Interview Transcript: Adrian Gropper, CEO, Amicas, Inc., 3/9/99

Video Tape 1 of 1

{6:40}

C: What are they doing, are they giving you anything? [Consultants]

A: Well I've got two of them writing business plans, one of them is Gil, I've got one of them is writing a cover letter to the existing business plan, wants to go run around and pitch it to VCs, I've got an accountant, that we need to get a new accountant, that certainly counts as a consultant. I've got one lawyer dealing with, that one's recommending that maybe we should get a part-time CFO, so there's another one, i've got two lawyers, one of them wants to do corporate the other one wants to do intellectual property and that sort of stuff, one woman from Florida who just sent me email over the weekend who's trying to do me favors, a consultant from that point of view, she sent me this Hambrecht and Quist report.

C: How are they hearing about you?

A: I've got another one who works for Concord Consulting group who wants to have lunch. [Laughter] Is that enough?

C: I'm already overwhelmed. Is that because consulting is a desperate market, a dog eat dog world and everybody is trying to get in here first?

A: No.

C: It's because you guys rock?

A: No, it might just be random? I mean you know, certainly some of them I've sought, but about half of them have sought me, I can;t begin to tell you...

C: Do any of them have, are most people's ideas of financing to go for venture capital?

A: Some of them do, some of them say don't go to venture capital, go to Angels, some of them say..

C: nobody is suggesting that, there are no large companies that you would go to?

A: No, the large companies thing is not, is something else.

C: Cause when I was at, I didn't really learn anything at HIMSS except that I got to talk to a bunch of people in various medium to large companies that are doing partnering agreements of some sort or another with smaller companies. It was, just because I don't circle in these worlds at all, I don't know whether these things happen a lot, but like, Lotus was there with a whole bunch of smaller companies like MedWeb, demoing their product with these other products on top of it. But like Sequoia's partnership with Microsoft kind of surprised to see that. Did you see that?

A: No.

{10:10}

C: Sequoia was in Microsoft, and Microsoft didn't really have a presence there as Microsoft, just a presence as someone who was supporting these small companies in healthcare, and Sequoia was one of them.

A: A what's so shocking about that?

C: Well I suppose there isn't anything shocking about that, I had never seen it before. that...

A: Oh, what, that people would, like the Sun booth? You've seen that before..

C: yeah, I've seen that before, but that seemed closer to the Lotus model, which is just this paternalistic relationship to small companies, the sense that they have a technology that they use, and therefore they let them demo in their booth. But I got the sense with Sequoia and Microsoft and to some extent with companies like Healtheon or Eclipsys that there was some other approach to partnering that was being taken. But I can't really tell, because no one would tell me anything about partnering arrangements, or who was paying who.

A: Well you know, it's an extremely important question and if you were B-School focused instead of anthropology focused, I would ask you some very tough questions about what these partnering-marketing models are. It's clear to me that Microsoft for instance, would benefit greatly from companies like us being out there, but it's not clear to me that they are actually marketing and selling anything to anybody, in other words, that this is a reasonable channel. I can see how dealers sell stuff, I can see how people like Adac sell stuff. I don't understand yet how Microsoft sells stuff.

C: Or the one that sort of got me, was IBM which has this new global healthcare initiative. They have all these various partnerships which I think are technology partnerships of some kind, but then they have a partnership with Healtheon that's strictly a Marketing partnership, but I couldn't find out from either IBM or Healtheon, what they were marketing.

{13:07}

A: And this is what I'm saying, If you were a B-school focused person, I would ask you can you explain the marketing partnership to me, cause I don't understand it yet. The big picture is quite simple, if you look at. Say that there's a $20B market out there for medical records systems, my guess is that 2/3rds of it is in systems integration and consulting, and 1/3 of it is everything else, hardware, software.

C: All of the hard problems...

