Athenahealth started as a chain of birthing clinics struggling to get insurance claims paid. This story, excerpted from "Where Does It Hurt? An Entrepreneur's Guide to Fixing Health Care," follows the company's pivot to cloud software and business services.
By the time summer 2004 rolled around, it had been five years since we exited the San Diego birthing business. We stopped hiring midwives and started recruiting software engineers. We were an Internet business, and those investors who used to run away screaming at the very mention of my name promptly rushed back with fists full of dollars. The dotcom bust came a year later. But it was barely a speed bump for the new athenahealth. That same year my cousin George was elected president. He was a funny, charismatic figure from my youth, but I hadn't seen much of him since.
I was now the CEO of a rising medical data company. We built automated systems to handle the administrative chores for thousands of medical practices. They didn't buy anything from us. Instead, they subscribed to a service on the Internet. This was what would later be called a cloud-based service, but in these early days of Internet era, we were still searching for a name for it. My partner Todd [Park] used to say in speeches that he would give Polynesian fruit baskets for life to anyone who came up with a single name for the combination of software, knowledge and work that we were selling. We had moved back east and had a new headquarters in a historic brick armory building along the Charles River near Boston. Our future looked fabulous, except for one problem: My cousin, the 43rd president of the United States, was about to sign a bill that could destroy us.
This bill, like so many government initiatives, stemmed from the best of intentions. The idea was to encourage the migration of the health care industry from cumbersome binders full of paper to electronic records. How was this to be accomplished? Well, hospitals and doctors were forbidden by so-called anti-kickback laws from exchanging services, information or products of value with each other. The bill before Congress in 2004 offered a regulatory safe harbor for hospitals to provide doctors with all the digital technology the bureaucrats could think of: servers, software licenses, and training. That was absolutely the right answer ... for 1982. The long and short was that hospitals could buy all the old stuff from our competitors, but none of the new still-to-be-named services from us. As often happens, the technology was advancing much faster than the law.
I caught the shuttle down to Washington and commenced lobbying with the fervor of a man with a gun to his head. I raced up and down the marble halls of Congress, looking for someone, anyone, who would take the time to learn why this bill was so very wrong, so backward, so devastating, so lethal -- at least to athenahealth.
But let me tell you, if you walk into Congressional offices sputtering about a clause in a bill that practically no one has read, something that has to do with hardware and software and online services, people tend to hurry away, or point you toward the door. I could find no one to pay attention. And as I grew more frantic, I started talking louder and faster. That didn't help things.
Some might find my frustration strange, considering that during this drama my cousin was sitting a mile away, in the Oval Office. Wouldn't a Bush, facing legislative trouble in Washington, contact someone in the White House entourage? The answer is no. Placing a call to him was not even a remote possibility. For starters, it's unethical. It is also politically foolish. It would place him, me, and my company in scandal and bring shame upon our family. I would be much more willing to climb the steeple of the tallest church and bungee jump naked in the middle of the night than to call my cousin. And even if I were dumb enough to make the call, I trust George would have the good sense to tell me to get lost.
At the time of this drama, my fast-growing company employed hundreds of people in Massachusetts. But I could not get anyone on the state delegation to hear my plea. (It's conceivable that my family name was working against me.) Finally, I located a congresswoman who would listen to me. It was Nancy Johnson, a Republican who had been representing her Connecticut district since 1983. She chaired the health subcommittee of the powerful House Committee on Ways and Means.
I walked into her office and saw the 69-year-old congresswoman sitting behind a desk. She was paging through an enormous sheaf of papers. That was the bill. Embedded in that piece of legislation were hundreds, if not thousands, of amendments, earmarks, and wrinkles added by one interested party or another, along with thousands of other details that just landed there by dumb luck. Other items, like the all-important clause "and Internet services," were simply missing. It struck me as I watched her paging through this bill that my drama was only one of thousands, or even millions, that would result from this mountain of legislation. A single detail can throw lives, or entire companies, into a tailspin. It can reroute billions of dollars, turning winners into losers, and vice versa. Government is like the giant with an Uzi. It means so well, but if it gets scared or sad or confused, it can squeeze off 80 rounds without even noticing the bodies falling around it. One single law can put technologies that should have disappeared a generation ago onto eternal life support and close the door on their superior replacements. Now, in the last day or two before the bill became law, Rep. Johnson was committed to
limiting the damage. She was gamely attempting to filter out dangerous bits and pieces. It was exhausting work.
