transcript

Speaker 1:
[00:04] In the rolling hills of Verona, Wisconsin, just outside of Madison and far from the usual software epicenters, you will find one of the biggest tech campuses in the United States. It is home to a company called Epic Systems. You may not know Epic, but there is a very good chance that they know you. Over 80 percent of Americans have at least one electronic health record with Epic. If you've ever used MyChart, that's Epic. They make the software used by many of the biggest and best healthcare systems in the US, and they now operate in 15 other countries too. Epic does have rivals like Oracle and Meditech, but for decades, it has been the biggest player in this industry. The campus sits on 1,700 acres. There is an underground auditorium that seats 11,000. There are playful sculptures all around, and the inside of the office buildings are dressed like movie sets. Alice in Wonderland, Harry Potter, The Wizard of Oz. So who's the wizard behind the curtain at Epic?

Speaker 2:
[01:05] Judy Faulkner, also known as Judith Ruth Faulkner. If you take away my middle name, I'm Ruthless.

Speaker 1:
[01:12] Faulkner founded Epic in 1979 and is still the CEO. Epic is an unusual company, and as you will hear today, Faulkner is an unusual leader. But I'm not sure that Ruthless is the right word.

Speaker 2:
[01:27] I've got one house, one husband.

Speaker 1:
[01:32] One dog.

Speaker 2:
[01:33] One dog. I would want more than one dog, but the husband is not. One car.

Speaker 1:
[01:40] What's your car?

Speaker 2:
[01:41] I have a 2016 Tesla. I like its self-driving. I find that between it and me together, we're better than either alone.

Speaker 1:
[01:51] Which software is more reliable at updating regularly, your Tesla software or Epic?

Speaker 2:
[01:57] The difficulty in my mind with the Tesla upgrades is every now and then I say, Tesla, you need better programmers. It was only once that I called them on it. My Tesla, when I would move it into auto drive, would cross the WL line and go head first into the cars coming at me. Wait, what?

Speaker 1:
[02:18] Say it again.

Speaker 2:
[02:19] Yes. That's what it would do.

Speaker 1:
[02:22] This was how long ago?

Speaker 2:
[02:23] Not long after I bought it. I'd be going home, it was hilly. I'd put it into auto drive. I would be at 35 miles an hour, would quickly go to 60, cross that WL line and go straight at the cars.

Speaker 1:
[02:35] Wow.

Speaker 2:
[02:36] I think what it was trying to do is because it was hilly, it thought that maybe the road was going to end, so it was going to save me by going into the other lane. I don't know what it was thinking. I called them about it. They sent someone to ride in the car with me and saw that that's indeed what happened. Then they brought another car to see if it happened on that car too. It did, same thing happened, so it was the software and not the car.

Speaker 1:
[03:05] Did you get that treatment because you're Judy Faulkner of Epic or because you just drove a Tesla?

Speaker 2:
[03:10] I think it's because the Tesla people realized that was not a good thing to do, and they did react quite appropriately.

Speaker 1:
[03:17] What would be the equivalent of Epic Software doing that? Has that ever happened?

Speaker 2:
[03:22] Not to my knowledge. We tested very well before it goes out. But we have reports that everybody is supposed to write their code red flags. If something is wrong, you have to write a red flag up about it. Most of the red flags are about things that can be fixed and don't make a big difference. Every once in a while, a red flag will either be a clinical error, or a financial error. On those things, we jump on them right away.

Speaker 1:
[03:50] Later on that night, and even the next day, I couldn't stop thinking about this story that Faulkner told me about her Tesla. Not because it was a scary story, but because of how she told it. I think most people, if a critical piece of tech failed them like this, they'd get pretty dramatic retelling the story. This absolutely crazy thing happened, if another car was coming, I'd be dead. But Judy Faulkner is at her core, a coder, a programmer, a computer scientist. So when she told the story, she focused on the parameters.

Speaker 2:
[04:25] It was hilly, I would be at 35 miles an hour, would quickly go to 60.

Speaker 1:
[04:30] She tried to identify the underlying error.

Speaker 2:
[04:33] It thought that maybe the road was gonna end, so it was gonna save me.

Speaker 1:
[04:37] She replicated the error.

Speaker 2:
[04:39] Same thing happened, so it was the software not the car.

Speaker 1:
[04:43] And she supervised the fix.

Speaker 2:
[04:45] The Tesla people realized that was not a good thing to do, and they did react quite appropriately.

Speaker 1:
[04:52] This kind of temperament is probably a big benefit when you're running a software system like Epic's. They oversee a vast dynamic dataset that underlies one of the most complicated, critical and expensive industries in the world. Judy Faulkner is one of the most successful female entrepreneurs in history. So why haven't we ever heard much from her? As I understand, you don't do much of this interviews.

Speaker 2:
[05:19] I try not to.

Speaker 1:
[05:20] Yeah, why?

Speaker 2:
[05:21] It's time consuming. You can mess up and just be embarrassed by what you do. So therefore, it's a little bit nerve wracking because you don't know if you're going to mess up or not. Also, consider I'm a techie, math and computer science. Techies by their nature are usually introverted. So I'd rather crawl under the table than be interviewed in most situations. But sometimes it's fun. When the people are fun, then it's fun.

Speaker 1:
[05:47] Today on Freakonomics Radio, we will try to have fun and we'll also try to figure out the code that runs Judy Faulkner.

Speaker 3:
[06:08] This is Freakonomics Radio, the podcast that explores the hidden side of everything, with your host, Stephen Dubner.

Speaker 1:
[06:24] In an episode we made earlier this year called Can AI Save Your Life? We spoke with Bob Wachter, who is chair of the Department of Medicine at the University of California San Francisco. When it comes to AI and medicine, electronic health records are really important, and he was explaining how one company had come to dominate that market.

Speaker 4:
[06:43] Epic won this market. This was a little tiny company started by Judy Faulkner in the basement of an apartment off the University of Wisconsin. It's a really remarkable story. I think they won because they were the best. The best was partly integration. Judy's theory of the case was we're not going to bolt on 37 different tools by a bunch of different companies. We're going to own the entire thing, and that is going to allow us to provide an integrated solution, and medicine is so complex and there's so many moving parts, that if you don't have an integrated solution, the thing's not going to work very well.

