be successful. Our customers need it more than we do. And so we don't want to misuse them. We also help some of the customers who take care of the indigent, our broke, etc. In multiple ways, we help them come to our meetings, our users group meetings and we'll pay for their transportation. I say you shouldn't concentrate or focus on the revenue side, but you can't be stupid about it. So you're a little under 6 billion a year in annual revenues. You have, you said about 15 or 16,000 employees, isn't it right? Could be 15 somewhere in there. The calculation I did, I think was based on maybe 14,000 employees, which I read and it came out to something like $410,000 annual revenue per employee. Is that good or bad? Well, that's what I wanted to know. And to me, it looked like, well, quite a lot, but then when I compared to other software firms, especially if you look at a Google or Facebook, it's quite low. But it's fine. Well, this gets back to the fact that profit maximizing just doesn't seem to be a goal. Correct? It is a goal. It's a side effect, but it's not a goal. I've read that you typically spend somewhere in the neighborhood of 30, 35% annually on research and development, yes? Yes. Is that an actual goal or you just, you spend what you need to spend then tally it up at the end of the year? Because I know you don't have budgets of any kind, yes? Yes. Well, our financial people will do their projections, but that isn't a budget, it's just their projections. In the many years that you've been in business, what have been the developments in either medicine or in the healthcare system that led you to need to spend or want to spend a lot more on R&D in a given year or set of years? I think AI right now is a biggie. Moving our system to the web was big. Those are two recent big ones. Those two printouts that Judy Folkner keeps handy, typical day and my role are not the only lists that she keeps or even the most important. That distinction would go to epics very own 10 commandments. Number one, do not go public. Number two, do not acquire or be acquired. Number three, software must work. Number four, reality equals expectations. Five, keep commitments, even the unspoken ones. Six, focus on competency. Do not tolerate mediocrity. What we say is if you tolerate mediocrity, you become a mediocre company and that's what you want to do. Number seven, have standards, be fair to all eight, have courage. What you put up with is what you stand for. Number nine, teach philosophy and culture. And number 10, be frugal. Do not take on debt for operations. You can find these commandments posted around epics campus visible to employees and visitors alike. They're in all the bodily function areas, which is the bathrooms, the break rooms, and the copy rooms. I wanted to put them into the stalls, but didn't do that there. Someone talked you out of that. Maybe. So we just have them by the mirrors in the bathroom. Numbers one and two, number one, do not go public. There have been no acquisitions. That's right. You build it all. I know this is what you're accustomed to, but for the rest of the world, those first two are very unusual. I just want to know why those have been your beliefs for so long. And I also want to know if you ever came close to breaking either those commandments. Never came close to breaking either of them going public. I remember in the beginning of epic looking up good companies and reading what their shareholders wrote about those good companies. The shareholders were only interested in return on equity, not what value the company was giving to the world. And they were vicious about the company whenever there wasn't the return on equity that they wanted. I thought who wants owners who are like that. On the other hand, founders like you from software companies of that same era, Microsoft, same era, Apple, same era, those founders are going to ultimately cash out themselves for many, many, many billions of dollars. And they become, you know, the richest people in the world. That's a path that I assume.
