Apr 21, 2025 · 3h 57m · acquired
Epic Systems (MyChart) · Acquired
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Hosts Ben Gilbert and David Rosenthal explore the history, technical architecture, and counter-intuitive business principles of Epic Systems, the private software giant powering U.S. healthcare. The episode details how founder Judy Faulkner built a multi-billion-dollar vertical software monopoly through a single unified database, relentless customer retention, and complete operational independence.
How this conversation actually went
Every chapter scored 0–10 on four independent dynamics. Hover any point for the reasoning behind the score. Ben and David hold 99.6% of the talking time here. How this is scored →
Ben and David as informed peer 6.8 Guest teaching 4.9 Guest disagreement 1.3 Ben and David pushing back 2.0
speaking balance: gold is Ben and David, purple is the guest (3 minute bins)
Sharpest disagreement ▶ 2:27:11 Clash Over HITECH Stimulus and Jobs
Ben rejects David's framing that Meaningful Use served as a successful domestic jobs program, bluntly stating he hates the government propping up wasteful administrative headcount.
Hardest push from Ben and David ▶ 1:00:15 Stopping the Microsoft ComparisonBen firmly halts the Bill Gates/Microsoft analogy by contrasting Epic's $18M vertical revenue in 1995 against Microsoft's $6B horizontal platform revenue.
Biggest teaching moment ▶ 20:48 Origins of Employer Health InsuranceBen educates David on how the 1942 Stabilization Act wage freezes created modern employer-provided pre-tax health insurance as a recruitment loophole.
Ben and David hold their own ▶ 3:06:40 Valuation and Financial Durability AnalysisBen refutes Forbes' $7.6B net worth estimate by calculating Epic's valuation at $100B+ based on EBITDA multiples, customer durability, and revenue growth.
the scores for every segment, with the reasoning behind each
| Chapter | Topic | Ben and David as informed peer | Guest teaching | Guest disagreement | Ben and David pushing back | Why |
|---|---|---|---|---|---|---|
| Judy Faulkner's Family Heritage and Upbringing | 7 | 5 | 1 | 2 | David presents original archival research regarding Judy Faulkner's mother winning a share of the 1985 Nobel Peace Prize. Ben contributes context regarding Bell Labs, early mini-computers, and the nascent state of computer science. | |
| The History of Medical Records and Early Standardization | 8 | 6 | 1 | 2 | Ben educates David on the 1942 Stabilization Act wage-price controls that inadvertently established employer-sponsored health insurance in America. David traces standardization efforts from Mass General in 1912 up to the 1965 creation of Medicare and Medicaid. | |
| Third-Party Payers and Electronic Medical Billing | 7 | 6 | 1 | 2 | David explains the origins of Mumps and COSTAR at Mass General to solve concurrent transaction recording for third-party billing. Ben analyzes the payer-provider leverage dynamic and developer trade-offs with MUMPS. | |
| Judy Conceives Chronicles and Founds Human Services Computing | 6 | 6 | 1 | 1 | David recounts Judy Faulkner writing the core Chronicles database code and launching Human Services Computing in 1979. Ben highlights the mainframe text-only terminal interface constraints. | |
| Financing the Data General Eclipse and Early Madison Days | 7 | 5 | 1 | 2 | The hosts review the initial $70k bank loan and $70k equity raise for the Data General Eclipse computer. David attempts to stump Ben with the American Girl Doll shared office trivia, but Ben already knows it. | |
| Rebranding to Epic and Building the Resolute Billing System | 8 | 4 | 2 | 4 | David outlines the 1987 Resolute billing launch and 1992 GUI EpicCare release. Ben pushes back strongly against comparing Epic to Microsoft, citing the vast revenue disparity between vertical and horizontal software. | |
| Developing MyChart and the Patient Portal Revolution | 6 | 5 | 1 | 1 | David explains the genesis of MyChart in 2000 from an early remote physician project by Sumit Rana. Ben emphasizes how consumer access to records and self-scheduling revolutionized hospital workflow economics. | |
| Sponsor: Fundrise Venture Investing | 3 | 1 | 0 | 0 | Mid-roll sponsor segment discussing Fundrise's venture product and retail access to pre-IPO growth companies. | |
