SC

Strategy Canon

Practice Fusion

Practice Fusion built a web record for small practices, gave it away, left billing to partners and paid itself from the companies that wanted doctors' attention, so it never learned how its clients got paid while athenahealth earned a share of every collection.

Why Practice Fusion lost to athenahealth

  1. 1 · 2005–08A data-exchange founder, no billing operationRyan Howard built a web record with shared pharmacy and lab links; getting practices paid was not part of it.Platform Strategy
  2. 2 · 2009–13The record only; billing left to partnersKareo, then three billing firms by 2013; its Meaningful Use guarantee covered certification, not attestation.Component Specialization
  3. 3 · 2009–10Free to doctors, paid by advertisersSoftware and support went free in 2009; 40,000 users by mid-2010, with ads sold against their attention.Cross-Subsidy
  4. 4 · 2010–17Sold doctors' attention, not claims knowledgeRevenue came from labs, drug makers buying data, and paid prompts inside the record.Cross-Subsidy
  5. 5 · 2015–20Sold for $100 million in 2018Less than it raised; in 2020 it admitted an opioid maker's kickbacks and paid $145 million.Resource allocation

Versus athenahealth: athenahealth did its clients' billing work and took a share of what they collected, so every denied claim taught it a rule AHX-1 AT1. Practice Fusion gave the record away, left billing to partners and earned money from the advertisers, laboratories and drug makers who wanted to reach its doctors PF1 AHX-11.

Arena: Market Conditions Before Practice Fusion

Independent physicians and small medical practices · 2005 · United States

High setup and upkeep costsDisconnected workflows

In 2005 a small medical practice kept paper charts or bought an electronic record that came with licenses, servers, installation and support PF1 PF2. A system connected to pharmacies and laboratories cost close to $1,000 a month, or $40,000 to $50,000 up front, and each connection to a pharmacy chain or a laboratory had to be arranged separately PF1 PF2. Federal incentive payments did not yet exist, and a small office had few staff to run a system PF1. Doctors were also hard to sell to: drug, laboratory and device representatives visited them all day PF1. The practice's other burden was getting paid. Each insurer applied its own rules to claims, and practices got an estimated 70% of claims accepted on the first submission AHX-1.

How each step happened

Step 1 of 5 · 2005–08

A data-exchange founder, no billing operation

A record built by an integrator

Ryan Howard came to health care from data exchange, not from running a practice. At Brown & Toland, a large San Francisco medical group, he worked on moving records between practices whose doctors each used a different system, then worked at Grand Central, a company built to run software in the cloud PF2. He built Practice Fusion as a web-based record for small practices, hosted once for everyone, which removed the local server and the price of installing it PF2.

His integration background shaped the product. Each connection to CVS, Walgreens, LabCorp or Quest was slow to set up, so Practice Fusion built them once as a platform every practice could use PF2. A doctor could be verified and sending prescriptions to 50,000 pharmacies the same day PF1. Howard's model was a better clinical record with shared connections, which is where his expertise lay. The work of getting a practice paid by insurers was not part of the design.

Rivals athenahealth's founders bought and ran a San Diego birthing center in 1997, could not track what insurers owed them, and built their own billing software AHX-8 AHX-4. The installed record vendors connected prescribing and laboratories too, at a higher price and with local servers PF1.

Platform StrategyEnd-to-End Workflow

Step 2 of 5 · 2009–13

The record only; billing left to partners

Through 2013 Practice Fusion stayed a clinical record. When practices needed billing, it sent them to partners: first Kareo, then, after losing Kareo, three billing companies it signed by 2013 AHX-11. The partners saw the practices' claims, the denials and the insurer rules behind them; Practice Fusion did not.

The same limit showed in Meaningful Use, the federal program that paid doctors for using certified records. In October 2013 Practice Fusion guaranteed its software would be certified for the 2014 requirements and offered up to $5,000 toward switching if it was not GFB-5. The guarantee covered the software. Whether a doctor actually qualified for payment stayed the doctor's job. A company that did not do the practice's work could promise only what its own product did.

Rivals athenahealth sold web software, a payer-rules database and its own claims staff as one service, with more than 700 people at an offshore provider by 2007 AHX-1. It guaranteed attestation itself, and 287 of the first 485 doctors to attest to Stage 2 of Meaningful Use used its record GFB-3 GFB-2.

Component Specialization

Step 3 of 5 · 2009–10

Free to doctors, paid by advertisers

Removing the price

The record-only choice came with a second one in 2009, on price. Practice Fusion first sold its record for a couple of hundred dollars a month and found that doctors would not pay. It dropped to free software with $50 a month for support; when a doctor offered $25, Howard made software and support both free PF2. On a webinar that followed, 19 of about 23 doctors signed up PF2. Howard concluded that the price barrier was far higher for a doctor than for a consumer PF2.

Free worked as a way in. A doctor could be using the record within minutes, with no servers and no contract PF1. The user base grew 400% in 2009 to 40,000 by mid-2010, and the 2009 stimulus law paid a doctor using a certified record up to $44,000 whatever the record cost PF1. Physicians could turn the ads off for about $100 a month, but the free, ad-supported version was more popular PF1. The choice left the company without revenue from the people using the product, so it had to be paid by others.

Rivals athenahealth charged 2% to 8% of a practice's collections, which Jonathan Bush compared to a merchant processor's fee, so its revenue rose only when clients were paid AHX-1 AHX-4.