would have been open to you, maybe not as big, but the same path. - Well, yes, sort of. I own a chunk of Epic, and every year, I get some stock to Roots and Wings, which is the foundation. And then Roots and Wings is more complex than this. Cells it to Epic. Do you know why it's called Roots and Wings? - It was something your kid said, right, when your kids-- - When my two younger kids were in the car, I was driving them somewhere. Maybe they were five and 10 at the time. I asked them, "What are the two things "your parents need to give you?" And so they looked at each other, they looked puzzled, then they started whispering. Then they knew the answer. You could just say they were so excited. Food and money. I said, "No, Roots and Wings. "Root so that you grow strong, Wings so you can fly." So many years later, when it came time to have a foundation, I take the money because otherwise if I die and all the has to be questioned, there's some huge amount of money, what are you gonna do with it? So creative foundation. They said to me, "You need a name at Roots and Wings," which I thought was very sweet. Roots and Wings can give donations to deserving organizations and Epic gets stock back that had been my stock that it could then distribute to employees. - So in a counterfactual, let's say that Judy, Judith Ruth Falkner from '19, whatever, '70 something had decided, "Oh, rather than pursue this business and just bootstrap it with some friends and family money and grow it as it seems natural, what if you had taken investment either then or later?" And I'm sure there've been thousands of opportunities to take outside money. Do you think about how the firm might operate differently in that case? - I just think that we've been so lucky to avoid it. It would have changed us, I think. Now what I found out was some of the people who are originally involved with the creation of Epic. Mostly there were people I had worked with at the university. Some of them did see Epic as a cash out thing, which I hadn't known. I only found it out once Epic started becoming more successful and realized that they wanted to sell it, which wasn't what I wanted to do at all. - Did you always have enough ownership or leverage to fight off those impulses? - Yes, correct. - Since it's worked so well for you, why do you think this style hasn't been more widely used? - I believe that there are quite a few companies where the goal of the people starting the company is to have a good product for people they care about. Nowadays though, they go get venture capital. Venture capital might support 10 different companies. Maybe only two of them have the growth that venture capital is looking for. So they drop the others who don't die. Where private equity comes in later and private equity often will sell off a lot of the company. So it looks like their expenses are less. It looks like they're more profitable. But really they've just been mangled. - Private equity is moving into gosh, many, many, many areas of healthcare, human healthcare, pet care, you know, a typical version might be a physician's office or a dentist's office where the founder or founders want to retire. But I think what happens a lot now is that their younger partners, they have so much medical school debt that they can't raise the money. - So I'm curious how it changes things for you when you're working with these, let's say, roll ups of physician offices. - We don't have many like that. Just a few and we're very leery about working with them because we can feel different. We can feel the focus not on as much helping patients but much more on making a profit. - I was surprised to see how many foreign inroads Epic has made. You're in 15 or so countries. - 16 I think. - Sometimes there's a national health system. Sometimes it's private like in Lebanon I saw. It was for the American. - Hey you be American University of Beirut. - Yeah, so I guess every case is a little bit different. What surprised me is it's so hard to do any business outside of your home turf. Is your international expansion driven by expanding the firm? Is it driven? That's a no? - No, no. I'm just laughing. - You know how we sell. - I do know how you sell. You don't sell until somebody comes to you and asks if they can buy it. - Yeah, so that's how the international goes. Somebody calls up from the Netherlands and says, can we buy it and we say come visit us and they come visit us. - Do you reject potential clients all the time? - Both in the US and overseas we do. Yes, we don't want a client not to be successful. And if we think they're not going to make it like, let's say they're too small and the expense and the work effort would be too great. We'll say no to them. - That's a problem though, right? Because you want small healthcare systems to have access. So what do you do there? - I remember one case a number of years ago where I said no, you're too small and they said, how many doctors do you need and I told them and he said, give me some time, three months later, we call back, he said, we got them. And they're still a client. - What do you do about rural hospitals or systems? That's a tricky one, isn't it? - Yes, that's one of our list of things that we're trying to focus on. Three things, one, work with our large health systems in that state to have them extend to the rural. Two, have the state itself buy from us and they take care of extending to the rural, to the federal qualified health systems, to the corrections groups. And the third thing is just that the rural groups themselves mess together and come to us as a group. - So you, Judy Falkner, are one of the most successful female founders, entrepreneurs in history. Do you think much about that? - Probably not what you think, I think. - What do you think? - I think who cares whether it's female or not female? - The reason I'm actually interested is because you're such an outlier in the non-profit maximizing and the non-taking over the world and the non-beating your chest realm. And you're also just an outlier by gender and that CEOs, there just aren't that many female CEOs and founders or a few more now than there were when you were starting, but not that many, honestly. And I'm just curious whether you think that's a coincidence or not. - What part would the coincidence be? - You being a female. - Is a coincidence too. - With a coincidence of running a firm in a very, very, very different style without an emphasis on profit maximizing, et cetera. - The others who I know are doing something similar are run by both men and women. - When I asked some other folks at Epic to name similar companies, they struggled. One name that does sometimes come up is Patagonia. If you have some good comps for Epic and Judy Falkner, let me know. Our email is