| Kaiser's Internal Factions, IBM's Failure, and the Shift to Epic | 7 | 6 | 1 | 2 | David explains Kaiser Permanente's bifurcated regional structure and the collapse of their multi-billion dollar IBM EHR deployment. Ben clarifies the economic impact of four-billion-dollar project figures versus vendor software fees. | |
| The Technical Bake-Off and Winning the Historic Kaiser Contract | 8 | 6 | 2 | 2 | David and Ben detail the bake-off between Epic and Cerner for Kaiser, including Carl Dvorak's transaction spreadsheet model and Judy refusing to grant Kaiser equity warrants. | |
| Post-Kaiser Scaling and Scar Tissue from the Philips Partnership | 7 | 5 | 1 | 1 | Ben shares the cautionary case study of Epic's failed Philips co-development partnership and how it created permanent anti-partner scar tissue. David traces the early development of the Verona campus. | |
| Epic's Software Factory Mindset and the 10 Commandments | 8 | 6 | 1 | 1 | David reads Epic's 10 Commandments posted across campus, while Ben breaks down the high-trust developer culture, the zero-bug mandate, and the son-written logic tests used in hiring. | |
| Customer Obsession, Executive BFFs, and Strategic Bundling | 7 | 5 | 2 | 3 | David explains Epic's dedicated technical specialist pods and annual C-suite report cards. Ben contextualizes Epic's customer obsession as a strategic bundling mechanism reminiscent of Microsoft and Amazon. | |
| Sponsor: ServiceNow's Enterprise-Wide CRM | 3 | 1 | 0 | 0 | Sponsor read analyzing ServiceNow's single-architecture approach to CRM and enterprise data orchestration. | |
| Care Everywhere and the Capitalist Incentives of Health Data | 7 | 6 | 2 | 3 | Ben breaks down three tiers of EHR interoperability and the accidental nationwide rollout of Care Everywhere. David and Ben debate the tension between capitalist incentives to guard patient data and societal welfare. | |
| Consequences of Meaningful Use: Rapid Adoption vs Administrative Burden | 8 | 6 | 4 | 5 | The hosts analyze the $36B HITECH Act stimulus. Ben and David engage in active debate over whether Meaningful Use was a valuable jobs program or destructive regulatory overhead and administrative waste. | |
| Consolidation Wave: Allscripts, Cerner-Siemens, and Epic's Revenue Surge | 7 | 5 | 1 | 2 | David and Ben discuss the industry M&A wave as Cerner acquired Siemens Health in 2014, illustrating how messy architectural rollups strengthened Epic's single-codebase competitive advantage. | |
| Sponsor: Crusoe's Vertically Integrated AI Infrastructure | 3 | 1 | 0 | 0 | Sponsor segment discussing Crusoe's vertically integrated energy and AI data center infrastructure in Texas. | |
| Epic's Institutional Sweep and Oracle's $28B Cerner Acquisition | 8 | 6 | 1 | 2 | David details Cerner winning the DoD and VA contracts that spiraled into multi-decade overruns, followed by Oracle's $28B acquisition of Cerner. Ben highlights Epic capturing 90% of medical student training. | |
| Expanding Ecosystems: Payers, Pharma, and the Cosmos Platform | 7 | 5 | 1 | 2 | Ben and David explore the Cosmos platform containing 295M anonymized patient records. They explain how cross-system data enables rare disease detection and research queries. | |
| Business Scale, Valuation Modeling, and Succession Governance | 8 | 6 | 2 | 3 | Ben models Epic's valuation at $100B+ against Cerner's acquisition multiple and $5.7B revenue base. David details Judy's Purpose Trust succession structure requiring future CEOs to be developers. | |
| Strategic Power Analysis and Playbook Themes | 8 | 5 | 2 | 3 | The hosts apply Hamilton Helmer's 7 Powers framework, highlighting switching costs, network economies, and R&D reinvestment (35% of OPEX) while comparing Judy's hill-climbing strategy to Paul Graham. | |
| Bear and Bull Cases: Ambient AI and Platform Shifts | 8 | 6 | 2 | 2 | David and Ben discuss the bear case around the Particle Health antitrust lawsuit and Cures Act scraping, alongside the bull case of ambient AI scribes (Abridge, Suki, Nuance). | |
| Quintessence: The Vertical Market Software Triumph | 7 | 5 | 1 | 2 | David and Ben conclude on why Epic succeeded: vertical market software necessitates building the full stack in an industry where software failure risks human life and severe regulatory penalty. |
Statements from this episode (80)
Epic Systems has never raised VC or acquired another company
“They never raised any venture capital, and they've never done any acquisitions in their 47 years of existence.”
