An independent physician practice ran its own billing. It bought installed practice-management software, kept the system running, and employed staff to code visits, submit claims, follow each insurer's rules and chase payments AT1. Those rules differed across tens of thousands of benefit plans, and each insurer sent its changes to every office as memos or faxes AHX-1 AHX-3. Payers could take months to pay, and a small practice had little staff to find out why a claim had been refused AHX-9 AT1. The software recorded the claim; the work of getting it paid stayed with the practice.
athenahealth
athenahealth's founders learned billing by failing at it in their own clinics, then sold practices the finished job of getting paid, took a share of what they collected, and turned every denied claim into a rule for all clients.
How athenahealth won
- 1 · 1997–98Founders learned billing by running clinicsThey bought birthing practices in 1997, could not get paid, and built their own billing system.Founder Domain Expertise
- 2 · 2000–14Software plus back-office work on one instanceWeb software, a payer-rules database and claims staff sold as one service, later extended to the clinical record.Tech-Enabled Services
- 3 · 2007Paid a share of client collectionsFees of 2% to 8% of collections meant revenue rose only when clients got paid.Usage-Based Pricing
- 4 · 2007–14Every denial becomes a rule for all clientsStaff wrote 100+ payer rules a month into one shared system, so one fix protected every practice.Data network effects
- 5 · 2007–22A payer-rules lead rivals could not buyThe industry's largest payer-rules database, 93% first-pass claims and 95% retention without lock-in.Accumulated assets & catch-up barriers
Versus Practice Fusion: Practice Fusion also sold cloud software to small practices, but gave its record away and earned money from the companies that wanted doctors' attention PF1. athenahealth did the billing work itself and was paid on collections, so every claim it handled made its rules better.
Arena: Market Conditions Before athenahealth
How each step happened
Step 1 of 5 · 1997–98
Founders learned billing by running clinics
athenahealth's founders learned the customer's problem by running the customer's business. In 1997 Jonathan Bush and Todd Park, two former Booz Allen consultants, bought and ran a birthing practice in San Diego AHX-8 AHX-4. Park says the practices nearly failed for one reason: "we didn't know how to bill and get paid" AHX-2. Bush recalls that the team thought about little else: "We spent all our time ... trying to get checks" AHX-3. With no system to track what insurers owed them, they had Park's brother Ed build one AHX-8.
The clinics showed where the problem sat. Recording a claim was easy; knowing each payer's rules and following up until the money arrived was the hard part. When the founders offered their fix to other doctors, the doctors told them the answer was for athenahealth to "work for them" with a web-based service that got them paid AHX-2. In late 1998 the company left the clinic business and moved to delivering its software, athenaNet, over the web AHX-9. The founders set out to sell the result, payment, not a billing program.
Rivals The installed-software vendors athenahealth named as competitors, such as GE Healthcare, Misys and Allscripts, sold systems that left the back-office work with the practice AHX-1 AT1. Practice Fusion started in 2005 as a web-based health record, with no billing operation of its own PF2 AHX-11.
Step 2 of 5 · 2000–14
Software plus back-office work on one instance
athenaCollector, launched in 2000, packaged that lesson as one service AHX-4. The practice used web software for scheduling, charges and claims; athenahealth kept athenaRules, a continually updated database of payer rules, and its own staff did the back-office work of submitting and following up claims AHX-1 AT1. Park calls it "workflow and rules and back office operations on a single ... Web-based platform" AHX-2. The practice no longer had to assemble software, knowledge and billing staff itself.
Doing the work made athenahealth answerable for the practice's collections, not for an installation. It also meant labor at scale: by 2007 nearly 400 people in the United States and more than 700 at an offshore service provider in India and the Philippines handled data entry and related work AHX-1. The model could scale only if software and shared rules kept taking over manual steps.
Carrying the service into the clinical record
When athenahealth added an electronic health record (EHR), athenaClinicals, it ran it the same way. Park described using the record "as an engine" to get revenue codes right so charges flowed into collections AHX-2. Under the federal Meaningful Use program, which paid practices for using certified records, athenahealth built the required measures into workflows, coached clients, attested on their behalf and guaranteed success GFB-3. By May 2014, 287 of the first 485 providers to attest for Stage 2 used athenaClinicals, although only 3% of providers used it GFB-2.
Rivals Practice Fusion offered the record only and left billing to partners, signing three billing companies by 2013 after losing Kareo AHX-11; its 2013 Meaningful Use guarantee covered certifying its software, not the doctor's attestation GFB-5. athenahealth's installed rivals left all of the back-office work with the client, and outsourced billing services did the claims work without controlling the practice's software AT1.
Step 3 of 5 · 2007
Paid a share of client collections
The price matched the service. athenahealth charged a share of what each practice collected, typically 2% to 8% of total collections depending on the practice's size and complexity, with separate fees for implementation, patient statements and training AHX-1. Bush compares it to "a merchant processor fee" on each patient visit AHX-4. The 2007 prospectus states the result: "Our results are directly tied to the financial performance of our clients" AHX-1.
The fee paid for the staff from step 2 and rewarded athenahealth for every claim paid sooner or on the first attempt. It also made the service easy to leave: contracts could be ended for any reason on 90 days' notice AHX-1. Revenue therefore lasted only as long as results did, and the company reported contract renewals of at least 97% in each of the five years before its listing AHX-1. The same fee gave athenahealth a reason to keep improving the rules that got claims paid.
Rivals Practice Fusion gave its record to doctors free and earned money from advertisers, laboratories and drug makers PF1 AHX-12 AHX-11; in 2020 it admitted taking payments from an opioid maker to influence prescribing prompts and agreed to pay $145 million PF3. Its revenue depended on doctors' attention, not on their collections.