[email protected]. Coming up after the break, what is the plan for Epic after Judy Falkner? I'm Stephen Dubner. This is Freakonomics Radio. We'll be right back. (upbeat music) When we drove in here, it's a wild place. It's beautiful. Colorful. It's whimsical. It's fantastical. - Whimsical is the word I use a lot, yes. - I wonder if for you, coming to do what you do every day is a form of play. I sense that you are driven to work hard because it's fun, but I don't know how all that connects up. - Sometimes I think of going to a grocery store and walking around, very nice grocery store, attractive, and then the door opens to the back rooms and they look terrible when you look inside. Have you ever noticed that? And I've often thought, why can't their employees have as nice an environment as the customers? - I'm laughing because my very first job at age like 10 was stocking the local, we had a tiny little grocery store in a one-stop-light town. And yes, I thought the same thing many times. - Yeah, and it's not that much extra and it will keep your employees so much happier. So I think it's nice to come to an environment that is warm and friendly and feels like there's some thought and whimsical. - Do you think it actually benefits the work as well? - Yes, I do. - How so? - Well, first of all, I'm not sure how many people we had applied for jobs here, something like 350,000. - I saw the number it was absurd. Much harder to get in here than Harvard, let's say. - That's right, or medical school. And so we have many people who want jobs here and that helps us a lot. I think it helps with retention. - Are turnover as low? - I know that you have everyone working here on campus in actual offices. The work from home, quote, revolution is still in dispute in a lot of places. What's your best argument for why it's better in person? - What I think is interesting is so many CEOs, I've spoken to say they wish they had done what we did which is bring people back immediately. Dale, they've sold their buildings, their people are scattered all over the United States. but to they do, they say it's not the same. So I'm glad about it.
During the day that we spent on the epic campus, we also met with some of Judy Falkner's senior colleagues. Seth Howard is a software developer who's been with Epic for 18 years. We're not big on titles, but when I need a title, I usually use executive vice president of research and development. But really what that means is I'm responsible for making sure that we are developing what the healthcare community and the patients that they serve need both today and in the future. So I as a patient, like everybody listening to this, is a patient at some point. I think one of my biggest wishes would be that a firm like Epic, which has made the collection and organization and synthesis of medical data, you've changed that landscape immeasurably in the last 30, 40 years. And it's not only useful obviously in treatment and communication and billing and a lot of other things. I mean, healthcare is a complicated industry, but I would think it also be particularly useful in clinical discovery, drug discovery, et cetera, et cetera. So there's a few elements of that. One is clinical research is quite complicated. And so we've built this network, one of the newer parts of the network. We actually call it discovery. That's the component that helps bring life sciences into that ecosystem. What that means is if you're a life sciences organization and maybe you're bringing a new oncology drug to the market, you need to find patients who are good candidate to test that drug during the Stage 2, Stage 3 trials. Historically, that's been quite focused on a small number of academic medical centers, which leaves a lot of patients in community hospitals or rural communities potentially left behind. And so our goal has been to create a more democratized access to clinical trials for the entire epic community who's participating in that discovery platform. And so those trials can identify the patients that are good candidates, whether they're out of academic medical center or at a community hospital. And then the providers are able to access those treatment options, offer that to the patient and enroll them in those trials with much less friction. I'm just curious whether you have friends or colleagues at other firms. What they think of the epic way of doing business. I'm in a group of people that are business leaders in the Wisconsin area. And when I've described our way of operating and our primary metrics are really our customers happy and successful. And if the answer is yes to those, everything else follows, including the financials. Folks that said, gosh, that's really how everyone should operate. Let's say I agree with that. And that I think it would be better for our country, our society, our world. If more firms operated like that, what would you say to the majority of the patients? Of the firms and C-suite people, etc. Who really do feel that there's responsibility to put profitability first. Is there any way you can entice them to enter into that slightly different realm? It's