Epic has zero customer churn among its major hospital clients
“They have the majority of the U.S.'s major hospital systems using their software and of their over 600 customers, they have never lost a single one.”
Founder Judy Faulkner created a trust to prevent Epic's IPO
“Judith, at age 81, has created a succession plan and a trust structure for her voting shares to ensure that that will stay true forever.”
Judy Faulkner's mother was part of a Nobel Peace Prize-winning group
“In 1985, this group, in partnership with a broader international group called Physicians for the Prevention of Nuclear War, wins the Nobel Peace Prize. Judy Faulkner's mom was part of a group that won the Nobel Peace Prize in 1985.”
Judy Faulkner taught herself Fortran in one week at Rochester
“So they give her a book, like a manual on Fortran and Judy teaches herself Fortran in a week and becomes one of the best programmers in the lab.”
Only 10% of Americans had health insurance in 1942
“In 1942, America is at war. There is something passed called the Stabilization Act that imposed wage and price controls. An interesting thing to note, at this point in time, only 10% of Americans have health insurance.”
US healthcare costs are psychological abstractions for patients
“If you're trying to unpack how did our health care become 18% of GDP versus 11% of the UK GDP, or a staggering six percent of Singapore's GDP, albeit at a much smaller scale. Why are we 18%? A big thing you have to understand is, psychologically, every healthc…”
Electronic billing, not clinical records, drove EMR adoption
“And that's the existential need for an electronic medical record system, but really also, and maybe more importantly, an electronic medical billing system.”
Healthcare payers hold structural leverage over hospital systems
“So the payers are always gonna have a tremendous amount of leverage over individual physicians, small hospital systems, even larger hospital systems. So you really need to be extremely buttoned up and extremely standardized and extremely auditable because you'…”
Medicare and Medicaid dominate healthcare spending via elder care
“Of that set of payers, Medicare and Medicaid are the big gorillas because they're covering the elderly population who are consuming the vast majority of care and the vast majority of complicated care and expensive care in the country.”
Epic Systems still uses a MUMPS descendant for its core stack
“And Epic still uses Mumps today, or actually it uses its Modern descendant cache, but this is the standard programming language for the industry and database system for the industry.”
Epic's core differentiation is its single unified database
“It is true that Epic's core database, the core single database, and this is Epic's big differentiation. There's only one database that every application pulls from.”
Sequoia Capital acquired a massive secondary stake in Epic
“One fun thing is at one point in time, I think this was probably the 2000, maybe a pretty good chunk of those shares Made their way to Sequoia Capital.”
Epic generates $5.7B in revenue on $70K in equity
“They do 5.7 billion dollars in revenue today. They dominate an industry, at least here in the United States. And in total, they raise 70,000 of equity capital and 70,000 of bank debt.”
Epic is a massive enterprise company with virtually no business hires
“And it's not true, but it kind of rounds to true to say Epic basically never did hire any business people. It is essentially a big, gigantic company of programmers, logicians, implementation people who could be programmers, who think like programmers. That is …”
Epic and Microsoft pioneered on-campus recruiting for high-agency roles
“Microsoft was really on the frontier Of hiring smart college grads and empowering them and letting them run free. Epic was doing the same thing, and this was not industry standard.”
Epic had only 24 customers and $1.5M revenue after ten years
“By the end of the company's first decade of existence, so end of 1988, they only have 24 customers, and it's only doing one and a half million dollars in revenue, and they've got like a handful of employees.”