Speaker 1:
[07:18] That integrated solution part is really interesting, especially if you are in the software or healthcare IT industries. There is a fascinating Harvard Business School case study about Epic. The Acquired Podcast did one of their excellent four-hour deep dives into Epic. I made the trip to Wisconsin hoping to learn more about Judy Faulkner herself. For someone who doesn't know what Epic Systems is, doesn't know who Judy Faulkner is, doesn't know what you built and how, what's a short description of it?

Speaker 2:
[07:52] Usually, people understand if we say we do electronic health records for doctors. We enable it so they can communicate one to another. So if you leave Massachusetts where you went to University of Massachusetts for your care, and you come here, and you go to University of Wisconsin, they'll share your record assuming you've approved of that, and they'll share the critical clinical information to make sure you're safe.

Speaker 1:
[08:16] So I understand that to be true, and I understand that to be a good description for the lay person who doesn't know. But what you actually do, I mean, that would be the tip of a very large iceberg, yes?

Speaker 2:
[08:27] Well, we run an IT shop here. We have about 15,000 people here and in 16 countries, and they're working hard on creating the software that helps take care of patients in all different ways. We've had MyChart out for 25 years now, I think. But people don't know that Epic does MyChart. Even people in Madison, Wisconsin, someone was telling me just the other day, they were talking to somebody who uses MyChart and had no idea Epic made it.

Speaker 1:
[09:00] What strikes me as a thesis maybe for this company and for this conversation, is that Epic looks from the outside like another software firm, and yet, there are a lot of things about this place that strike me as radically different. And my thesis is that that comes down to basically you. I'm just curious, first of all, what you think when I say that to you. Do you feel that you're an outlier?

Speaker 2:
[09:26] Yes, I do. We didn't get private equity. We didn't get venture capital support us. We hired differently, we managed differently, and it works very well. And it works for our customers. We have never had a lawsuit from a customer, which in 50 years, I think, is good.

Speaker 1:
[09:46] You've barely lost a customer ever, have you?

Speaker 2:
[09:49] Well, we actually lost a customer once, and they came back a year later.

Speaker 1:
[09:54] Why did they leave?

Speaker 2:
[09:55] I think they thought that the other system might be better for them, and they tried it, and it wasn't, and they came back.

Speaker 1:
[10:03] Faulkner grew up in New Jersey. Her father, Louis Greenfield, was a pharmacist. Her mother, Del, was a peace activist who helped lead a group called Physicians for Social Responsibility, which shared in a Nobel Peace Prize in 1985.

Speaker 2:
[10:18] She started the South Jersey Peace Center at the beginning of the Vietnam War, got really beaten up for it by all sorts of people who thought she was terrible for doing that.

Speaker 1:
[10:29] Thought she was unpatriotic?

Speaker 2:
[10:31] Yes, right, but she studied it. She knew a lot about what was going on. Nowadays, we're much more knowledgeable about the things that she knew then. She continued on. She moved from New Jersey to Portland, Oregon, and that's when she started working with Physicians for Social Responsibility and became the director of that area.

Speaker 1:
[10:56] Their main concern was nuclear bombs?

Speaker 2:
[10:59] Right. I believe she got put in jail in her 80s for protesting at a nuclear site. She always said she hates war, but she loves the soldiers. We have a photo of her and the policeman writing out the ticket, and they're both smiling happily at each other. It's a very cute photo.

Speaker 1:
[11:20] I don't mean to make you and your parents sound like do-gooders at the expense of all else, but my sense is, I recall this from our earlier chat that was not recorded. The phrase that I think we talked about was tikkun olam, this Hebrew phrase for like, he'll repair the world, try to leave the world in a little bit better shape than when you came into it. Can you just talk about that concept? Is that something that's important to you?

Speaker 2:
[11:47] Well, that was a concept my mother charged me with when I went off to college.

Speaker 1:
[11:52] What do you mean charged you with?

Speaker 2:
[11:53] She said that's what she wants me to do. You're going off to college now, try to make the world a better place, try to help people. And I remember thinking, oh, that's a big burden to put on an 18-year-old's shoulders. I remember thinking that. Now I look back at it and think she was so wise to do that.

Speaker 1:
[12:12] Faulkner went to Dickinson College, a liberal arts school in Carlisle, Pennsylvania. She was a math major.

Speaker 2:
[12:18] Between my junior and senior year, I took a summer job at University of Rochester. It was supposed to be particle physics. When I got there, they expected me to program, and I'd never seen a computer, so they gave me a Fortran book and a week's access to the computer. And at the end of the week, they said I was a good programmer. But to me, it was games. So when I applied for graduate school, I thought it was so neat that University of Wisconsin, on their own, moved me to computer science.

Speaker 1:
[12:48] You didn't raise your hand and say, No, I didn't know you could apply for computer science. It was a new major, yes.

Speaker 2:
[12:53] It was a new major. I took probably the world's first class in computers and medicine, taught by Dr. Werner Slack, and he asked me to work with him and his team, and that's how I got into healthcare.

Speaker 1:
[13:05] What was going on at that time in healthcare that seemed to make sense to put together computers and medicine then?

Speaker 2:
[13:11] Well, the first jobs that they gave me were things that people would spend a lot of time on, and the recipients of what they were doing didn't like it. So, call schedules, they would say, okay, you work tonight, you work tomorrow night, you work the next night, and then people would say, you gave me the holiday evening because you don't like me. They couldn't say that about the computer. So, doing some of that type of work was the beginning. And then they brought me in and asked me to develop a system that would keep track of patient information over time.

Speaker 1:
[13:47] And this was for a medical practice, how small or large?

Speaker 2:
[13:50] This was at the University of Wisconsin. So, it was more by department, department, department. So, psychiatry, OBGYN, rehab medicine, different groups.

Speaker 1:
[14:02] And up to this point, there were just paper files written in physicians' indecipherable handwriting, I'm guessing.

Speaker 2:
[14:08] That is correct, yes.

Speaker 1:
[14:09] And there were probably all kinds of things like prescription errors because of that, yes?

Speaker 2:
[14:15] Yes, in fact, I know one doctor whose prescription got turned down because the writing was too legible and they knew it wasn't his.

Speaker 1:
[14:24] What did you think of yourself then at the time? As a young computer programmer?

Speaker 2:
[14:27] Well, I thought computer programming was fun and game, so isn't it neat to get a major that you're working in that is just fun every day to do?

Speaker 1:
[14:35] Okay. And then as you're getting into the healthcare realm, what was your thinking about that? Did you think like, oh, I could have a career in this?