She asked me what I needed. I started my spiel. I went on about hardware and software, and the future of Internet-based businesses, and the importance of medical data traveling across networks. It was the key to efficiency, fairness, the economics of health care, research ...
"STOP," she said. "That's too much for me. What words on what page?"
I pointed to the clause where it said "computers and software," and asked her to add "and Internet services." She did.
Danger averted. Our company would survive this bill.
But let's consider this process for a moment. It has nothing to do with innovation or satisfying customers or delivering great results. It has everything to do with cultivating influence among politicians and regulators. To create a modern, caring and efficient health care economy, we have to create more spaces where entrepreneurs can compete in the marketplace -- and not in the corridors of Capitol Hill.
Unlike many entrepreneurs, I had reason to feel comfortable in Washington. Even though I couldn't call my presidential cousin for help, I had my political name, fancy venture firms behind me, and my equally fancy business degree from Harvard. That gave me the confidence -- or hubris -- to assume I could get in there and make a difference. I was an outsider with insider status. I'd guess that 90% of businesses that get blown up by government mis-steps, or even prevented from being born, are run by outsiders with outsider status. That is why it's so hard for an activist government to be effective. It works with known players -- while the future should be in the hands of unknown players working to make the household names obsolete.
The government, by regulating industry, actually ends up protecting the incumbents. Here's how. Let's say the news comes out that insurance companies are taking advantage of customers in an especially awful way. Because this is a service that society views as vital, the government comes in and says, "Whoa, what's going on in here?" Now the best thing to do at this point would be to make it as easy as possible for new entrants to come into the system and disrupt these guys -- clean their clock, kill them, or at the very least force them to change. But instead the government looks to control them. They do this by writing up cumbersome regulations. These discourage newcomers from the market. Many of the best would-be competitors don't employ a single lobbyist or lawyer. They take one look at a market regulated up the wazoo, and conclude, wisely, that they're not built to play that game. They're better off building a new video game or a dating app. So instead of making the bad incumbents vulnerable, the government leaves them fat, lame and stupid -- but with formidable lobbying power. Since these companies employ a lot of people, they become untouchable.
This brings me to my favorite paradox. The industries we care about least innovate at the highest speeds, while those we hold deepest to our heart innovate hardly at all. Education, for example, is perhaps our most precious industry. It prepares our future. And yet it's locked in an archaic system that the signers of the Declaration of Independence would recognize in an instant. Its standard form of delivery, the lecture -- literally, the reading -- dates from the Middle Ages, when only the teacher had access to a book. Even most new courses online stick to this ancient method. Health care, the body to education's mind, innovates at the same glacial pace. Meanwhile, industries with no legacy to safeguard -- social networks, or video games -- leap forward week by week.
Now I don't intend to spend this chapter pounding on the government, or proposing a rapid shift to a private health care economy. The government funds and thereby controls half of the industry, through Medicare, Medicaid and other programs, and it regulates the other half. This is nearly 20% of the economy, and people's lives depend on it. It cannot be turned upside down. Radical reforms, from right or left, are bound to be disruptive and sow chaos. What's more, regulations are necessary, though smarter ones than we have today, and only a fraction of the number. The challenge is to regulate in a way that fosters market disruption in the medium term.
For now, I'm not focused on envisioning the perfect system, but instead working with what we have. The key, at least in these early days, is to pry open small doors and windows for entrepreneurs, and to change a few of the most noxious rules and regulations that get in their way. My bet is that once entrepreneurial businesses zero in on customers and quality gets rolling, the public will choose them. Other entrepreneurs and technologists will follow the endless opportunities in health care. Their businesses will sprout, a few will thrive, and the rest of the hulking industry will bend in their direction.
The government can take steps to speed up the transition -- and save taxpayers billions in the process. One key is to give consumers more choices, and a bigger financial stake, in managing their health. To understand the dynamics at play, consider a wondrous piece of technology: The proton accelerator. This is the Rolls Royce of radiation. The machinery occupies a very big room. Its technology sends a beam of ionized protons into cancerous tumors. Like other radiation therapies, this beam lays waste to the DNA of cancer cells, limiting their ability to reproduce. The benefit of the proton beam is its finely calibrated focus. It zaps its target and causes less damage to surrounding tissue. For this reason, it is the optimal radiation treatment for certain brain tumors and eye cancers, especially in children. It's also useful for tumors close to the spinal cord. As you might imagine, it's highly expensive. Medicare reimburses about $32,000 for this therapy.