Epic's 1987 Resolute module remains its core hospital billing application today
“So in 1987, they launch a billing module called Resolute, again, on top of the Chronicles. Single core database, which still today is the company's revenue cycle application for all their hospitals.”
Epic's rivals scaled by gluing acquired companies together
“All their competitors along the way, or almost all of them other than Meditech, became 30 other companies glued together through M&A and take public, take private, crazy transactions.”
EpicCare was the industry's first Windows GUI EMR application in 1992
“And on the back of that in 1992, they launch Epic Care, which I believe is the first graphical user interface like Windows based EMR application in the entire industry.”
Hospitals want complete software suites from one vendor, not piecemeal tools
“Our customer, these hospitals, do not want to buy piecemeal solutions. They want to buy everything from one vendor, and they want that one vendor to provide the very best, most integrated experience possible.”
Epic's MyChart was healthcare's first integrated patient portal
“So it becomes the first integrated patient portal”
Epic's MyChart portal has 191 million active users
“Today there are a hundred and ninety one million active users of MyChart, and this is deduplicated. This is active, unique users of MyChart today.”
Winning the Kaiser contract propelled Epic to $162M in revenue
“After they signed Kaiser, they go to a hundred and sixty two million in annual revenue.”
Epic's share of Kaiser's $4B software project was $400M
“The headline number, as everyone reports it, it's a four billion dollar deal. They call it a four billion dollar three-year project, and that Epic's portion is around four hundred million.”
Epic wins enterprise deals by guaranteeing zero failed implementations
“Epic has bet the whole company on having a reputation for, we don't have failed implementations. And that wins deals.”
EMR vendors sell to hospital administrators, not clinicians
“When we say customer, we mean hospital CEO, CIO, the chief information officer, and CFOs. When we refer to their customers, that's who we're talking to. Obviously, the chief medical officer and all of the physicians and nurses and care folks are a part of that…”
Cerner merged 36 entities together before Oracle acquired it
“By the way, earlier when I said 24 different companies merged together to create Cerner, I forgot that this chart that I'm looking at predates when Cerner then bought Siemens. So then there's another 12 companies that had merged together to become Siemens that…”
Epic's closed strategy stems from a failed partnership with Philips
“I think it's still reasonable to say that some of the DNA of what Epic would become, and they would take tons of arrows for this closed, not interoperable, blah, blah, blah. Some of it stems from this failed partnership.”
Epic hired Disney theme park designers for its Wisconsin campus
“They hire the same firm that did the Disneyland California Adventure renovation in 2008.”
Epic's corporate campus features an 11,400-seat underground auditorium
“It's 1700 acres. 410 of them are the campus. The rest is the farm. It now covers 89 buildings, There are four indoor auditoriums with 18,000 seats total. The big one, Deep Space, is the world's largest subsurface auditorium. There are 11,400 seats.”
Epic posts '10 Commandments' barring IPOs in every campus bathroom
“They have them posted in every bathroom and in every break room across the entire campus. And so any visitor who goes there and it's open to the public, you can just go in and see the 10 Commandments in the bathrooms there. The 10 Commandments are number one, …”
Epic plays wedding bells campus-wide upon signing each new client
“Other interesting things about the campus, they have wedding bells that will play campus-wide when a new client is signed, just showing that that's the type of commitment that this is. It's a, we've now married this client for the rest of our lives.”
Epic operates with minimal middle management and zero divisional budgets
“So, because of that high level of trust, there's very few middle managers. You understand the system that everybody else works within, and you don't have to corral chaos. Most of the people they're hiring are right out of school, so they've been there for a lo…”
Epic requires all employees to complete clinical immersion trips
“Everyone does immersion trips where the software developers, I mean, everyone is required to spend time in clinical settings like operating rooms to directly observe workflows.”
Epic developers must drop everything to immediately fix their own bugs
“The whole system is designed around minimizing the number of hours between when a line of code is written and then when it is tested, so if a bug is found, then you drop everything as the original developer and you fix it so that you still have the whole conte…”
Epic screened candidates using a test written by the founder's 7th-grade son
“And for 18 years, listeners, that was how they tested to determine if someone should work at Epic.”