Speaker 2:
[14:44] No, I was just doubling down during the work I was assigned.

Speaker 1:
[14:49] Faulkner got her master's degree in computer science in 1967. By then, she was already earning a reputation.

Speaker 2:
[14:56] The people I work with, they would go around the country showing their colleagues, look what we have. And then they'd call me up and ask me to start a company. And I would say no. And it would repeat again. I had no interest in starting a company. I had no idea how to do it. So that went on for a couple of years. I would sometimes get four calls a week, start a company, and I'd always just say no. Until one day I met a guy who had spun off a lab system from the UW, and he said, well, there's three things you have to do. Get a good lawyer, get a good accountant, get permission from the university. So I started to do that. And then there was a group of people that I worked with who were obvious to be part of the initial company, and in their off hours they would help out.

Speaker 1:
[15:48] Can you just talk for a minute about doing business in this, we call it an industry, healthcare, but it's different. I mean, there are other mission-critical industries, but being in the business of healthcare means what to you, and how do you find people who can do what you're doing with software within that?

Speaker 2:
[16:07] I think that healthcare in general, the people who work in it, the doctors, the registrars, the administrators are very, very ethical. And sometimes it's really hard on them. A young person, when I was having dinner with someone, showed up in their ED with something that could have cost them multi-million dollars and he wasn't insured. Do they take care of them? If they take care of them, they have to complete it. Do they not take care of them and tell them to go elsewhere? That would hurt them. And they did the right thing. They took care of him. It's a very ethical group. I like working with it.

Speaker 1:
[16:45] So health care is famously responsible for about 20% of GDP in this country, which?

Speaker 2:
[16:54] 18, I'm told.

Speaker 1:
[16:55] 18. Yeah, you're right. They've been saying it'll get to 20 soon, but that's been for a decade now.

Speaker 2:
[17:00] Yes, they had hypothesized they'd be at 22 right now, and they're at 18. I think our software helps with that.

Speaker 1:
[17:06] Ah, tell me about that.

Speaker 2:
[17:07] Well, it's one system. The patient can go through from one to another, and you're still one patient on one system. They have told us that they save a huge amount of money by not having to have 250 separate applications that are replacing ours. I think it's important, and I think most of us who work here would hesitate to go to a place that doesn't have our software, because they realize it does help save lives. I came home one day to find my husband very upset. He's a pediatrician. He was taking care of a girl who had certain problems, and she was under good control and doing well. And she went with her parents to another city. She got sick, they took her to the ED, and at the ED, they didn't know her problem. So they treated her just like somebody who didn't have that kind of problem, and she died. And he was just beside himself. He kept saying, if they had it, she would have known what to do. It would have been really easy. She'd be alive. So that's when I went back here and asked some of our software developers to write a system that would allow the information to go from one place to another so that they would know what she had. Not only did they write that, but they went all around the country to our customers saying, we're here to put this in and make sure you get it. And they wouldn't let any of our customers not put that in.

Speaker 1:
[18:29] This is when?

Speaker 2:
[18:31] About 2007.

Speaker 1:
[18:33] And what is this piece of your software called?

Speaker 2:
[18:36] Care Everywhere.

Speaker 1:
[18:37] Epic is increasingly the target of antitrust claims. How big a part of your worry portfolio is that?

Speaker 2:
[18:45] Yes, that is definitely a worry. There are individual systems that would like us to work with them as if they were us.

Speaker 1:
[18:53] I'm sorry, I don't know what you mean by that.

Speaker 2:
[18:54] Let's assume it's a dermatology system that someone has written. They want us to work with their dermatology system hand-in-glove as if it were our own or a RevCycle billing system. They want us to work very closely with that. One of them said, it will only take 10 programmers. And I thought, oh my goodness, do you realize you're one of 50 in just that niche area and we would have to work with all 50. That would be 500 programmers, which is a lot of programmers. But the other thing is that many of our customers like our software because they can go from one to another in terms of the different pieces we all have working together. You put something in from the outside and it doesn't. You go from one system to another system on your computer. They use different terminology. They might have different colors, different places on the screens, different designs. It might be education level and one will use 10 different groupings, another will use 15 different groupings. If it's something to do with health care, how do you match it safely? So it takes a lot of work to make them work as if they're one.

Speaker 1:
[20:04] So how do you think about the, I guess it's a paradox, which is if you succeed in a realm like you have succeeded, then you become a lingua franca, essentially, for many people within this big, big, big realm.

Speaker 2:
[20:19] That's right.

Speaker 1:
[20:20] But then there are critics who might be rivals, they might be regulators who start to talk about monopoly.

Speaker 2:
[20:28] I think that our customers should be free to work with any third party they want to work with. I have often said to them, folks, do you know what you bought? Because our system is big and sometimes what happens is they buy something that they already have bought from us, and they don't even realize that they have those capabilities that they went out for. So sometimes a lot of our job is to make sure they know what they bought so they could make an intelligent decision. We are now being hit, as you might know, with lawsuits for antitrust and monopoly. It just seems so weird to have begun with three half-time people in a basement.

Speaker 1:
[21:08] Among the lawsuits that Epic is currently facing is one brought by the Attorney General of Texas, alleging that Epic violates the state's Free Enterprise and Antitrust Act. In another case, the New York firm Particle Health is arguing that Epic interfered with its customer contracts and used its market power to squeeze out competition. Coming up after the break, how did Epic go from three half-time people in a basement to such a huge player?

Speaker 2:
[21:35] Somebody calls up from the Netherlands and says, can we buy it? And we say, come visit us.

Speaker 1:
[21:41] I'm Stephen Dubner. This is Freakonomics Radio. We'll be right back. There is a question I sometimes ask in interviews. It's a cliched question, but sometimes useful, especially for someone like a CEO. The question is simply this, how do you spend a typical day? It isn't so much the specifics of their day that interests me, it's how they choose to frame the answer. And when I asked Judy Faulkner this question, the frame was very Judy Faulkner.

Speaker 2:
[22:30] Could you get a copy of those slides? There's two slides on my job. Thank you.

Speaker 1:
[22:36] She asks a colleague who's sitting in on the interview to go to her office and grab a printout of the slides.

Speaker 2:
[22:42] I'll read the list and then be able to answer more accurately because I feel like whatever answer I give without looking at the list, I don't know if it's right.