Despite the superior focus of the proton beam, studies indicate that outside of its specialty -- young heads and spinal columns -- it doesn't perform any better than the alternative, IMRT (intensity modulated radiation therapy). But the proton beam has one huge advantage: It costs almost twice as much. This may sound counter-intuitive. But imagine you're at one of the 10 hospitals that have invested in this prodigious tool. It's just sitting there, huge and idle, a $100 million miracle machine waiting for an infant with a certain type of tumor. Days pass, maybe entire weeks. It's not saving lives. It's not bringing in revenue. It's not coming close to earning its keep.
While the accelerator bides its time, awaiting infants, lots of middle-aged and elderly men check into the hospitals and clinics in the area every day. They've been diagnosed with prostate cancer. About a quarter of a million American men get this unwelcome news every year.
You can guess where this story's going. Put yourself in the shoes of one of these prostate patients. You've been told you have cancer cells in a part
of your body that evokes extremely strong feelings and fears. You've heard all too much about side effects of cancer therapies, about incontinence and impotence. You've seen the ads for Depends. Now a doctor talks to you about your options. We have IMRT, he says. It's the standard treatment. But luckily, you're just a short drive from the Rolls Royce of radiation therapy, a machine with the precision to zap a tumor in a baby's brain. He has one question for you: Which will it be?
Some curious patients might ask the doctor if the proton beam delivers superior results to IMRT. Do fewer of the patients suffer the dreaded side effects? And the doctor, if he's honest, will answer that the differences for prostate cancer, according to recent studies, are negligible. That said, given a choice between a therapy with pin-point aim and one that's a tad more diffused, why not go for precision? Who knows? Studies coming out in a year or two might prove the superiority of the proton beam. No one suggests that it's worse.
And this brings you to the central question: Will it cost me any more?
To which the doctor smiles, gives a reassuring pat on the shoulder, and says, "No. Medicare picks it up."
Case closed. We're going with the Rolls Royce.
Versions of this mini-drama have been played out thousands of times over recent years. Prostate cancer is manna for hospitals that bought proton accelerators; the hefty insurance reimbursements help to amortize the investments. In some hospitals, prostates account for 70% of the massive machine's labor. Our taxes and insurance premiums underwrite this extremely expensive therapy, which costs nearly twice as much as another that is equally effective.
In a true market, this would not happen. The price would dive below the cost of the fancy machine, until inefficient players were forced from the market. At the same time, the consumer would have a financial stake in the dealings, and access to relevant information. None of us would pay twice as much for a flat-screened TV or a washing machine, unless we had information indicating that it worked a whole lot better. If two items or services are about the same, going with the cheaper one is a no-brainer -- unless someone else is paying for it. That's what happens in health care. Those of us with insurance don't have skin in the game. If we did, if we were spending our own money, our choices would force the market into competing on price and quality and customer service. That's what shoppers demand.
In the case of many cancers, even I have to concede that a pure shopping model won't work, at least not yet. Cancer therapy costs too much for all but the very rich. This isn't like the other consumer decisions, like re-roofing the house, buying a car or even replacing a knee. It's more like losing a house to a hurricane. Insurance has to pay.
Yet even in the most costly treatments, we could introduce market forces -- if the government would let us. The key is to give the customer a chance to share in the savings.
Let's return to that discussion between the doctor and the prostate patient. Imagine that after delivering the good news that Medicare will pick up the bill for the proton beam, the doctor informs the patient about an enticement: If the patient opts for the cheaper treatment, he'll get to split the savings with the insurer. That's $7,000, right into his pocket.
If this sounds too good to be true, it is. This type of enticement is illegal under current law. Why? Quite simply, government officials do not trust patients to inform themselves and make smart decisions. The introduction of market incentives could introduce extraneous items like monstrous credit-card balances into a decision that should be about nothing but the patient's health. And yet, it could be argued that the hospital's nudge to use the proton accelerator for prostate cancer has much more to do with amortizing a questionable investment than the patient's tumor.
Looking at it cynically, it boils down to this: Why should the patient get to dip into the trough when the hospital needs the money so badly? And while we're at it, why trust the patents to make smart decisions in the first place? Look at them. They smoke like chimneys, drink like fish and eat like pigs. They're couch potatoes, many are obese. They blow out their credit cards and buy houses they can't afford. If we start offering them rebates for choosing cheaper treatments, some will no doubt forego treatment for stage-four liver cancer and use the rebate to bankroll a month-long bacchanalia in Las Vegas.
Then again, if that is how a person chooses to close out his or her time on earth, who are we to say no?