probably not impossible, but I do think it'd be really tough to move from a world, especially a publicly traded company where your responsibility in a large part is to the financial outcome for your shareholders. That would need to change. But Epic, we really think of it almost 180 degree reversal of what a public company would do. And that our number one responsibility is to our customers, then to Epic as a company, then to our employees, and then to shareholders. The interesting thing, our employees are shareholders, but it's the shareholder value that we put as lower on the priority list. I pretend I haven't met Judy and I don't know much about how she set the course for this company. Just describe her as a colleague and as a leader. She is a techie at heart, so she likes to know how things work. She's curious. She asks a lot of questions. And she likes to stay involved in the day to day. She likes to stay connected to customers. She likes to understand how customer needs are evolving and how well we are meeting those needs and where we can do better. So you'll find her spending a lot of time speaking with the CEOs of various health systems, really focused on where you need more help from us, where is our software not working, etc. etc. How does she respond when something internally goes wrong? Well, she is of course number one focused on what do we need to do to fix it, especially if it's something that's affecting a customer. Does she have a temper? I wouldn't describe it as a temper, it's an intense focus on customer success. This intense focus on customer success may have a little bit to do with what Falkner told us her mother said when she was heading off to college. Try to make the world a better place, try to help people. How do you feel about your success at fulfilling her wish? I think she would be happy if she could see what was happening now with what I'm working on. She would be happy with so many of things in the world. Outside of your firm and your industry, what do you worry about? If you ask me what I worry about at night, it's what's going to happen to our country. What's going to happen to education? I worry about that. What's going to happen to healthcare and people who can afford it? What is your view generally on AI in healthcare? And by the way, that's how we came to be sitting here today because Bob Wachter, who we did a piece with, explained your role in all this. I didn't know anything about you. That's how I really got interested in speaking with you. The episode that we did with Bob was about very basic question, how is and will AI change medicine? Really? You've built a system that, I mean, it is AI in many ways, yes? Yes. I was going to say that it's been around for ages. And there's different kinds of AI. The AI that can look at millions of pieces of data very quickly is very good. That's where it can be game too. And that worries me. What do you mean? What's a particular worry about how it could be game? Well, first of all, lots of things have been game lately. Capitalism has been game. Government has been game. I think AI, we have to watch, make sure it doesn't get game, but if you want AI to say a certain something, you put it in repeatedly all over the place. It goes back to if you repeat something often enough, people will think it's true. Well, AI will think it's true. So lung cancers caused by orange juice, for instance, you could anything. But when you think about the upsides of AI in your sphere, what are your dreams and fantasies there? I think AI is going to help in many ways. It's going to help predict diseases that you might have. We use AI for sepsis. And just the other day wrote to us and said using our AI for sepsis, they went from something like 2.5% of their patients got septic to zero. And they saved over 100 lives because of that. If you are a very odd patient with problems that your doctor has never seen before and doesn't know how to care for you and has tried this and this and this and nothing's really working, we can find the two other patients in the United States who are similar to you and have the three caregivers be able to talk to each other so they can take better care of you. Are there any HIPAA complications there? No, we're not revealing who the patient is. And then other things we have in there is a diagnosis checker. Supposedly about 10% of diagnoses are wrong. If you have the diagnosis wrong, the treatment is going to be wrong too. We may say the 32,500 patients, very similar to your patient, 55% of the time, this was the diagnosis given. The diagnosis you gave was used 0.2% of the time. It's not tying the physician to change anything, but it is giving the physician an alert that others have made different decisions so the physician can decide if he or she is right or if he or she is wrong because that will affect the care. We have something called best care choices for my patient and it will look at those thousands of patients somewhere to you and will look at what meds were used or treatment was used and let you know how successful it was for that patient like you. To regardless of what your diagnosis was, here's all the meds that were tried and here's what worked. Let's say it was blood pressure. It might say this treatment helped the patient get a better blood pressure in four weeks. This other treatment was even better but it took two months. Here's the incidence of heart attack, here's the incidence of stroke, here's the cost so that the clinician and the patient can talk together about what is the best for you. Do you worry that the best treatments, if they are more expensive, will be avoided? I mean, that's not your problem. That's not, yeah, that is a problem that has to be discussed with the physician and patient to solve. But it's our choice to give them the data because it is the data. As you well know, the kind of person that becomes the median physician, it's really hard thing to do. It's very demanding.