Speaker 1:
[22:50] Her colleague returns with the printouts. One of them is titled, Typical Day, the other My Role, Company Success.

Speaker 2:
[22:58] My role is company success. I've got to make the right decisions. I've got accountability for our products, our service and meeting commitments, responsible for client happiness, profitability, the campus, succession planning. Take a stance. That's an important thing, I think, for CEOs. You've got to take a stance on things. People call me and I have to know, oh, Joe knows the answer to this, Mary knows the answer to that, and get them on the line and help with the answer. So, my job is not necessarily to know the answer, it's to know who knows the answer.

Speaker 1:
[23:34] You plainly know everything that's going on, to some degree, in all these buildings, but you can't know everything.

Speaker 2:
[23:41] It's going on much faster than I can keep track of, and I don't know even all the products we're working on, because we hire bright, capable, hardworking people, and they come up with new things all the time. I have a t-shirt that says, healthcare IT is more complex than rocket science, and we have three people who used to work in rocket science, and all three say, it's right, it's more complex, because it changes all the time. Whereas rocket science, there are principles that are unchanging. So I've often thought, I should call Elon Musk up and tell him, I'll take over for you.

Speaker 1:
[24:20] So there are all these things that you do different, and there are many, many others, right? You don't have titles really in the firm?

Speaker 2:
[24:26] We don't use them internally, externally. People can make up their title. And they do, although once someone told me that he had met our Chief Medical Officer and had to ask him who it was. Because we have about a dozen physicians who work here. And any of them could have used that title.

Speaker 1:
[24:44] Epic is the biggest in the field of what you do. And then when I look at your revenues, which I realize most people here don't even know.

Speaker 2:
[24:53] That's correct. We don't talk about it. Is that good or not good in your mind?

Speaker 1:
[24:57] I'm guessing it's great because they have a different focus, which is quality versus profitability or their own ownership and so on. But when I look at that, the last year I saw was 5.8 billion in revenues. For a firm that is so dominant in an industry that is so large, my conclusion is you are not profit maximizing at all.

Speaker 2:
[25:24] I agree with you entirely.

Speaker 1:
[25:25] All right. So let's talk about that. That's a choice plainly.

Speaker 2:
[25:28] That's a choice we make. We have enough money as revenue to run our company and be successful. Our customers need it more than we do. And so we don't want to misuse them. We also help some of the customers who take care of the indigent, are broke, et cetera. In multiple ways, we help them come to our meetings, our users group meetings, and we'll pay for their transportation. I say you shouldn't concentrate or focus on the revenue side, but you can't be stupid about it.

Speaker 1:
[26:02] So you're a little under 6 billion a year in annual revenues. You have, you said about 15 or 16,000 employees, is that right?

Speaker 2:
[26:11] Could be 15, somewhere in there.

Speaker 1:
[26:13] The calculation I did, I think, was based on maybe 14,000 employees, which I read, and it came out to something like $410,000 annual revenue per employee.

Speaker 2:
[26:24] Is that good or bad?

Speaker 1:
[26:25] Well, that's what I wanted to know. And to me, it looked like, well, quite a lot. But then when I compare it to other software firms, especially if you look at a Google or a Facebook, it's quite low.

Speaker 2:
[26:35] But it's fine.

Speaker 1:
[26:37] It is. Well, this gets back to the fact that profit maximizing just doesn't seem to be a goal, correct?

Speaker 2:
[26:45] It isn't a goal. It's a side effect, but it's not a goal.

Speaker 1:
[26:48] I've read that you typically spend somewhere in the neighborhood of 30, 35 percent annually on research and development, yes?

Speaker 2:
[26:55] Yes.

Speaker 1:
[26:55] Is that an actual goal or is you just, you spend what you need to spend and tally it up at the end of the year? Because I know you don't have budgets of any kind, yes?

Speaker 2:
[27:04] Yes. Well, our financial people will do their projections, but that isn't a budget, it's just their projections.

Speaker 1:
[27:11] In the many years that you've been in business, what have been the developments in either medicine or in the healthcare system that led you to need to spend or want to spend a lot more on R&D in a given year or set of years?

Speaker 2:
[27:23] I think AI right now is a biggie. Moving our system to the web was big. Those are two recent big ones.

Speaker 1:
[27:33] Those two printouts that Judy Faulkner keeps handy, Typical Day and My Role, are not the only lists that she keeps or even the most important. That distinction would go to Epic's very own Ten Commandments. Number one, do not go public. Number two, do not acquire or be acquired. Number three, software must work. Number four, reality equals expectations. Number five, keep commitments, even the unspoken ones. Number six, focus on competency. Do not tolerate mediocrity.

Speaker 2:
[28:05] What we say is if you tolerate mediocrity, you become a mediocre company. And is that what you want to do?

Speaker 1:
[28:11] Number seven, have standards, be fair to all. Eight, have courage. What you put up with is what you stand for. Number nine, teach philosophy and culture. And number 10, be frugal. Do not take on debt for operations. You can find these commandments posted around Epic's campus, visible to employees and visitors alike.

Speaker 2:
[28:33] They're in all the bodily function areas, which is the bathrooms, the break rooms, and the copy rooms. I wanted to put them into the stalls, but didn't do that there.

Speaker 1:
[28:45] Someone talked you out of that?

Speaker 2:
[28:47] Maybe. So we just have them by the mirrors in the bathroom.

Speaker 1:
[28:50] Numbers one and two. Number one, do not go public. Number two, do not acquire or be acquired. There have been no acquisitions.

Speaker 2:
[28:59] That's right.

Speaker 1:
[29:00] You build it all. I know this is what you're accustomed to, but for the rest of the world, those first two are very unusual. I just want to know why those have been your beliefs for so long. And I also want to know if you ever came close to breaking either of those commandments.

Speaker 2:
[29:19] Never came close to breaking either of them. Going public, I remember in the beginning of Epic, looking up good companies and reading what their shareholders wrote about those good companies. The shareholders were only interested in return on equity, not what value the company was giving to the world. And they were vicious about the company whenever there wasn't the return on equity that they wanted. And I thought, who wants owners who are like that?

Speaker 1:
[29:49] On the other hand, founders like you from software companies of that same era, Microsoft same era, Apple same era, those founders are going to ultimately cash out themselves for many, many, many billions of dollars and they become the richest people in the world. That's a path that I assume would have been open to you, maybe not as big, but the same path.

