Epocrates Attracted Athenahealth Buyout by Getting Back to Basics in Mobile

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they all stick fairly close to Epocrates’ original identity as a trusted provider of medical reference data. “A lot of going concerns that are established tend to fall down when they lose sight of what they have and why they have it,” says Hurd, who joined the company in March 2012. “What we have done a great job at is delivering great content to the form factor that [doctors] want, their phone, at the point of care.”

The first big step in Hurd’s turnaround effort at Epocrates was canceling the company’s project to build an EHR system. Given that Athenahealth sells its own EHR and wasn’t in the market for a second one, Hurd’s decision was probably key to setting the stage for the acquisition. But the way he explains the move, the reversal was mainly about recognizing where the company’s real competencies lay.

Hurd’s predecessor in the CEO suite, Rose Crane, told me in late 2010 that she saw an EHR system as a natural extension of Epocrates’ brand. At the time, many technology providers were scrambling to help medical practices capture their share of the $19 billion in federal EHR conversion incentives offered under the 2009 economic stimulus package. Crane said there was an opportunity to focus on an overlooked group: small practices in need of no-hassle technology.

An Epocrates EHR, she said, would reflect the simplicity of Epocrates’ existing apps, and would excel at highlighting drug-prescribing information and other reference data missing from most commercial health record systems. And because Epocrates was already expert at monetizing its mobile platforms through sponsorships, she said, the company would be able to undercut competing EHR providers on price.

But by mid-2011 Epocrates still hadn’t launched its EHR beyond a small group of beta testers. The delay in rolling out the system to paying users was one of the factors that led Epocrates to warn shareholders of lower-than-expected earnings for the second half of 2011. The day after that guidance appeared, Epocrates shares lost 40 percent of their value, dropping from $16.69 to $9.89.

Epocrates’ board canned the EHR project in November 2011—and Crane along with it. “The business had spent a fairly significant amount of time and effort on a pre-revenue initiative,” says Hurd. “The decision was made that they were not going to continue to pursue that. That meant a direction change, which meant a strategy change, which meant a leadership change.”

Hurd knows his way around patient records; he was previously CEO of Carefx, a Scottsdale, AZ-based company whose Fusionfx software helps hospitals aggregate patient information scattered across multiple computer systems. (Harris Corporation acquired Carefx in 2011 for $155 million.) He says the concept behind the Epocrates EHR was “intellectually sound,” and he agrees that the EHR business is a good one, where many companies are providing value.

But it’s not a technology to be undertaken lightly, he says. “The amount of time it takes to build an EHR is usually not defined in single-digit years. If you look at the market realities, the leading companies have taken decades. There is clearly a lot of money being made in that business, and there is great innovation that will occur there, but the purpose it serves and the way it is used is very different from how Epocrates is used.”

“I really have nothing bad to say about Rose,” Hurd adds. “I think she took her shot as this thing occurred.” But the overlap Crane perceived between Epocrates’ existing mobile tools and electronic health records just wasn’t there, he says.

“I will explain it this way,” Hurd says. “I think at some point in the future, 5 or 10 years from now, every physician will have two systems. They will have an EHR provided to them by their hospital, their practice, or whomever. EHRs are exceptional at documentation, data aggregation, reimbursement, all these important aspects, and are largely desktop- and PC-driven. And then they’ll have another system for streamlined, unencumbered access to dynamic information, always accessible on the device they have with them—their smartphone or tablet or their iPad mini or whatever it might be.”

That’s the part where Epocrates can excel, “because we have been doing it for years,” Hurd says. “When I came in, I said, ‘Here is the asset, let’s put some fresh eyes on what we can do with it.’”

The average user of Epocrates has had the app on their smartphone (or before that, on their PDA) for five years, Hurd points out. That means … Next Page »

Wade Roush is a contributing editor at Xconomy. Follow @wroush

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