and you have to be really smart. And I think that most physicians feel expert and don't want to be told, especially by a disembodied computer program that they may be wrong or that they should consider different options. - Keep in mind I married one. I'll agree with you entirely. (laughing) - All right, but what do you do with your software? Plainly you wanna get to the best outcomes for the patient. Well, I say plainly, I don't know, maybe you don't care, but I gather you with your about that. So how do you do it, whether it's communication style, the way the data is presented to the physician? Do you hand hold, baby sit a little bit to make the physician feel more empowered in some way? - Well, the physicians do wanna make the right decisions. So giving them the data so it guides them to the right decision rather than waiting till they're all done and then telling them they were wrong is a much better way to do it. - I have a lot of doctor friends just by chance. I love them. I feel like the kind of person who chooses to become a physician is a very special person. You have to be, I think very selfless. I know that traditionally it used to be thought of as a way to get rich, but you have to work really hard. - Yeah, you do now. - And you have to know so much. - And you have a lot of responsibility. - A lot of responsibility. So I asked a lot of these friends and professional acquaintances in medicine to tell me about their experiences with Epic. I would say on average from the physician side, it's not from the hospital administrator side at all, but from the physician side I would say, their view of Epic was slightly negative. Maybe on a scale of 10 would be like, you know, four and a half to six and a half. Their complaints were all about their interactions. They feel like it's sludgy for them that it's either too complicated to find exactly the right billing code in a particular case. They find that they don't know the system well enough to always get the information they want because they're obviously busy and taking care of a lot of patients. And I was just struck by the fact that the industry itself plainly loves you more and more systems by your software and keep it forever. And yet a lot of the individual physicians, at least the ones that I know and talk to, they have these kind of micro daily user problems. How do you work on that? - Did you ask them if they've ever used another system? - I didn't, but I think the answer would probably be no. - Because that's where we get our customers. They've tried ours and I think your evaluation of them is right on. Then they try another and they think ours is better. That's really helpful to us because a lot of our new customers are putting in our software because their own doctors worked elsewhere and they don't want to use the system that their new place has because they liked it better. So I think even though it's in no way perfect, it's better than in their opinions than what else is out there. I think that a lot of the problems with our software is that they have to type to get the data in. And in fact, that was a government requirement at one point that it couldn't be put in by a scribe. - Does this go back to the high tech act? - Yeah, it does. - Which you were involved with. - And I remember arguing against that one. I remember saying if the doctor feels that someone else in the room could take good notes, why do you make the doctor do it? - And what was the answer to that? - Well, they voted and I got voted out on that one. This was when you were appointed as an advisor in the Obama administration, correct? - I think you're right. It was, I don't know, maybe 15 people around the table and topics would come up that we would say yes or no to. And that was why I said let the doctors decide how to do that, but I lost on that one. I think that what's really important now is the new features we have in that the system talks to the doctor, the doctor talks to the system. And they don't need a type. They can just talk to you in the patient. - Here's a question that was passed along from Zeke Emanuel, who's been on our show a few times. I'm a collegeist and medical ethicist and policymaker. He says, why does she, meaning you, inhibit independent app development and easy access to the platform? She plays favorites that inhibit innovation. - Okay, I'll try to answer that. We certainly don't inhibit anyone from developing whatever they want. So we have a lot of apps out there. We have more APIs, we've been with an API, more APIs than any other vendor. So we try to say here's data folks. You need to get permission from the healthcare organization because it's not our data. We write the code to allow the data to go out to the app. But we don't give the permission because it's, university was conscious data or it's Cleveland Clinic state, it's not our data. - There is a Harvard Business School case