Speaker 2:
[30:15] Well, yes, sort of. I own a chunk of Epic and every year, I get some stock to Roots and Wings, which is the foundation, and then Roots and Wings is more complex than this. Sells it to Epic. Do you know why it's called Roots and Wings?

Speaker 1:
[30:34] It was something your kids said, right? When your kids?

Speaker 2:
[30:36] When my two younger kids were in the car, I was driving them somewhere, maybe they were five and 10 at the time. I asked them, what are the two things your parents need to give you? And so they looked at each other, they looked puzzled, then they started whispering. Then they knew the answer. You could just see they were so excited. Food and money. I said, no, roots and wings. Roots so that you grow strong, wings so you can fly. So many years later, when it came time to have a foundation, take the money because otherwise if I die and all the cash has to be cashed in, there's some huge amount of money, what are you going to do with it? So creative foundation, they said to me, you need to name it roots and wings, which I thought was very sweet. Roots and wings can give donations to deserving organizations and Epic gets stock back, that had been my stock, that it could then distribute to employees.

Speaker 1:
[31:37] So in a counterfactual, let's say that Judith Ruth Faulkner from 19, whatever, 70-something, had decided, oh, you know, rather than pursue this business and just bootstrap it with some friends and family money and grow it as it seems natural, what if you had taken investment either then or later, and I'm sure there have been thousands of opportunities to take outside money. Do you think about how the firm might operate differently in that case?

Speaker 2:
[32:07] I just think that we've been so lucky to avoid it. It would have changed us, I think. Now, what I found out was some of the people who were originally involved with the creation of Epic, mostly there were people I had worked with at the university. Some of them did see Epic as a cash out thing, which I hadn't known. I only found it out once Epic started becoming more successful and realized that they wanted to sell it, which wasn't what I wanted to do at all.

Speaker 1:
[32:37] Did you always have enough ownership or leverage to fight off those impulses?

Speaker 2:
[32:42] Yes, correct.

Speaker 1:
[32:44] Since it's worked so well for you, why do you think this style hasn't been more widely used?

Speaker 2:
[32:51] I believe that there are quite a few companies where the goal of the people starting the company is to have a good product for people they care about. Nowadays, though, they go get venture capital. Venture capital might support 10 different companies. Maybe only two of them have the growth that venture capital is looking for, so they drop the others who then die. More private equity comes in later, and private equity often will sell off a lot of the company. So it looks like their expenses are less, it looks like they're more profitable. But really, they've just been mangled.

Speaker 1:
[33:29] Private equity is moving into, gosh, many, many, many areas of healthcare, human healthcare, pet care. You know, a typical version might be a physician's office or a dentist's office where the founder or founders want to retire, but I think what happens a lot now is that their younger partners, they have so much medical school debt that they can't raise the money. So I'm curious how it changes things for you when you're working with these, let's say, roll-ups of physician offices.

Speaker 2:
[34:01] We don't have many like that, just a few, and we're very leery about working with them because we can feel the difference, we can feel the focus, not on as much helping patients, but much more on making a profit.

Speaker 1:
[34:15] I was surprised to see how many foreign inroads Epic has made. You're in 15 or so countries.

Speaker 2:
[34:23] 16, I think.

Speaker 1:
[34:25] Sometimes there's a national health system, sometimes it's private, like in Lebanon I saw it was for the American.

Speaker 2:
[34:31] AUB, American University of Beirut.

Speaker 1:
[34:33] Yeah, so I guess every case is a little bit different. What surprised me is it's so hard to do any business outside of your home turf. Is your international expansion driven by expanding the firm? Is it driven? That's a no.

Speaker 2:
[34:50] No, no, I'm just laughing. You know how we sell.

Speaker 1:
[34:54] I do know how you sell. You don't sell until somebody comes to you and asks if they can buy it.

Speaker 2:
[34:57] Yeah, so that's how the international goes. Somebody calls up from the Netherlands and says, can we buy it? And we say, come visit us, and they come visit us.

Speaker 1:
[35:07] Do you reject potential clients all the time?

Speaker 2:
[35:10] Both in the US and overseas, we do, yes. We don't want a client not to be successful. And if we think they're not going to make it, like let's say they're too small and the expense and the work effort would be too great, we'll say no to them.

Speaker 1:
[35:26] That's a problem though, right? Because you want small healthcare systems to have access, so what do you do there?

Speaker 2:
[35:31] I remember one case a number of years ago where I said, no, you're too small. And they said, how many doctors do you need? And I told them, and he said, give me some time. Three months later, we called back. He said, we got them. And there's still a client.

Speaker 1:
[35:44] What do you do about rural hospitals or systems? That's a tricky one, isn't it?

Speaker 2:
[35:48] Yes, that's on our list of things that we're trying to focus on. Three things. One, work with our large health systems in that state to have them extend to the rural. Two, have the state itself buy from us, and they take care of extending to the rural, to the federally qualified health systems, to the corrections groups. And the third thing is just that the rural groups themselves mask together and come to us as a group.

Speaker 1:
[36:22] So you, Judy Faulkner, are one of the most successful female founders, entrepreneurs in history. Do you think much about that?

Speaker 2:
[36:34] Probably not what you think, I think.

Speaker 1:
[36:36] What do you think?

Speaker 2:
[36:38] I think who cares whether it's female or not female?

Speaker 1:
[36:41] The reason I'm actually interested is because you're such an outlier in the non-profit maximizing and the non-taking over the world and the non-beating your chest realm. And you're also just an outlier by gender and that CEOs, you know, there just aren't that many female CEOs and founders. There are a few more now than there were when you were starting, but not that many, honestly. And I'm just curious whether you think that's a coincidence or not.

Speaker 2:
[37:08] What part would the coincidence be?

Speaker 1:
[37:10] You being a female.

Speaker 2:
[37:12] Is a coincidence, too.

Speaker 1:
[37:13] With the coincidence of running a firm in a very, very, very different style without an emphasis on profit maximizing, etc.

Speaker 2:
[37:20] The others who I know are doing something similar are run by both men and women.

Speaker 1:
[37:27] When I asked some other folks at Epic to name similar companies, they struggled. One name that does sometimes come up is Patagonia. If you have some good comps for Epic and Judy Faulkner, let me know. Our email is radio at freakonomics.com. Coming up after the break, what is the plan for Epic after Judy Faulkner? I'm Stephen Dubner. This is Freakonomics Radio. We'll be right back. When we drove in here, it's a wild place. It's beautiful, it's colorful, it's whimsical, it's fantastical.