Epic requires all applicants across every role to pass logic tests
“It's all systemized and catalogued and everybody takes one on the way in.
For every role in the company.
The culinary team we heard. Takes not full software developer tests, but logic tests on the way in.”
Epic Systems has no sales department and only eight inbound salespeople
“There's not a sales or marketing department. There are eight or so salespeople, quote unquote, in the company who only react to inbound requests and they all came from either project management or technical specialists.”
Epic assigns dedicated technical product teams to every customer
“Every single customer of the, 607, whatever hospital system customers that Epic has, every single customer has their own
Technical specialists teams for every single product that they use.”
Epic sends annual 1-5 report cards to hospital client executives
“So they will send separate report cards.
Every year to your CEO, CIO, and CFO, and they will grade you one through five on a bunch of dimensions, and then they will show you benchmark data against other customers at your peer set of like relative similar size …”
Epic's average annual price increase is about 2%
“They do, but their average yearly increase is about two percent across the board.
So below inflation.”
US EMR adoption push began under George W. Bush, not Obama
“The narrative out there, and certainly in as much as I knew or paid attention to any of this, was that Obamacare and the Obama administration were the ones who really pushed EMR adoption and meaningful use and all this stuff that we're really gonna get into. T…”
Only 13% of US healthcare facilities had EHRs in the mid-2000s
“And at the time, only 13% Of healthcare facilities in America had an EHR system at all.”
Epic is far harder to integrate with than other enterprise software
“But the result of this is that it's been much harder to integrate with Epic as an application developer than you would be used to in any other software category.”
Epic's Care Everywhere network exchanges 20 million patient records daily
“Today there are twenty million patient records exchanged daily.”
Judy Faulkner mandated universal data sharing across all Epic clients
“Judy made the call personally that Care Everywhere wasn't a thing or shouldn't be a thing where their customers could pick and choose. If you were enabling it worked across All Epic customers, even if they were your local competitor.”
The 2009 HITECH Act allocated $36B for healthcare IT incentives
“In 2009 when the bill is passed, there is twenty seven billion dollars available in direct incentive payments to hospitals that implemented electronic medical records. And if you include broader incentives, other health IT projects, data exchanges, training, t…”
HITECH Act paid hospitals up to $64K per physician for EHR adoption
“So specifically, it amounted to 44,000 to 64,000 dollars per physician. In incentive payments over a few years for adopting it. Now that actually went to the hospital, but it was basically, you get paid for how many physicians are doing this.”
Government subsidies reward reliable enterprise software vendors over innovative ones
“It also is interesting because it basically rewards the most reliable software, not necessarily the most innovative software. You end up not taking any risk in situations like this because you're not going to get rewarded unless you actually stand the system u…”
US hospital EHR penetration surged from 9% to 95% in five years
“Market penetration of electronic healthcare records went from nine percent of hospitals in 2009 To 95% by 2014.”
Epic founder Judy Faulkner advised the Obama administration on the HITECH Act
“Judy was on Obama's Health IT Council through all of this, which was advising The Obama administration on the High Tech Act.”
Government product regulation in commercial markets inevitably creates messy dysfunction
“Anytime you've got government coming in and distorting a market, you're going to get weird stuff happening. And especially anytime you have government coming in and regulating how products are to be developed and used in a market, you're going to get really me…”
EHR data entry consumes two hours of physician time per care hour
“There was a 20 16 study that showed that entering data into EHRs consumes about two hours of doctor time for every one hour spent providing hands-on patient care.”
The DoD and VA awarded Cerner $14B in EHR modernization contracts
“This deal in 2015 is, up until this moment in time, the biggest healthcare IT contract of all time. It ends up being a 4.3 billion dollar deal, so even bigger than the Kaiser deal. It remains the biggest until two years later, when the VA contract does go out.…”
The DoD's Cerner EHR implementation took nine years to go live
“So the DOD system, the active duty system, only just fully went live late last year in twenty-twenty-four. This contract got bid out in twenty-fifteen. So that is a nine-year implementation process.”