study on Epic that includes a poll that I guess MBA students are supposed to take to predict the future of the company end of you. Would you mind taking a look at this poll and reading it aloud for me? - 10 years after Judy's retirement, a CEO, Epic will choose which one. Grow its market share. Remain a competitive vendor. Be sold to another IT firm, go public. - How would you answer that? - Can't do the last two. So it's only grow its market share and remain a competitive vendor, which I hope it will do both of those. - You say can't do the last two, but it's not like it's impossible, but you're doing everything you can to set it up so that that won't happen, correct? - Well, only possible if the laws change somehow. But in today's law, it's pretty well structured so that that can't happen. My stock is divided into two parts, the value and the vote. The value gets given for tradable purposes. The voting side goes to the purpose trust. And the purpose trust has two groups who vote my stock, my family members and Epic staff. - I thought there were some healthcare CEOs in there as well. - Yes, but they're not the voting of my stock. I've got four family members and succession plans and five Epic company members and succession plans. They get to vote following my rules of, here's what you have to do. You can never vote to go public. You can never vote to be acquires. And there's a whole bunch of other things. You can't create new stock, which gets over those rules. A lot of different things to make sure that it's all followed. Then we have three CEOs from our CEO council, which meets once a year. Can you say who they are? - We just changed who they are. So I can't yet, 'cause I don't have their names in front of me. But the people who volunteered to do this. And we're very interested in doing it. Their job is to take anyone to court who doesn't vote according to the rules. - Do you enjoy or not enjoy talking about succession? I mean, it's your life. - Yeah, no, it's important to do because you don't want to just leave things a mess. So there are several pages of rules, but there's only some rules that you have to do. The rest is just things that are recommendations. - Yeah, what would be an example? - The very last thing is the lightest way to example. And it is the whole music should be classical. - Is your whole music classical now? - Yes. - Why is that? - 'Cause I like it. It just feels like epic to me. - Can I just say congratulations? - Thank you. - You're a remarkable accomplishment and really a remarkable life. I mean, hope you're not going anywhere soon. How old are you? - 82. - 82 and do you have a target date for retirement? - No. - Will you retire? - I hope not. I hope that I can stay strong physically and mentally. - You think there's a chance we'll see a 100 year old Judy Faulkner running epic? - Sure. Or a chance you'll see a 100 year old Judy. Faulkner, I don't know if she'll be running epic then. There's other good people here too. - All right. - We'll come back then for your 100th birthday. (laughing) That again was Judith Ruth Faulkner, founder and CEO of Epic Systems. Coming up next time on the show, another builder of sorts, someone who makes things from scratch. David Lang is a composer, a particularly well-read composer, with a Pulitzer Prize and all sorts of other honors. He especially likes to write music around existing texts. Some of them sacred texts, and some of them secular. We tagged along for the world premiere of a new David Lang piece that's drawn from Adam Smith's The Wealth of Nations, seriously. ♪ Love very simple secret ♪ The very simple secret of turning a Bible of economics into a revolutionary new piece of music. That's next time on the show. Until then, take care of yourself. And if you can, someone else too. Freakonomics Radio is produced by Renbud Radio. You can find our entire archive on any podcast app. It's also at Freakonomics.com, where we publish transcripts and show notes. This episode was produced by Zach Lapinsky, with help from Dalvin Abouwaji. It was edited by Ellen Frankman and mixed by Eleanor Osborne, with help from Joseph Webster. Thanks also to you.
Bob Wachter, Julia Adler, Milstein, Mickey Tripathi, Bapu Jenna, Zika Manual, and everyone else who helped with research. The Freakinomics Radio Network staff also includes Augusta Chapman, Elsa Hernandez, Gabriel Roth, Alaria Montenacort, Jake Lumis, Jeremy Johnston, Mandy Gorenstein, Peter Madden, and Teo Jacobs. Our theme song is Mr. Fortune by the hitchhikers and our composer is Luis Guerra. As always, thank you for listening. (soft music) What music do you listen to at home in your car, mostly classical? I listened to books, science fiction, for the most part. I'm a techie, remember? (camera shutter clicking) (electronic music) The Freakinomics Radio Network, the hidden side of everything.
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