A: Well they are not necessarily all of the hard problems, its just that the world as it stands now is these products that require huge amounts of systems integration expense to consulting firms and also a huge amount of expense in house, you know, the customer himself provides IS staff, and administrative staff and help desks and all sorts of things. So when you actually look at the cost to society of doing medical records the way they're being done, 2/3 of it is wasted, kind of in the same sense that administering public services in a communist country where you'd imagine some large fraction of the food spoiling in a warehouse on its way to the dump. This is what my impression is of 'high tech' information systems in healtcare. There is no consensus on this is what you do with Microsoft office, this is what you do with windows 95, this is how you assign passwords, and this is how you build your phone system, the way there is in the rest of industry.

C: Well I don't know if I agree with that, that it does exist in the rest of industry, but I think its a peculiarly compelling problem in healthcare, that there is no consensus on how to use these technologies, or even at the level of what kind of medical record...

A: There is no consensus, and there is this huge void... there are all these companies that are very large and would like to convince you that, whether its because you are buying HBOC or you are hiring Anderson Consulting, or IBM systems integration, one way or another all your problems will be solved. All you have to do is throw money at it.

C: And if you are a hospital administrator, that's what you want, right? A company that tells you that? Or a company that does that?

A: Well that's what you used to want, and that's what these companies hope that you want. The problem for the hospital administrators is that they have a number of constituencies to satisfy. [interruption]

{19:17}

A: Just this business of how Microsoft and AT&T and Oracle and any of these people, IBM, if you put a different hat on them, not their system integrator hat, but their product hat, how are... how are they going to work with people like us who are basically trying to cooperate. Here's what I was talking about: You've got outfits like HBOC who are systems integrators that basically say, look, have us do everything and it will be ok. The problem with that is twofold: first of all it's outrageously expensive, and second of all it doesn't guarantee for that administrator that it actually meets the needs of 37 different constituencies that they have to keep happy. To the extent that they contract for custom features from these people it becomes even more expensive. It's just a broken model."

C: I assume you think that what's going to change is not the systems integration and software industry but the organization of these healthcare entities. Its more likely that its going to break up into 37 different industries.

A: I do believe that. Yes. Part of the reason why these people are struggling is because they don't want to lead the market towards breakup, because that just makes people hate them. So on the one hand people would like to breakup, but on the other these people don't want to be the instrument of that. From the products point of view, or from the software systems point of view, what's going to happen is that people are going to increasingly focus on transactional networked things. So instead of having to buy your front end and your back end from the same people you'll be buying your back end from us and your front end from abaton.com or whatever and these things will meet happily, will mix and match happily. So for instance, people don't worry about where they are gonna save their files when they [decide to] buy Microsoft Word, as their front end. Nobody would argue that you buy a different word processor or that you worry about whether the institution is running oracle vs. sybase before you decide to buy word vs. whatever. So I think in healthcare people haven't quite come to grips with that. Microsoft hasn't, Lotus, IBM.

C: what about people in healthcare? HAve they come to grips with it?

A: Not really except for the fact that they are not spending their money except on absolute necessities, but they're not necessarily going out their and strategically saying okay this is the way its gonna be done. People are doing pilot projects people are trying to mooch things off of people in industry and they are being very tentative. But I think that people are resisting the idea that you'll just buy everything from Eclypsis. You know they are being more hard nosed, and saying "I can register patients now, thank you very much." What's the bottom-line benefit from putting in a whole new system.

C: That seems to me a slightly different problem than the one of having already made a deal with IBM or Lotus, or Microsoft not for an entire information infrastructure, but for whatever, for desktop computers or to run the databases for various things. That kind of position that those companies have will be leveraged for other purposes, for other problems that need to be solved. Which is how, I think IBM or Lotus think about it. Because Lotus has so many people, 15% of (I'm making these numbers up) whatever market with notes and domino in healthcare as the system that people use, and therefore they can use that as a kind of marketing base to say, okay use these other companies because they use Lotus Notes and Domino, which provides them some measure of control over the healthcare industry in that way. Does that not make sense as a model, or is that just random?

A: To the extent that, yes to the extent that Lotus have that as a focus, it would make a great deal of sense, do they do that? Not as far as I can tell.