Cross-SubsidyPenetration PricingBarriers to participationBlue Ocean Strategy

Step 4 of 5 · 2010–17

Sold doctors' attention, not claims knowledge

Those others were the companies that wanted doctors' attention. Howard's argument was that a verified doctor, seen during a patient visit, was the most valuable audience an advertiser could buy PF1. Ads served by Google were a large share of revenue, and Howard planned to sell anonymized record data for research PF1. By 2013 it counted on payments from laboratories connected to its practices as a significant source of revenue, and on drug makers paying to mine its data AHX-11.

Each of those revenue lines grew with the number of doctors, not with how well their practices ran. Practice Fusion learned what doctors prescribed and ordered; it did not learn why claims were denied, because partners did the billing. The paid influence also moved into the clinical workflow. Practice Fusion later admitted that an opioid manufacturer paid it to shape prescribing prompts shown to doctors inside the record PF3. The clinical position that free adoption had built was now for sale.

Rivals athenahealth had more than 50 staff researching insurer rules and added more than 100 rules a month, turning each denial into a rule for every client AHX-1 AHX-6. By 2016 its rules engine was the industry's largest database of payer requirements AT1.

Cross-Subsidy

Step 5 of 5 · 2015–20

Sold for $100 million in 2018

The free record from step 3 chose its customers: small practices that could not or would not pay. Those practices kept being bought by larger health systems that did not use Practice Fusion, so the company sold to the buyers least likely to stay PF4. With no billing work to hold them, little tied a practice to it. Howard was pushed out as chief executive in mid-2015 PF4. In January 2016 the company hired JPMorgan to explore a public offering, with bankers expecting a $1.5 billion valuation, but record software was consolidating around Epic and Cerner AHX-12.

In 2018 Allscripts bought Practice Fusion for $100 million in cash, after it had raised more than $200 million in venture funding, including at a $700 million valuation in 2014 PF4. In 2020 it admitted to the opioid-maker scheme and agreed to a $145 million criminal and civil resolution, which also covered issues with its software's certification PF3. The free record from step 3 built an audience rather than a billing operation: Allscripts paid $100 million for it, and selling access to it cost $145 million more.

Rivals athenahealth reported 95% customer retention in 2014 under contracts clients could end on 90 days' notice, and $1,082.9 million in revenue in 2016 AHX-7 AHX-1 AT1. Hellman & Friedman and Bain bought it for $17 billion in 2022 AT2.

Resource allocation

Key dates

  1. 2005A web-based record for small practices
  2. 2009Software and support made free to doctors
  3. 2009Stimulus pays doctors up to $44,000 to use a record PF1
  4. 2010-0640,000 users User base up 400% in 2009; ads largely fund it PF1
  5. 2011Pharmacy, laboratory and patient connections widen
  6. 2013-09Billing left to three partner firms after Kareo leaves AHX-11
  7. 2013-10Meaningful Use guarantee covers certification only GFB-5
  8. 2014$700 million valuation Venture funding round PF4
  9. 2014-05athenahealth clients are 287 of the first 485 Stage 2 attesters GFB-2
  10. 2015Founding CEO Ryan Howard replaced PF4
  11. 2016-01JPMorgan hired to explore a public offering AHX-12
  12. 2017-03Vermont authorities request documents PF4
  13. 2018-01$100 million sale To Allscripts, after raising more than $200 million PF4
  14. 2020-01Admits opioid-maker kickbacks; $145 million resolution

Sources

Oldest first.

  1. AHX-8 The Bush Health-Care Solution. Fast Company · 2005-07-01 Trade report
  2. AHX-1 Prospectus (Form 424B4), initial public offering. athenahealth / SEC · 2007-09-20 Filing
  3. PF1 Q&A: Practice Fusion founder and CEO Ryan Howard. MassDevice · 2010-06-09 Founder interview
  4. AHX-11 Thoughts on Practice Fusion Raising $70 Million. Healthcare IT Today · 2013-09-24 Trade report
  5. GFB-5 Practice Fusion Guarantees 2014 Meaningful Use. Practice Fusion (PR Newswire) · 2013-10-10 Press release
  6. AHX-6 Form 10-K for 2013. athenahealth / SEC · 2014 Filing
  7. GFB-3 athenahealth Announces 2013 Meaningful Use Attestation Rate and Early Stage 2 Performance Data. athenahealth (GlobeNewswire) · 2014-04-22 Press release
  8. GFB-2 Athenahealth's EHR dominates Stage 2 attestation. Healthcare Dive · 2014-06-20 Press
  9. AHX-7 7th Annual Investor Summit presentation. athenahealth / SEC (8-K exhibit) · 2014-12-11 Investor presentation
  10. AHX-4 Athenahealth CEO Jonathan Bush: A Disruptive Force in Health Care. Institutional Investor · 2015-10-26 Founder interview
  11. AT1 2016 Form 10-K. athenahealth / SEC · 2017-02-17 Annual report
  12. AHX-12 Practice Fusion acquired by Allscripts for $100 million in cash. CNBC · 2018-01-08 Trade report
  13. PF4 Practice Fusion sells for less than it raised. Axios · 2018-01-09 Transaction report
  14. PF3 Electronic health records vendor to pay $145 million. U.S. Department of Justice · 2020-01-27 Criminal and civil resolution
  15. PF2 On the Health Record: Ryan Howard. DrChrono · 2021-01 Founder interview
  16. AT2 athenahealth acquired by Hellman & Friedman and Bain Capital. athenahealth · 2022-02-15 Transaction announcement