Speaker 2:
[38:19] Whimsical is the word I use a lot, yes.

Speaker 1:
[38:22] I wonder if, for you, coming to do what you do every day is a form of play. I sense that you are driven to work hard because it's fun, but I don't know how all that connects up.

Speaker 2:
[38:37] Sometimes I think of going to a grocery store and walking around a very nice grocery store, attractive, and then the door opens to the back rooms, and they look terrible when you look inside. Have you ever noticed that? I've often thought, why can't their employees have as nice an environment as the customers?

Speaker 1:
[38:58] I'm laughing because my very first job at age 10 was stocking the local. We had a tiny little grocery store in a one-stoplight town, and yes, I thought the same thing many times.

Speaker 2:
[39:07] Yeah, and it's not that much extra, and it will keep your employees so much happier. So I think it's nice to come to an environment that is warm and friendly, and feels like there's some thought and whimsical.

Speaker 1:
[39:20] Do you think it actually benefits the work as well?

Speaker 2:
[39:23] Yes, I do.

Speaker 1:
[39:24] How so?

Speaker 2:
[39:25] Well, first of all, I'm not sure how many people we had apply for jobs here, something like 350,000.

Speaker 1:
[39:32] I saw the number. It was absurd. Much harder to get in here than Harvard, let's say.

Speaker 2:
[39:36] That's right. We're a medical school. And so we have many people who want jobs here, and that helps us a lot. I think it helps with retention. Our turnover is low.

Speaker 1:
[39:46] I know that you have everyone working here on campus, in actual offices. The work from home, quote, revolution is still in dispute in a lot of places. What's your best argument for why it's better in person?

Speaker 2:
[40:01] What I think is interesting is so many CEOs I've spoken to say they wish they had done what we did, which is bring people back immediately. Now they've sold their buildings, their people are scattered all over the United States. What do they do? They say it's not the same. So I'm glad about it.

Speaker 1:
[40:20] During the day that we spent on the Epic campus, we also met with some of Judy Faulkner's senior colleagues. Seth Howard is a software developer who's been with Epic for 18 years.

Speaker 5:
[40:30] We're not big on titles, but when I need a title, I usually use Executive Vice President of Research and Development. But really what that means is I'm responsible for making sure that we are developing what the healthcare community and the patients that they serve need, both today and in the future.

Speaker 1:
[40:48] So I as a patient, like everybody listening to this is a patient at some point, I think one of my biggest wishes would be that a firm like Epic, which has made the collection and organization and synthesis of medical data, you've changed that landscape immeasurably in the last 30, 40 years, and it's not only useful obviously in treatment and communication and billing and a lot of other things. I mean, healthcare is a complicated industry. But I would think it also be particularly useful in clinical discovery, drug discovery, etc.

Speaker 5:
[41:27] So there's a few elements of that. One is clinical research is quite complicated. And so we've built this network, one of the newer parts of the network. We actually call it discovery. That's the component that helps bring life sciences into that ecosystem. What that means is if you're a life sciences organization, and maybe you're bringing a new oncology drug to the market, you need to find patients who are a good candidate to test that drug during the stage two, stage three trials. Historically, that's been quite focused on a small number of academic medical centers, which leaves a lot of patients in community hospitals or rural communities potentially left behind. And so our goal has been to create a more democratized access to clinical trials for the entire epic community who's participating in that discovery platform. And so those trials can identify the patients that are good candidates, whether they're at an academic medical center or at a community hospital, and then the providers are able to access those treatment options, offer that to the patient, and enroll them in those trials with much less friction.

Speaker 1:
[42:43] I'm just curious whether you have friends or colleagues at other firms, what they think of the epic way of doing business?

Speaker 5:
[42:53] I'm in a group of people that are business leaders in the Wisconsin area, and when I've described our way of operating and our primary metrics are really, are our customers happy and successful? And if the answer is yes to those, everything else follows, including the financials, folks have said, gosh, that's really how everyone should operate.

Speaker 1:
[43:15] Let's say I agree with that and that I think it would be better for our country, our society, our world if more firms operated like that. What would you say to the majority of the firms and C-suite people, etc. who really do feel that it's their responsibility to put profitability first? Is there any way you can entice them to enter into that slightly different realm?

Speaker 5:
[43:40] It's probably not impossible, but I do think it'd be really tough to move from the world, especially a publicly traded company, where your responsibility in a large part is to the financial outcome for your shareholders, that would need to change. At Epic, we really think of it almost 180 degree reversal of what a public company would do in that our number one responsibility is to our customers, then to Epic as a company, then to our employees, and then to shareholders. The interesting thing, our employees are shareholders, but it's the shareholder value that we put as lower on the priority list.

Speaker 1:
[44:19] Pretend I haven't met Judy and I don't know much about how she set the course for this company. Just describe her as a colleague and as a leader.

Speaker 5:
[44:31] Well, she is a techie at heart, so she likes to know how things work. She's curious, she asks a lot of questions, and she likes to stay involved in the day to day. She likes to stay connected to customers, she likes to understand how customer needs are evolving and how well we are meeting those needs and where we can do better. So you'll find her spending a lot of time speaking with the CEOs of various health systems, really focused on where you need more help from us, where is our software not working, et cetera, et cetera.

Speaker 1:
[45:02] How does she respond when something internally goes wrong?

Speaker 5:
[45:06] Well, she is, of course, number one, focused on what do we need to do to fix it, especially if it's something that's affecting a customer.

Speaker 1:
[45:13] Does she have a temper?

Speaker 5:
[45:15] I wouldn't describe it as a temper. It's an intense focus on customer success.

Speaker 1:
[45:21] This intense focus on customer success may have a little bit to do with what Faulkner told us her mother said when she was heading off to college.

Speaker 2:
[45:30] Try to make the world a better place, try to help people.

Speaker 1:
[45:33] How do you feel about your success at fulfilling her wish?

Speaker 2:
[45:37] I think she would be happy if she could see what was happening now with what I'm working on. I don't think she'd be happy with so many other things in the world.

Speaker 1:
[45:46] Outside of your firm and your industry, what do you worry about?

Speaker 2:
[45:52] If you ask me what I worry about at night, it's what's going to happen to our country. What's going to happen to education? I worry about that. What's going to happen to health care and people who can't afford it?