The VA's Cerner EHR rollout will take until at least 2031
“The VA system was bid out in 2017. The latest announcement from the VA about this project is that it will be live at all VA sites by, this is a direct quote, as early as 20 31.”
Epic secured all 20 of the top US academic hospitals
“They announced that they have all 20 of the top academic hospitals in the U.S. News and World Report rankings.”
90% of US medical students currently train on Epic's software
“And I think now, 90% of med school students train on Epic.”
Oracle acquired healthcare software company Cerner for $28B in 2021
“December, 2021, as we've been alluding to, Cerner gets bought by Oracle for twenty eight billion dollars.”
Cerner is probably one of Oracle's worst acquisitions of all time
“You know, maybe it's too early to tell, but I think this is probably one of Oracle's worst acquisitions of all time.”
International sales account for roughly 10-15% of Epic's business
“They're now starting to sell international and build that as a real market. It's not huge, but it's, you know, call it 10 to 15% of the business now.”
Gilbert: US hospital consolidation will not cause healthcare prices to decrease
“This consolidation will not lead to prices coming down, let's just put it that way.”
Epic's Cosmos platform holds anonymized data from 295 million patients
“Cosmos has 295 million patients worth of data in it, all anonymized.”
Epic software reportedly prevented 66M drug interactions in 2023
“Epic has a stat in 23, its system prevented sixty-six million potential adverse drug interactions and 250,000 potential surgical errors.”
Epic's Cosmos database is free for institutions that contribute data
“And it's accessible to any institution for free that contributes data in. So of all the Epic customers, Anyone who opts in gets to access and query it for research or cool stuff.”
Rosenthal: Epic may be the most durable software company in history
“I think this is maybe The most durable software company in history.”
Public markets would value Epic Systems near $100 billion
“My guess is if this is public, which it never will be, investors would value it somewhere in the hundred billion dollar neighborhood, giving Judy's shares a value of about fifty billion dollars and making her the wealthiest self-made woman in the world and one…”
Epic's trust rules mandate its next CEO must be a software developer
“One, must be a longtime Epic employee, and two, must be a software developer.”
Epic Systems has the highest switching costs of any software in history
“I mean, this is the biggest switching cost piece of software ever.”
Epic Systems spends 35% of its operating expenses on R&D
“The result of that is 35% of their operating expenses are spent on R&D.”
Epic Systems has never entered litigation or mediation with any customer
“Interestingly, though, they have never been in a lawsuit or even in mediation with a customer.”
Rosenthal: Epic's Judy Faulkner is history's most successful female founder
“Judy is almost certainly the most successful by any measure female founder in history. I think that is actually true. I looked up to try and see who else might even come close.”
The Cures Act legally permits screen scraping against Epic's software
“The Cures Act makes things like screen scraping or Chrome extensions or RPA legal as a means to extract data from Epic. And there's nothing they can do about it. That is required allowed.”
Probability of a third-party UI replacing Epic's backend is near zero
“The fear is that someone deploys to like a 70% of your customer base. They're all using some Chrome extension. They're all feeding the data into some nice UI. That nice UI is the thing everyone prefers to use. And then that UI vendors like, oh, instead of usin…”
Epic controls which new software innovations can reach hospital physicians
“Epic is kind of the choke point of the industry at this point to decide what software innovations reach hospitals. I don't think it's overstating it to say if you're developing new breakthrough software to be used by physicians in hospital systems, Epic's kind…”
Industry regulation entrenches incumbents because they have compliance resources
“Regulation tends to Shut out new entrants and entrench the older companies because the older companies are the ones that have the resources to comply.”
Zero-tolerance industries require single-vendor integrated software suites over modular solutions
“And so in a situation where you can't make any mistakes, the single vendor playbook is the right playbook, even if it's going to take 47 years to build the dominant company. You should have to write a lot of software, and it all has to work together really wel…”
Epic is likely the world's most valuable vertical software company alongside Bloomberg
“Epic has gotta be the most valuable vertical market software company in the entire world. What else could possibly be up there? And so I started racking my brain. I was like, Bloomberg was the only one I could come up with that could. Plausibly maybe be as val…”