I just did a search on this blog and I found that I’ve mentioned the name Practice Fusion in 88 different posts over the years. Needless to say, Practice Fusion has been one of the most interesting EHR vendor stories out there. I’ve seen it first hand since they started advertising on EMR and HIPAA very early on in their life. I was even on stage talking about meaningful use at the first Practice Fusion user conference. We didn’t know very much about meaningful use at the time, but we put on a good show and shared what we knew at the time.
In the early days, many EHR vendors were really scared by Practice Fusion. Offering a Free EHR is a drastic thing to do and absolutely shook up the EHR industry. Much like Dell did in the PC market (and probably some others), Practice Fusion’s low price forced most other EHR vendors to lower their prices in order to compete. I saw the drop in price first hand as EHR after EHR dropped their price. At the same time as these price drops, EHR vendors were shifting from these massive front loaded EHR purchases to monthly price models that could compete with SaaS EHR pricing. The mix of pricing model changes and competition with a Free EHR was great for the industry.
With this as background, I definitely am intrigued by the news that Ryan Howard has been replaced as CEO of Practice Fusion. Tom Langam, Practice Fusion’s Chief Commercial Officer has taken the helm as interim CEO. The article I linked to above suggested that this and other personnel changes point to Practice Fusion possibly preparing for an IPO. In fact, they’ve had so many personnel changes over the years, most of the people I’ve gotten to know have left.
I’m not sure if Practice Fusion is preparing for an IPO or not, but I wouldn’t be surprised if they’re running out of money. Yes, it’s crazy to think that they could be running out of money after raising $70 million about 2 years ago along with $15 million more a few months later. CrunchBase has their funding to date at $157.5 million. However, I’m sure they have a high burn rate. Their leadership and investors have set ambitious goals for Practice Fusion to own the healthcare market (A goal which I’ve said is impossible. The EHR market will be heterogeneous!). I’m sure their spending habits match those ambitious goals. An IPO would be one way to fund that continued ambition. If they did do an IPO, we’d get some really interesting insights into their business model.
There’s some mystery surrounding how Practice Fusion makes money. I think you can summarize their income streams into three categories: advertising, data, and third party apps. Most people glob onto the first piece, but from what I understand it’s far from being their largest source of revenue. In fact, I wouldn’t be surprised if it was their smallest. The second piece is quite interesting. I once heard someone say that Practice Fusion made their money from selling health data, but then they were corrected by someone saying that Practice Fusion doesn’t sell data. Instead, Practice Fusion sells the insights from that data. A subtle difference, but an important one. The question remains, how valuable are insights from EHR data? Many other EHR vendors sell their EHR data. Is it just a matter of time until Practice Fusion does too? Will they be forced to in order to meet revenue goals?
The last piece of revenue is the one that most people ignore. However, it probably is the largest piece of the revenue pie. My guess is that their practice management system vendor partners are one of the most significant portions of their third party revenue. Practice Fusion doesn’t have their own PM and so they refer their users to an outside PM vendor. When they do so, Practice Fusion gets a cut. I’m sure this is not an insignificant number. It’s not hard to imagine Practice Fusion doing something similar with a whole marketplace of third party offerings that tie into their Free EHR.
Over the years, I’ve talked to a lot of investors and potential investors about Practice Fusion. I’ve always told them that Practice Fusion has definitely created value. They’ve done a good job leveraging the Free EHR to bring doctors in. What’s not as clear to me is whether they’ve created enough value to justify the $157.5 million they’ve raised. If they really are preparing for an IPO, then I guess we’ll find out soon. The revenue numbers that come out during the IPO process and how the street reacts to those numbers would be fun to watch. Yes, I know. I am an #HITNerd.