C: Not very aggressively?

A: Not very aggressively, not very clearly, not in a way that I can understand.

C: and they can't seem to get companies like you to go along with that, unless there's something really good in it for them.

{26:23}

A: No, they could easily, they could just, I think that they are just not organized, I would love to go along with them, I would kill to have even one project that's branded Lotus and tries to do this in the way I am talking about. I've gone to a room full of people at BBNGTE, and said 'You guys are nuts, here you've got the Brigham and Partners, if you would just step up to the fore and say look we will take care of security on the network,' you would be taking some piece of this off their hands, you would be enabling these components to talk to each other, and you would be adding a great deal of value. I can't get them to sort of cross over from the fact that we sell wires— but boy are they great wires. Now what Lotus would have to do is, rather than sell you Brand name Domino, email, whatever they have to say look this is what we do for you, here is what sequoia does for you and here is what amicas does for you. And if you put these three things together you get the equivalent of what HBOC does for you. They are not doing that. You don't go into the Lotus booth or the Microsoft booth and say 'This is what Microsoft does for you.' You have no idea what Microsoft does with its partnership agreements. Are they guaranteeing 7x24 service to Microsoft solution provider networks, so that if I install a system and it meets whatever, or was purchased with the blessing of whoever. I have gone to Microsoft and asked them, you know, can I centrally make a deal with somebody such that i can now refer all my random customers to MS solutions providers in order for them to get their networking quoted and installed. I mean presumably microsoft has at least three microsoft solutions providers in any city with over 5000 population who can say "yes I can install a network and manage passwords."

C: They haven't been able to do that?

A: They are just not configured to do that. Maybe I haven't been able to understand the answer. So the point is Microsoft is not selling a branded service, they are just selling a brand [laughter]. It's like Notes: What does Lotus notes do for you? Lotus notes does everything for you! That's not the right answer, HBOC already does everything for me! Lotus notes, needs to do _something_ like for instance, it needs to manage the directory of privileges and give me a way by email so that if I want to be called at 9245273 instead of 9245339 today, I should be able to have a web page where I can go and if I'm logged in properly and I have a whatever, somebody should be able to change my name and that information should be available to Amicas. Does Lotus Notes do that? No. Can it do that? Of course it can! So this is the big picture problem. That the world in healthcare has to have sort of the players, whether they be the customers or the big vendors or the little shrimps like us, they all have to have some kind of a vision of how they are gonna interact with each other at the level of twenty services—pick a number, and somehow you can reduce 99 percent of what happens in healthcare to twenty services that you are gonna have to take care of. Acquiring images in radiology is one of them, dishing out passwords, connecting via Virtual Private Networks on the internet is a third. You can think of 17 others, some involve collecting information from doctors, putting screens in front of people who schedule things, some of them involve putting screens in from of patients, some of them have to do with the interaction with pharmaceutical and medical device companies, some of them have to do with hardware, and the support thereof, outfits like StorageTek. So if you were to draw a list of sort of the essential services... you and I could sit here and based on the little that you and I know and we could probably reach a list of twenty that would have absolute total consensus.

C: as far as what needs to be done?

A: What needs to be done to meet 99.5% of what goes on out there. If that were ever done such that people basically would say this is what I sell, this is what he sells, then the whole thing would fall together very quickly. And all this system integration value would be captured and the customers would feel happy. But there are strong disincentives against doing that from the industry's point of view.

C: From the software and systems integration point of view, not from healthcare's point of view, from healthcare's point of view there isn't any disincentive, just a lack of organization because its not really an industry in the way that a lot of other industries are industries.

A: Yeah, they are not organized in a way where they have to sort of chase a corporate leader and if they are inefficient then, you know, I mean if you tried to build cars by building your own relays to control the robots, then you would be out of business in a second, but there is too much of that going on in healthcare.

{33:58}

C: So do you think that this will have, I mean which part of it will give first, the organization of healthcare and healthcare's desire to have a system that works or companies actually realizing that there is a way of solving this problem.