Speaker 1:
[46:05] What is your view generally on AI in health care? By the way, that's how we came to be sitting here today, because Bob Wachter, who we did a piece with, explained your role in all this, and I didn't know anything about you, and that's how I really got interested in speaking with you. The episode that we did with Bob was about very basic question, how is and will AI change medicine, really? You've built a system that, I mean, it is AI in many ways, yes?

Speaker 2:
[46:34] Yes, I was going to say that it's been around for ages, and there's different kinds of AI. The AI that can look at millions of pieces of data very quickly is very good, and that's where it can be gamed too, and that worries me. What do you mean?

Speaker 1:
[46:49] What's the particular worry about how it could be gamed?

Speaker 2:
[46:51] Well, first of all, lots of things have been gamed lately. Capitalism has been gamed, government has been gamed. I think AI, we have to watch to make sure it doesn't get gamed. But if you want AI to say a certain something, you put it in repeatedly all over the place. It goes back to if you repeat something often enough, people will think it's true. Well, AI will think it's true.

Speaker 1:
[47:14] So lung cancer is caused by orange juice, for instance. You could do anything. But when you think about the upsides of AI in your sphere, what are your dreams and fantasies there?

Speaker 2:
[47:25] I think AI is going to help in many ways. It's going to help predict diseases that you might have. We use AI for sepsis. Someone just the other day wrote to us and said, using our AI for sepsis, they went from something like two and a half percent of their patients got septic to zero, and they saved over 100 lives because of that. If you are a very odd patient with problems that your doctor has never seen before, and doesn't know how to care for you, and has tried this and this and this, and nothing's really working, we can find the two other patients in the United States who are similar to you, and have the three caregivers be able to talk to each other, so they can take better care of you.

Speaker 1:
[48:12] Are there any HIPAA complications there?

Speaker 2:
[48:15] No, we're not revealing who the patient is. Then other things we have in there is a diagnosis checker. Supposedly, about 10 percent of diagnoses are wrong, and if you have the diagnosis wrong, the treatment's going to be wrong too. We may say the 32,500 patients, very similar to your patient, 55 percent of the time, this was the diagnosis given. The diagnosis you gave was used 0.2 percent of the time. It's not telling the physician to change anything, but it is giving the physician an alert that others have made different decisions so the physician can decide if he or she is right or if he or she is wrong, because that will affect the care. We have something called Best Care Choices for My Patient, and it will look at those thousands of patients, similar to you, and will look at what meds were used or treatment was used, and let you know how successful it was for that patient like you. So regardless of what your diagnosis was, here's all the meds that were tried and here's what worked. So let's say it was blood pressure. It might say, this treatment helped the patient get a better blood pressure in four weeks. This other treatment was even better, but it took two months. Here's the incidence of heart attack, here's the incidence of stroke, here's the cost, so that the clinician and the patient can talk together about what is the best for you.

Speaker 1:
[49:52] Do you worry that the best treatments, if they're more expensive, will be avoided? I mean, that's not your problem.

Speaker 2:
[50:01] Yeah, that is a problem that has to be discussed with the physician and the patient.

Speaker 1:
[50:04] It's not your problem to solve.

Speaker 2:
[50:06] But it's our choice to give them the data because it is the data.

Speaker 1:
[50:11] As you well know, the kind of person that becomes the median physician, it's a really hard thing to do. It's very demanding and you have to be really smart. I think that most physicians feel expert and don't want to be told, especially by a disembodied computer program, that they may be wrong or that they should consider different options.

Speaker 2:
[50:33] Keep in mind, I'm married to one.

Speaker 3:
[50:36] I'll agree with you entirely.

Speaker 1:
[50:38] But what do you do with your software? Plainly, you want to get to the best outcomes for the patient. Well, I say plainly. I don't know. Maybe you don't care, but I gather you do care about that. How do you do it, whether it's communication style, the way the data is presented to the physician? Do you handhold, babysit a little bit to make the physician feel more empowered in some way?

Speaker 2:
[51:00] Well, the physicians do want to make the right decisions. Giving them the data so it guides them to the right decision rather than waiting till they're all done and then telling them they were wrong is a much better way to do it.

Speaker 1:
[51:12] I have a lot of doctor friends just by chance. I love them. I feel like the kind of person who chooses to become a physician is a very special person. You have to be, I think, very selfless. I know that traditionally it used to be thought of as a way to get rich, but you have to work really hard.

Speaker 2:
[51:28] Yeah, you do now.

Speaker 1:
[51:30] And you have to know so much.

Speaker 2:
[51:31] And you have a lot of responsibility.

Speaker 1:
[51:33] A lot of responsibility. So I asked a lot of these friends and professional acquaintances in medicine to tell me about their experiences with Epic. I would say on average, from the physician side, not from the hospital administrator side at all, but from the physician side, I would say their view of Epic was slightly negative. Maybe on a scale of 10, it'd be like four and a half to six and a half. Their complaints were all about their interactions. They feel like it's sludgy for them, that it's either too complicated to find exactly the right billing code in a particular case. They find that they don't know the system well enough to always get the information they want because they're obviously busy and taking care of a lot of patients. And I was just struck by the fact that the industry itself plainly loves you. More and more systems buy your software and keep it forever. And yet a lot of the individual physicians, at least the ones that I know and talk to, they have these kind of micro daily user problems. How do you work on that?

Speaker 2:
[52:43] Did you ask them if they've ever used another system?

Speaker 1:
[52:46] I didn't, but I think the answer would probably be no.

Speaker 2:
[52:49] Because that's where we get our customers. They've tried ours, and I think your evaluation of them is right on. Then they try another, and they think ours is better. That's really helpful to us because a lot of our new customers are putting in our software because their own doctors worked elsewhere, and they don't want to use the system that their new place has because they liked Epic better. So I think even though it's in no way perfect, it's better in their opinions than what else is out there. I think that a lot of the problems with our software is that they have to type to get the data in. And in fact, that was a government requirement at one point that it couldn't be put in by a scribe.

Speaker 1:
[53:44] Does this go back to the High Tech Act?

Speaker 2:
[53:46] Yeah, it does.

Speaker 1:
[53:47] Which you were involved with.

Speaker 2:
[53:48] And I remember arguing against that one. I remember saying, if the doctor feels that someone else in the room could take good notes, why do you make the doctor do it?

