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Time Capsule: Two Economic Theories That Explain Why Epic’s Competitors Had Better Improve Fast

September 14, 2012 Time Capsule 5 Comments

I wrote weekly editorials for a boutique industry newsletter for several years, anxious for both audience and income. I learned a lot about coming up with ideas for the weekly grind, trying to be simultaneously opinionated and entertaining in a few hundred words, and not sleeping much because I was working all the time. They’re fun to read as a look back at what was important then (and often still important now).

I wrote this piece in November 2007.

Two Economic Theories That Explain Why Epic’s Competitors Had Better Improve Fast
By Mr. HIStalk


Let’s say you own a hot sports team. Your tickets are more expensive than those of any other team in the league. Your venue sells out for every game with no group discounts, $8 concession stand beer, and an indifference to customer requests to change the uniforms, get better-looking cheerleaders, and add more women’s restrooms. You as the team owner know what’s best, and if the fans don’t like it, there are thousands more eagerly willing to take their seats.

Welcome to Team Epic Systems.

Arch-competitor Cerner embarrassed itself last week by complaining that a big provider in its back yard, University of Kansas Hospital, chose Epic over lower bidder Cerner in a $50 million deal. According to a spokesperson, the Epic choice was “a disappointment to Kansas City.” Cerner, she said, would have spent a ton of research money at KU, but will have to look elsewhere because KU’s doctors vastly preferred Epic’s product (the unpatriotic nitpickers).

Make no mistake, Epic has changed the industry, at least when it comes to high-end academic medical centers. Back in the late 1990s, economists might have characterized the healthcare systems market as an oligopoly. That’s when four or fewer sellers own at least 40 percent of the market. SMS, HBOC, Cerner, Meditech … yep, sounds like one to me.

Epic’s remarkable record of big-provider wins moves the high-end HIT market closer to a monopoly, a market with no substitute goods or economic competition.

Epic is quirky. They don’t negotiate pricing. They share the “we know better than our customers” business model as Meditech, but from the opposite end of the pricing spectrum. Complain and it’s the Soup Nazi – no system for you. They’ve got all the customers they need, so they aren’t about to put up with foolishness.

Some of the Epic craze is surely due to the bandwagon effect (buying what everyone else like you or better buys), but most of the credit goes to its only real competitors in the high-end market – Cerner, Eclipsys and McKesson. What does it say about the products and services of those companies when customers like KU buy from high bidder Epic even though it costs far more and VIP coddling is highly improbable?

Perhaps the next market phase will follow a far more obscure economic theory called Hotelling’s Law. It postulates that sellers will make their products as similar as possible to maximize overall demand, even though customers would benefit from product differentiation (examples: drugstores and gas stations operate across the street from each other, airlines copy each other’s flight schedules and prices, both of which benefit the businesses at the expense of customer convenience in having a choice).

In other words, if I’m a vendor and Epic is beating me like a drum, maybe I’d better just copy what they do. For businesses, the best role model is the one making the most money.

Epic needs more competition than Cerner, Eclipsys, and McKesson are giving it. For those companies, Epic’s product is seen by prospects as so vastly superior (including in KLAS rankings) that they’re willing to pay more for it, quirks and all.

It would be good for the entire industry if those or other vendors could mount a credible challenge to the big dog. Unfortunately, operating in a publicly traded, quarter-by-quarter mindset, nothing suggests that such an invasion of Epic Stadium is imminent.

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Currently there are "5 comments" on this Article:

  1. Mr. H,
    How true, how true… what a prophet you are Mr H.

    It all can be summarized in 4 sentences:
    1- People want most what they can’t have,
    2- When you get the JD Powers award, leverage the heck out of it. (see #1)
    3 – Wait for the tide, don’t try to rush Mother Nature. Also can be described as – With enough time the lemmings will always jump.
    4 – Wait, is not a word in the Wall Street dictionary – see #3

  2. I remember sitting in the tiny office of a CIO of a small hospital when during my call his phone rings.

    It was Judy on the line. I knew right then and there I wuddnt gettin that deal.

    Today I’m in a very different role. I get to work w all the vendors. It never ceases to amaze me how none of them get it.

    Epic has not changed, ever. They’ve always chosen the lucky who would have the priveledge of becoming a customer.

    The other guys continue to beg and bug for business.

  3. with Judy it has always been like the Seinfeld episode, but instead of are you “sponge-worthy”, it is are you “Epic-worthy”!

  4. Excellent parallel of a professional sports team and Epic. A similar path could be drawn should the Epic’s competion decide to mirror the Epic “playbook”. When one team starts to dominate in any sport, competitors attempt to copy rather than challenge via an alternative game plan. College football has been all about the “spread” offense since Urban Meyer won two nationalt titles at Florida; NHL GM’s have adopted “puck possession” style hockey in light of the Detroit Red Wings four Stanley Cup championships over recent years; “Moneyball” philosophy has enveloped small-market teams in major league baseball. The list goes on. If anything, innovation ought to be the difference-maker in one-upping Epic. Is there competition listening????

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