A: I don't know, I can't think that strategically.

C: Well, you mentioned something at HIMSS that was interesting, which was that you said that you wouldn't have been able to do this if Sean and you hadn't had the long experience with R*Star and the experience of being in the community, you wouldn't have been able to just jump in and do this.

A: Yeah, its too complicated, its too easy to get tied up in a one piece of it, that's what makes large companies able to do certain things is that they have this institutional memory this organization, people sort of know what their jobs are.

C: Yeah, and the thinkg that made the biotech industry blossom for instance, is that people jumped out of positions in science, people had all kinds of little pieces of biology, problems to solve, and ways of setting up little companies. That doesn't seem to be the direction that things are happening in healthcare. It doesn't seem like there are nearly as many doctors or healthcare professionals jumping into entrepreneurial ventures. A :Yeah, biotech was extremely competitive, from the school on up.

C: Well it started as a competitive science...

A: Yeah, Healthcare is competitive...but in all the worst ways. I mean its like, it's so weird, you listen to the news about how people are being asked to make uninformed choices about the healthcare they get and how resistent, more than reluctant, resistant the whole healthcare industry is to providing patient with information that would inform their choices. It's an entire industry built on top of anti-competitive constitution, it's like, if somebody had gone and tried to write the bill of anti-competitive rights, and set up a situation that would make competition difficult at the most fundamental levels, people couldn't have come up with a better model.

C: Well is that because, not to wax to liberal or leftist about it, but isn't that because healthcare is supposed to be a cooperative enterprise, or is that just a pipe dream? That competition is stifled for reasons peculiar to healthcare, let's say 'care' from doctors or nurses...

{38:00}

A: I don't think you are waxing liberal about it, um I think it's tied up with emotion, as much as anything possibly could be, so people have abused this emotional angle for they perceive as personal profit. It's kind of like the funeral industry gone mad. I mean the funeral industry is a couple billion dollars a year, healthcare is a trillion. In the funeral industry you can sort of see the emotion and the anti-competitive practices and if you read a couple of books and put the whole picture together and say okay here it is and what can you do and you write another book and in 5 years it will be slightly different. You sort of can trace all that to some beliefs and some emotions and that's that. Take that and you scale it up by 500 fold and you get healthcare. I don't think it's political. It's a lot of people taking advantage of an emotional opportunity. If you try to cast it into politics you sort of run into problems very quickly. For instance, some of the leftiest of my colleagues tend to have a totally anti-technological bent, and so you ask is that because they're against technology or against the fact that technology is controlled by corporate interests... are they right? I think in a sense they are, if you look at it sort of short term, patients probably feel better dying sooner at greater expense than having technology to worry about. People don't want to come to grips with rationing technology, with rationing access to technology.

C: Your were mentioning that before, which is I think, a really striking aspect of this story. There is a fundamental problem of rationing healthcare that used to be, at least, even if it wasn't ever dealt with, it was assumed that it was a government, the government's problem, that it was a problem that social security, Medicare, Medicaid, and the government system of legislation and regulation had to deal with, that it wasn't a choice that individual healthcare consumers, or individual healthcare companies had to make. And that seems to me, now sort of a fading issue

A: Well that's the issue of competition, right? What's fading is. people are starting to get a little bit more sophisticated and starting to say maybe the government can't determine the rationing in terms of how they pay for stuff but they can determine that certain pieces of information be made public, so that people can make informed choices about what it is they want to do. So that's kind of what's going on.

C: This is regina's work on accountability is heading towards, work on accountability and transparency in non-profit and public institutions.

A: Yeah and I think that that's a big change in the last five years. If people do really start to focus on the patients' bill of rights as something to enforce transparency and competition then that's a more sophisticated approach than the government actually deciding how to ration the stuff or how to collect money for insurance. But we've all been hopeful about the government doing something about this before...

C: For hundreds of years even...

{43:48}

A: It's always proved to be false.

Last Modified 11-Sep-99 9:34 PM ckelty@mit.edu

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