Speaker 1:
[53:57] And what was the answer to that?

Speaker 2:
[53:59] Well, they voted, and I got voted out on that one.

Speaker 1:
[54:02] This was when you were appointed as an advisor in the Obama administration, correct?

Speaker 2:
[54:07] I think you're right. It was, I don't know, maybe 15 people around the table, and topics would come up that we would say yes or no to. And that was one I said, let the doctors decide how to do that. But I lost on that one. I think that what's really important now is the new features we have in that the system talks to the doctor, the doctor talks to the system. And they don't need to type. They can just talk to you as a patient.

Speaker 1:
[54:36] Here's a question that was passed along from Zeke Emanuel, who's been on our show a few times, oncologist and medical ethicist and policy maker. He says, why does she, meaning you, inhibit independent app development and easy access to the platform? She plays favorites that inhibit innovation.

Speaker 2:
[54:56] OK, I'll try to answer that. We certainly don't inhibit anyone from developing whatever they want. So we have a lot of apps out there. We have more APIs, if you're familiar with an API, more APIs than any other vendor. So we try to say, here's data, folks. You need to get permission from the health care organization because it's not our data. We write the code to allow the data to go out to the app, but we don't give the permission because it's University of Wisconsin's data or it's Cleveland Clinic's data, it's not our data.

Speaker 1:
[55:31] There is a Harvard Business School case study on Epic that includes a poll that I guess MBA students are supposed to take to predict the future of the company and of you. Would you mind taking a look at this poll and reading it aloud for me?

Speaker 2:
[55:49] Ten years after Judy's retirement as CEO, Epic will choose which one. Grow its market share. Remain a competitive vendor. Be sold to another IT firm. Go public.

Speaker 1:
[56:02] How would you answer that?

Speaker 2:
[56:03] Can't do the last two. So it's only grow its market share and remain a competitive vendor, which I hope it will do both of those.

Speaker 1:
[56:10] You say it can't do the last two, but it's not like it's impossible, but you're doing everything you can to set it up so that that won't happen, correct?

Speaker 2:
[56:18] Well, only possible if the laws change somehow. But in today's law, it's pretty well structured so that that can't happen. My stock is divided into two parts, the value and the vote. The value gets given for charitable purposes. The voting side goes to the Purpose Trust, and the Purpose Trust has two groups who vote my stock, my family members, and Epic staff.

Speaker 1:
[56:49] I thought there were some healthcare CEOs in there as well.

Speaker 2:
[56:53] Yes, but they're not the voting of my stock. I've got four family members and succession plans, and five Epic company members and succession plans. They get to vote following my rules of, here's what you have to do. You can never vote to go public. You can never vote to be acquires. And there's a whole bunch of other things. You can't create new stock which gets over those rules. A lot of different things to make sure that it's all followed. Then we have three CEOs from our CEO Council, which meets once a year.

Speaker 1:
[57:25] Can you say who they are?

Speaker 2:
[57:26] We just changed who they are, so I can't yet because they don't have their names in front of me. But they're people who volunteered to do this. And we're very interested in doing it. Their job is to take anyone to court who doesn't vote according to the rules.

Speaker 1:
[57:42] Do you enjoy or not enjoy talking about succession? I mean, it's your life.

Speaker 2:
[57:47] Yeah, no, it's important to do because you don't want to just leave things a mess. So there are several pages of rules. But there's only some rules that you have to do. The rest is just things that are recommendations.

Speaker 1:
[58:03] What would be an example?

Speaker 2:
[58:05] The very last thing is the lightest weight example, and it is the hold music should be classical.

Speaker 1:
[58:10] Is your hold music classical now?

Speaker 2:
[58:11] Yes.

Speaker 1:
[58:12] Why is that?

Speaker 2:
[58:13] Because I like it. It just feels like epic to me.

Speaker 1:
[58:19] Can I just say congratulations?

Speaker 2:
[58:22] Thank you.

Speaker 1:
[58:22] For a remarkable accomplishment and really remarkable life. I mean, I hope you're not going anywhere soon. How old are you?

Speaker 2:
[58:31] 82.

Speaker 1:
[58:32] 82. Do you have a target date for retirement?

Speaker 2:
[58:35] No.

Speaker 1:
[58:35] Will you retire?

Speaker 2:
[58:36] I hope not. I hope that I can stay strong physically and mentally.

Speaker 1:
[58:42] You think there's a chance we'll see 100-year-old Judy Faulkner running Epic?

Speaker 2:
[58:46] Sure. Or a chance you'll see a 100-year-old Judy Faulkner. I don't know if she'll be running Epic then. There's other good people here too. All right.

Speaker 1:
[58:55] We'll come back then for your 100th birthday. That again was Judith Ruth Faulkner, founder and CEO of Epic Systems. Coming up next time on the show, another builder of sorts, someone who makes things from scratch. David Lang is a composer, a particularly well-read composer with a Pulitzer Prize and all sorts of other honors. He especially likes to write music around existing texts. Some of them sacred texts and some of them secular. We tagged along for the world premiere of a new David Lang piece that's drawn from Adam Smith's The Wealth of Nations. Seriously. The very simple secret of turning a Bible of economics into a revolutionary new piece of music. That's next time on the show. Until then, take care of yourself and if you can, someone else too. Freakonomics Radio is produced by Renbud Radio. You can find our entire archive on any podcast app. It's also at freakonomics.com where we publish transcripts and show notes. This episode was produced by Zach Lipinski with help from Dalvin Abouaji. It was edited by Ellen Frankman and mixed by Eleanor Osborne with help from Joseph Webster. Thanks also to Bob Wachter, Julia Adler-Milstein, Mickey Tripathi, Bapu Jenna, Zeke Emanuel, and everyone else who helped with research. The Freakonomics Radio Network staff also includes Augusta Chapman, Elsa Hernandez, Gabriel Roth, Alaria Montenacourt, Jake Loomis, Jeremy Johnston, Mandy Gorenstein, Peter Madden, and Teo Jacobs. Our theme song is Mr. Fortune by the Hitchhikers, and our composer is Luis Guerra. As always, thank you for listening. What music do you listen to at home and in your car, mostly classical?

Speaker 2:
[60:54] I listen to books, science fiction, for the most part. I'm a techie, remember?

Speaker 3:
[61:04] The Freakonomics Radio Network, the hidden side of everything.