In a world in which all of us die, what exactly are the risks we should be measuring and minimizing with our laws and regulations? Is it pre-mature death? Pain? Inconvenience? I think each one of us has a different answer and would thrive in a system that offers loads of options, along with plentiful data to make informed choices. This in turn would give birth to a market that would provide even more choices, including many we haven't even dreamed of. Yet laws, even well-intentioned ones like the 3,000 pages in the Obamacare bill, tend to reduce choices and bolster the bloated incumbents, from hospitals to the pharmaceutical giants that created this mess in the first place.
What about the people's "right" to health care? I agree with a very limited version of that premise. I would say that everyone should be covered for the kinds of treatments and therapies that the vast majority of Americans cannot afford. That would include serious accidents and curable catastrophic illnesses. But the rest of the smorgasbord? I'd let people choose. They conceivably could reduce premiums dramatically by buying only the insurance they want. Smorgasbords, on the other hand, make people insensitive to price and tolerant of indifferent service. In short, it discourages shopping.
I'm reminded of this every time I go to a hotel offering "free" breakfast. Usually it's an all-you-can-eat buffet. Once I've paid the $300 plus four different taxes for the room, am I going to venture out and shop for breakfast, or stay put and eat for free? Most people stick with the buffet, figuring correctly that they've paid for it. In some towns, I'd imagine, the dominance of the hotel buffet discourages local entrepreneurs from starting up their own breakfast cafes. How could they ever compete for a captive customer base? And with scant local competition, the hotel faces little pressure to improve on the hard and tasteless chunks of cantaloupe and honeydew melon in their fruit salad or to upgrade the "maple flavored" corn syrup people swab on their waffles. The quality is often wretched. But I've noticed that some customers compensate by over-consuming. Some start with fruit and muffins, go back for eggs and bacon, and crown the experience with pancakes warmed under a heat lamp for an hour or two. With an eye to lunch, some even pocket a few bagels and an apple or two. Hey, it's free.
Much the same happens with all-you-can-eat health care. People have severely limited choices, and the service is often mediocre, or worse. But they consume a lot of health care. After all, they've paid for it -- in addition to a lot of stuff they don't want or need.
As a consequence, about one quarter of the average American's life income is taken away and placed into health care. I cannot believe for a moment that millions of Americans would choose that allocation. They'd likely say, "What do I get for 20%? What do I get for 15%?" In this case, different grab bags of coverage would emerge to suit the varying budgets and values of the country.
I'd also point out that many people who benefit from more choices will make the most of them. And I'm not talking only about folks stocking up on kale and carrots at Whole Foods. Given more freedom and responsibility, all kinds of people will shop for the services they need. They'll inform themselves by means of the exploding marketplace of information and data about health care. Many of them will end up spending less on health -- and with far better results -- than they get today. They'll share their successes and disappointments in emails and on social networks. The market will grow more sophisticated. And people's choices will define their values and priorities, their humanity.
But first they have to clear a host of obstacles, many of them erected
by governments. Let's imagine one of these new health-care shoppers has a problem with her eye. Something's blurry. She lives near me, in Massachusetts, and goes to one of the many great doctors we have. He tells her to get an MRI. She has a super high deductible, which means the price is going to be coming out of her pocket. So she shops. She finds that some places charge three times as much as others. But still, even the cheap ones cost a lot, about $600 for a single MRI. She does more research and learns that the state government actually forbids new companies from setting up shop and offering competing services. Why would this be? The justification is that they don't want society to over-invest in certain technologies. We shouldn't build more than we need.
Think how different that is from restaurants. There might be six eateries on a single block, and a seventh opens up because that entrepreneur has the hope, the belief (and often the delusion) that he or she will create something better, that this seventh restaurant will outperform the other six. This is wonderful for consumers. Sure, it has its destructive side. More than half of restaurant start-ups go belly up in year one, and according to a study by the Perry Group, 70% of those that make it past the first year are shut down within five years. The free market claims plenty of victims while creating value for consumers. State laws that shield imaging centers and hospitals from competition deprive the public of the one force -- competition -- that would drive down prices and improve service. We need a lot more death in the provider space.
And don't get me started on state lines. They undermine the promise of a national health-care market. They run across the economy like so many fences, dividing the market into fiefdoms, which almost always hurt the consumer. Let's say you live in New Jersey and find a better insurance plan across the river in New York. Sorry. You're out of luck. But don't worry, you're told. Your state insurance regulators are doing their job, upholding standards and protecting your interests. Naturally, they can't protect you in another state. So you pay more.
