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Athenahealth Clicks Into a New Age of Office Productivity

Athenahealth co-founder Jonathan Bush talks about everything from health care reform to Wall Street.

Entrepreneurs can be driven as much by exasperation as by inspiration. That was certainly the case for Jonathan Bush and Todd Park. The pair founded a women’s health and birthing practice in San Diego in 1997 but had no idea how difficult it would be to get reimbursed by insurance companies. Finding no suitable billing and practice management service, they decided to form their own.

Today, Athenahealth, based in Watertown, Massachusetts, provides Web-based physician billing and practice management, electronic health records and patient communications. The company, which went public in 2007, has close to 24,000 medical providers on its AthenaNet and last year posted $188.5 million in revenues.

Co-founder Park has joined the Obama administration as chief technology officer of the Department of Health and Human Services. Bush remains at Athenahealth as chairman and CEO. He sat down recently with Institutional Investor Senior Contributing Editor Firth Calhoun to talk about everything from health care reform to Wall Street.

Institutional Investor: Why as a nation do we pay so much for medical care?

Bush: The biggest driver of health care costs is utilization. As a country, we do, I don’t know, twice as much surgery as when I started at Athenahealth [in 1997]. The deal with Medicare is: Anything you can invent that will keep a patient alive a little longer, we’ll pay for it. Think about chronic conditions. “Oh, poor guy, he died of congestive heart failure.” You don’t die of congestive heart failure until you’ve spent a good million dollars being strung along.

That’s progress, medical success. But it isn’t paired with a consumer’s right to decide. “You know what, this is going to cost me a million dollars for another year of treatment, and I’m 87. I think I’m just going to give a million dollars to my grandkids. And I’m going to get that bottle of scotch and let this thing take its course.” You don’t have that choice. I think a lot of people would say no thank you to a ridiculously invasive heart procedure at 85 if they could keep even 10 percent of the money. That’s the dynamic that we haven’t addressed.

On a scale of 1 to 10, how efficient is the U.S. health care system?

It’s a 2. It’s really terrible. It’s embarrassing. We have one foot in a socialist planner’s model — about 50 percent of health care is just government control — and another foot in a profits/market model. The socialist planner has an obligation to treat everyone equally, so that means coverage no matter what. Whereas the market has no interest in that. But because everybody’s half-and-half, real innovation — which involves creative destruction — has not been allowed. That’s the big problem.

So where do you find this inefficiency?

One big element comes from how narrowly legislation defines health insurance. You can’t say: “Look, I only want to be covered if I get hit by a bus or struck down by cancer. I don’t want to be covered for eating too much, smoking too much or drinking too much. I don’t want to be covered for chronic conditions.”

What impact will the Obama health care reforms have?

The thing that frustrates me is that they will have the same effect as the Cash for Clunkers bill, where we put money into General Motors. It preserves the sclerotic established players in health care and allows them to shore up the battlements of their quasimonopolistic position. And that stifles innovation, stifles new commerce, stifles [the creation of] a broader base. I’m also concerned that the law stifles innovation another way. It takes those 30 million [uninsured] people that were the ones driving innovation — that were using the retail clinics and going to Wal-Mart to get their prescriptions and doing what Americans do best, which is shop and scrimp and save and trade — and says, “Forget it, you’re all getting the federal all-you-can-eat buffet starting in 2013.”

How do the reforms affect you as an information company in health care?

The way the technology provisions are being rushed out is having the effect of preserving software-based business models, and that concept is largely obsolete. You don’t buy a copy of You don’t buy a copy of Google Maps. You have an account on Google. And you have an account on Amazon. But the product is the information you obtain or the connection you make through the Web. Health care should go that way.

But don’t you stand to benefit from the reforms anyway?

The health care law is probably good for us in the short term because it creates essentially 50 new state Medicaid plans. The current ones are terribly hard to deal with. So that’s a great reason for doctors to get on the Athena network.

More specifically, the law creates essentially a sale price for Medicare providers. It says, “Listen, you’re going to get up to $44,000 extra if you get on to some medical recordkeeping system, like AthenaClinicals.” And the law creates unlimited payments for 30 million people who used to be very careful with their payments. So that should be good for patient volume. And if as a health care company you can systemically ride up the utilization and innovation curves, you could do well.

Your first-quarter results disappointed analysts, and your stock took a hit.

We got obliterated. We didn’t properly communicate the impact of our increasing marketing expenses. But what better time could there be to spend on growing shareholder value through increasing market share? What are you going to do with profits — pay 47 percent to the government? And none of these buy-side analysts put their models the way we had it. The other thing was an unfortunate consequence of, again, not following the analyst models. We report how many doctors are added to our network. So the analysts assumed that to grow the revenues 30 percent, we had to add 30 percent more doctors. But most of the doctors we added were signing up for both our billing service and our electronic medical records service. And that’s about another 40 percent bump in revenue. In fact, if we did nothing but sell our AthenaClinicals medical records service to our existing customers, we could grow revenues 30 percent a year for two years. You don’t want to be Street-driven. And I’ve worked so hard not to be that I became a bit of a Street ass. But I didn’t stay close enough to those guys. So that was a mistake.

But your basic business model is still sound?

It is just the most forgiving thing. What did Warren Buffett say? “I like businesses that can be run by an idiot, because eventually they will be.” This one’s a Buffett deluxe. Idiots are everywhere, and the thing’s still doing great.

How are you fundamentally different from other companies?

I’m asked, “Isn’t Athena’s most valuable asset its people?” No. Our most valuable asset is our culture. It’s a free country. Why would I put all my value on someone who can walk out the door and is allowed to? Is it our technology? No. The technology in health care is fair to middling — even ours. The thing you can’t take with you and that outlasts technology is the culture, the underlying assumption of what it’s like to be at work. The real stuff is down in the roots, what people think privately. For instance, what does it take to get promoted at Athena?

Innovation is critical to your business. How do you promote it?

The things we seek are teaching, learning and teamwork. So “stars” — the idiot savant who runs a trading desk but can’t talk to anyone else — don’t make it at Athena. You have to be just as interested in showing someone what you’ve learned as you are in learning it. We try to drive people into a space where they know they’ve got to learn something new every day. Twenty-five percent of our people changed jobs within Athena last year.

The conventional credo says that a company’s mission is to enhance shareholder value. Do you see a social purpose beyond that?

I can’t disentangle the two. We’re trying to build the nation’s health information backbone. The reason? Well, how could you not do it? But why would you not do it in a way that creates a lot of shareholder value? Because that is sustainable.

How do you feel about Wall Street these days?

I don’t have a beef with Wall Street in the slightest. It’s a clumsy instrument, but as Winston Churchill said, “Democracy is the worst system except for all the others.” You run into silly little guys a lot, and you think, “How in the world did somebody with values employ you to do shorting and stuff?” But that’s perfectly fine. Capital markets ought to be able to handle a lot of real schmucks and still work just fine.

The degree of McCarthyistic behavior by the SEC today is really unfortunate. The agency is not in charge of keeping people from losing money.

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