“Healthcare is broken. Insurance companies are innovatively bankrupt. There are huge hurdles to entry. The biggest companies in the world can’t solve this problem; even Google can’t build a good personal health record system. Doctors are frugal. Patients are lazy and don’t care about their health. You guys are choosing a very hard path.”
Such was the litany from Ryan Howard, the CEO of San Francisco-based Practice Fusion, who was trying to give some frank advice to a group of budding healthcare entrepreneurs at an event in Mountain View this September.
So, given those harsh realities, what possessed Howard to spend the last six years building a free electronic health record system for small physician practices?
“If I die tomorrow I don’t want my headstone to say ‘Made more money for Wal-Mart,'” Howard says. “I want to have someone, somewhere benefiting from my work, and healthcare felt very powerful for me.”
The idea of digitizing patient records—and, ultimately, connecting them with lab data, prescription systems, and insurance and reimbursement records—is indeed a powerful one. In fact, it’s been beckoning innovators for nearly half a century. One of the oldest multi-user database-driven computer languages in the world is MUMPS, written at Massachusetts General Hospital in 1966 to store health records. It’s still in use today—which tells you something about the power of tradition in this field.
But the pace of change is finally picking up, thanks in part to a system of carrots and sticks built into the 2009 federal stimulus package to spur adoption of electronic health records (EHRs). Doctors who implement EHRs in their practices before 2015 are eligible for up to $44,000 in extra payments from Medicare; if they don’t convert by then, the reimbursements they get from Medicare will be docked by 1 to 3 percent. Dozens of companies, from giants like General Electric to tiny startups like Y Combinator-backed DrChrono, are jumping into the market created by the incentive scheme.
But Practice Fusion may be the fastest-growing of the whole bunch. The company says its Web-based EHR has more than 100,000 users, with a cumulative 25 million patients under their care. The 110-employee company has raised roughly $34 million in venture support—most of it in a big April round led by Peter Thiel’s Founders Fund—and it has nearly doubled its head count in the last six months. In anticipation of further growth, it’s about to move into a huge, 46,000-square-foot space in San Francisco’s Union Square.
The technology so many practices are snapping up isn’t simply a database for patient records—that would be like repurposing Salesforce.com for doctor’s offices, Howard says. The much harder thing to build, and one of the main benefits emphasized by Practice Fusion in its marketing pitches, is its system’s behind-the-scenes connections to pharmacies, labs, and billing services, meaning doctors can get more done directly from the system’s Web-based interface.
But the biggest selling point for Practice Fusion—and the factor explaining its rocket-like growth—is that it’s completely free to doctors. The startup makes money not in the usual ways for enterprise software companies—subscriptions, consulting, training, support—but by showing ads in the browser alongside patient data.
Most of the ads are from pharmaceutical companies, as you might expect, and doctors who don’t like them can pay $100 per month for an ad-free version. But few bother. It turns out that the right price for an EHR system is no price.
Howard says it took some doing to convince his board and investors that the company should make the service free—but that it turned out to be the best decision the company has ever