This makes little sense. You regularly cross the Hudson River for dinner on the town -- and entrust your health to New York restaurant regulators. You drive through a tunnel and count on highway safety as regulated by New York's Department of Motor Vehicles. But out-of-staters cannot buy insurance there. Ask yourself this: Who are those laws protecting?
These geographic limitations also subvert the promise of the information economy. Let's say someone in Wyoming develops a pink lump under the skin on his forearm. He doesn't know that it's an aggressive skin cancer called Merkel Cell Carcinoma, which strikes only 1,200 Americans per year. Chances are, the local radiologist in Cheyenne, Cody, or Detroit, for that matter, has never seen such a lump. But with a cloud-based service, the patient can send this image to a specialist, perhaps in Florida or the back woods of Maine. This expert focuses exclusively on subcutaneous lumps. She sees hundreds of them every day, from all over the country. She gets constant practice and develops world-class expertise. She identifies the carcinoma. In this example, the network provides scale to build human expertise, which serves up the answer, just as it should.
But wait! Before this expert looks at the image, one question: Does she have a license to practice in Wyoming? Believe it or not, in cloud-based diagnostic centers today, each image must be entrusted only to experts licensed in the state where the patient lives. This adds cost and slows down the growth of services that would benefit all of us. Couldn't states agree to cross certify? Sure they could. But it might undermine their local businesses. So once again, inefficiency is protected, a local job or two is saved, and the public is denied the best possible service.
Underlying much of this legislation is a fear that some devious companies will be benefitting from their relationships with patients. Profiteers will emerge. Of course, this is absurd, given that all sorts of companies, from pharmaceutical giants to "non-profit" hospitals, earn a good living in protected fiefdoms (and channeling a portion of this lucre into campaign contributions). Still, despite all of the wealth sloshing around in health care, there's a resistance to market activities that are commonplace -- and essential -- in other industries.
You might think that there would be one exception, one government initiative I'd be crazy not to love. That would be the original 2009 HiTech Act, part of the economic stimulus package, which provided an initial $19.2 billion to underwrite the switch to electronic health records (EHRs). This spurred a surge of tech investments, by hospitals and medical groups, and it no doubt benefited athenahealth, as well as our competitors.
But you know what? If the industry were open to real market competition, companies would have to make those investments just to survive. Have you ever noticed, for example, that every McDonalds and Burger King runs on computers? Those companies didn't need any incentives. The idea of providing great service without this technology is unthinkable. A restaurant chain that relied on shouted orders, hand-written notes and file cabinets would be dead within a month.
In health care, by contrast, many practices had no compelling reason to switch to digital systems. Many doctors grumbled about them. More important, they weren't facing agile Internet-based competitors. So why change? Sure, patients complained when they were given a clipboard and a pen and asked to fill in the same information for the 10th or 20th time. But the resistance from doctors counted more than gripes from patients. Plus, there were vague privacy concerns about electronic health records. So the status quo stuck.
Now if medical businesses received a clear sign from the marketplace that going digital was the key to survival, they presumably would take the decision with great rigor. A faulty system, after all, could sink them. They would study the alternatives, and figure out which option fit their business model. They would work to turn a glaring vulnerability into a comparative advantage. They'd have to, or they'd die.
But that wasn't the message. With the HiTech act, the government was literally paying them to go digital. So most of them complied. Some subscribed to services like ours. Others went into buying mode. They ran to the companies they knew, the ones that had sales forces and golf outings, and they bought a lot of technology that pre-dated the Internet. For many, it didn't make much difference, because it didn't come with a commitment to change their business operations. Some of what they bought provides some value. But a lot of it is technology they never really wanted, which they'll eventually throw out.
Excerpted from "Where Does It Hurt? An Entrepreneur's Guide to Fixing Health Care," by Jonathan Bush with Stephan Baker, in agreement with Portfolio, an imprint of Penguin Random House. Copyright (c) athenahealth, Inc., 2014.
Download Healthcare IT in the Obamacare Era, the InformationWeek Healthcare digital issue on the impact of new laws and regulations. Modern technology created the opportunity to restructure the healthcare industry around accountable care organizations, but IT priorities are also being driven by the shift.Jonathan Bush is Chief Executive Officer, President, and Chairman of the Board of Directors of athenahealth Inc. He co-founded the Company in 1997 and took it public in 2007 in the most successful initial public offering that year. Today, athenahealth remains one of the ... View Full Bio