By ROBB MANDELBAUM
Published: September 8, 2010
In the world of health care innovation, the founder and chief executive of Athenahealth has an outsize name. In part, that’s because his name is Jonathan Bush, and he is the nephew of one former president and the cousin of another. But it’s also because his company has mastered the intricacies of the doctor-insurer relationship and become a player in the emerging medical records industry.
Based in Watertown, Mass., Athenahealth offers a suite of administrative services for medical practices. It collects payments from insurers and patients, and it manages electronic health records and patient communication systems. All of this is done remotely through the Internet — or “in the cloud,” as Mr. Bush puts it. Doctors don’t have to install or manage software or pay licensing fees; instead, Athenahealth keeps a percentage of the revenue.
Lately, Athenahealth’s stock price has been hammered by news of an internal accounting audit and missed earnings expectations. By July its shares had fallen by more than half from their January high. (They have since reversed some of that decline.)
Even so, the company’s sales have grown substantially over the last couple of years. While the bill collection service still accounts for most of the sales, the company’s fastest-growing business has been its electronic records segment, which has benefited from provisions in the 2009 stimulus law and this year’s health care overhaul.
What follows is a condensed version of a conversation with Mr. Bush about how he built a small medical practice into a national enterprise with nearly 1,200 employees, and how the new health care law is likely to affect businesses — small firms as well as his own.
Q. Athenahealth got its start when you purchased a birthing practice in California back in 1997. But you’re not a doctor — why did you buy it?
A. You know, Bush family noblesse oblige. I wanted to take advantage of all this education and support I’ve had and do well by doing good, and health care seemed like a place that no one else in my family had been much. A new approach to health care seemed to me to be the oil fields of 1997.
Q. So what led you into the administrative services business?
A. I ran into all of the problems that medical practices ran into, all of which were unrelated to medical care. I couldn’t get my claims paid, I couldn’t make payroll because of all of these ridiculous regulatory and insurance rules that were changing all the time and were very esoteric, and the technical infrastructure to connect and move around was incredibly poor.
We had 13 little offices up and down San Diego County, and they were running up against scale-based obstacles, things that would need real management infrastructure and capital to do properly. So we built a little Web site for ourselves called Athenanet, and pretty soon all the doctors in the neighborhood wanted to be on Athenanet.
In fact, when we were trying to raise venture capital to go do more birthing centers, and it wasn’t happening, one of the venture capitalists said in passing that he would give me $11 million for an unlimited license to Athenanet [laughs]. And I think our pre-money valuation for the whole company was $7 million. It was as if a budding, small airline wakes up to find that they invented the Sabre system.
Q. Your revenue has grown 40 percent in each of the last two years, from $98 million to $189 million —
A. Don’t you love it?
Q. Well, not as much as you do.
A. And yet, the Street hates me. I don’t know.
Q. What’s going on in the health care industry to deliver that kind of growth to you?
A. We are a disruptive technology. We are the only cloud-based service in an industry segment full of sclerotic, enormous, personality-free corporations that have been in business making 90 percent margins doing nothing for decades and decades.
Q. What keeps other companies from building cloud-based systems?
A. For software companies, the biggest barrier to entry is that they give up their business model. Those companies would get hammered on Wall Street if they started selling a service that they have to deliver at a loss for five years. In terms of new entrants, there are two things that we’ve done that would take a good decade to replicate. One, we’ve built out the health care Internet. We’ve been building connections into insurance companies and laboratories and hospital medical records for years and years and years.
And the other barrier to entry is that rules engine. Every time a doctor anywhere in the country gets a claim denied, we have analysts ask the Five Whys. When we get to root cause, we write a new rule into Athenanet and from that day on, no other doctor gets that particular denial from that particular insurance company ever again. We now know of 40 million ways that a doctor can have a claim denied in the United States. The average practice has to rework about 35 percent of their claims, and we only have to rework about 5 percent of ours.
Q. What’s the prognosis for bill collecting under health care reform?
A. Well, there’s going to be new connectors and a whole series of new insurance products that will be managed by the states’ health insurance commissioners. And the law provides for every state to do all of these its own way, so they will have their own rules and regulations, and each state will do it differently. That sounds like springtime in Complexity Land.
Q. What do you think will happen to the total cost of health care under reform?
A. Oh, it’s going to go through the roof! It’s widely accepted that this is not a cost-reform bill — it’s an access bill. It’s in fact a cost-expansion bill.
Q. Last year, Dr. Atul Gawande made a pretty cogent case, writing in The New Yorker, not just that the small pilot projects in the reform would control costs but that they are the only way to control costs in an industry as sprawling as health care.
A. I e-mail a lot with Atul and he’s a product of the Borg, at some big institution, and thinks in terms of papers and grants from Washington. I totally agree that demonstration projects are what changes a market, but outside of the Borg, we call those businesses. I suppose Washington trying to be an innovator also is fine, but at some point the demonstration project is going to have to be consumers using their judgment about which things they want.
Q. If you were still a small company, or if you were starting a business now, would health care reform help or hurt you as an employer?
A. Well, certainly the idea that somebody else is going to pay a lot of my health insurance cost, at the micro level, makes a lot of sense. It’d be great, yeah, thanks — anything else you want to pay for? If you actually ever have to start paying this thing, all of this accelerates the increase in the cost. Eventually, consumers will need to eat a big part of their health care cost, because health care will fundamentally consume the entire G.D.P. in the not-too-distant future.
Everybody agrees that this is good in the way that it creates engagement in society by those who are outcasts. So if you’re feeling like you don’t want to believe in America anymore because you don’t have health insurance, well, now you can believe a little more. It’s bad in terms of the macro economy. But I don’t know which one is more important in the grand scheme for today.
Views of Health Care Economics from a CEO Named Bush
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Originally Posted by Loki
Medical technology may develop at a high pace but clinical practice doesn't change at the same pace. That's probably a good thing 
it's good to have a good idea of what you're buying.