Step 4 of 5 · 2007–14
Every denial becomes a rule for all clients
Doing the billing for hundreds of practices put athenahealth in front of every refused claim. Each insurer issued its own customizations as memos or faxes AHX-3; when the company found one, its programmers wrote it into the software AHX-5. By 2007 more than 50 full-time staff were finding, researching and implementing payer rules, and athenaRules grew by more than 100 rules a month from claims sent to tens of thousands of benefit plans AHX-1.
Because every client ran on the same cloud instance, one rule protected them all. athenahealth could update that instance for every practice at once, without local installations or upgrades AT1. The 2013 annual report describes the loop: "By understanding denials, we can add rules to the database that help the entire client base avoid future denials" AHX-6. Each new client added claims, each claim could reveal a rule, and each rule raised the share of claims paid on first submission for everyone. It ran only because athenahealth, not the practice, handled the claims, and its staff turned what they saw into rules.
Rivals Practice Fusion had no claims flow of its own, because partners did its clients' billing, and sold its data to drug makers instead AHX-11. Vendors of locally installed software had to upgrade each practice separately AT1.
Step 5 of 5 · 2007–22
A payer-rules lead rivals could not buy
The database grew with the loop in step 4, so its payoff shows from 2007 on. By 2016 athenahealth described its billing rules engine as "the industry's largest database of payer-specific reimbursement requirements" and listed the "size and scope of payer rules knowledge" among the main factors of competition AT1. A rival could copy cloud software; it could not copy years of denials worked through on behalf of thousands of practices AHX-6. Clients already resolved 93% of claims on first submission by 2007, against an industry average athenahealth estimated at 70%, and had cut days in accounts receivable by more than 30% AHX-1.
Clients stayed because of performance, since they could still leave on 90 days' notice AHX-1. In 2014 athenahealth reported 95% customer retention AHX-7 and ranked first among all software vendors in the Best in KLAS awards, ahead of Epic AHX-10. The lead came from the choice in step 2 to do the billing work: practices that only bought software never generated this knowledge for their vendor. Its value outlasted public ownership: Veritas and Evergreen took athenahealth private in 2019, and Hellman & Friedman and Bain bought it in 2022 for $17 billion AT2.
Rivals Practice Fusion sold to Allscripts for $100 million in 2018, after raising more than $157 million on the promise of free records software AHX-12. Epic kept first place for full software suites in the 2014 KLAS awards AHX-10.
Key dates
- 1997Founders buy and run a San Diego birthing practice AHX-8
- 1998Shift from clinics to delivering athenaNet over the web AHX-9
- 2000athenaCollector: billing software and service in one AHX-4
- 2004$39M revenue Full year; more than $1.4 billion in client claims AHX-8
- 200797% contract renewals At least this rate in each of five years, under 90-day exit terms AHX-1
- 2007-09IPO on Nasdaq; 100+ payer rules added a month AHX-1
- 2010Every payer ranked on a six-measure pain index AHX-3
- 2012$422.3M revenue Full year AT1
- 2014$752.6M revenue Full year AT1
- 2014-01Best in KLAS overall software vendor, ahead of Epic AHX-10
- 2014-05287 of the first 485 Stage 2 Meaningful Use attesters use athenaClinicals GFB-2
- 2014-1295% customer retention Reported at the investor summit AHX-7
- 2016$1,082.9M revenue Full year, +17% year over year; 87,691 providers on athenaNet AT1
- 2019Taken private by Veritas and Evergreen, combined with Virence
- 2022-02Hellman & Friedman and Bain buy athenahealth for $17 billion AT2
Sources
Oldest first.
- AHX-8 The Bush Health-Care Solution. Trade report
- AHX-5 A Fix For Insurance Maladies. Trade report
- AHX-1 Prospectus (Form 424B4), initial public offering. Filing
- AHX-2 HIStalk Interviews Todd Park, athenahealth Co-Founder. Founder interview
- AHX-3 Planet Money: medical billing episode (transcript). Podcast transcript
- PF1 Q&A: Practice Fusion founder and CEO Ryan Howard. Founder interview
- AHX-9 Scaling is Hard. Case Study: athenahealth. Investor essay
- AHX-11 Thoughts on Practice Fusion Raising $70 Million. Trade report
- GFB-5 Practice Fusion Guarantees 2014 Meaningful Use. Press release
- AHX-6 Form 10-K for 2013. Filing
- AHX-10 athenahealth topples Epic on KLAS list. Trade report
- GFB-3 athenahealth Announces 2013 Meaningful Use Attestation Rate and Early Stage 2 Performance Data. Press release
- GFB-1 A Handful Of Doctors Are Top Users Of Electronic Health Records, And Most Are Athenahealth Clients. Press
- GFB-2 Athenahealth's EHR dominates Stage 2 attestation. Press
- AHX-7 7th Annual Investor Summit presentation. Investor presentation
- GFB-4 98.2 Percent of Participating Providers Using athenahealth's EHR Have Successfully Attested for Meaningful Use Stage 2. Press release
- GFB-6 How athenahealth reaps big MU returns. Press
- AHX-4 Athenahealth CEO Jonathan Bush: A Disruptive Force in Health Care. Founder interview
- AT1 2016 Form 10-K. Annual report
- AHX-12 Practice Fusion acquired by Allscripts for $100 million in cash. Trade report
- PF3 Electronic health records vendor to pay $145 million. Criminal and civil resolution
- PF2 On the Health Record: Ryan Howard. Founder interview
- AT2 athenahealth acquired by Hellman & Friedman and Bain Capital. Transaction announcement