Texas v. Epic Hot Takes

In this emergency video meeting (we won’t call it a podcast), Pryce Ancona and I discuss the recent antitrust lawsuit against Epic by the state of Texas (detailed in “Don’t Mess With Texas: Epic Edition”). We explore the implications of the lawsuit, the political context surrounding it, and the emotional reactions from the public and industry insiders. We have all the good stuff:* Market definitions* Motivations for the anti-non-compete movement* The strategic choice of venue for the case* Ken PaxtonWe also lightly got into antitrust laws with information blocking regulations as an alternate policy tool for pro-competitive outcomes.Health API Guy is a reader-supported publication. To receive new posts and support my work, consider becoming a free or paid subscriber.Chapters* 00:00 - Emergency Podcast: Epic’s Lawsuit Overview* 03:04 - Antitrust Allegations Against Epic: A Deep Dive* 05:58 - Market Definitions and Legal Strategies* 09:00 - The Role of Public Opinion and Political Context* 11:55 - Implications of Venue Choice in Texas* 15:08 - Technical Arguments and Judicial Efficiency* 25:23 - The Challenges of EHR Competition* 26:20 - The Complexity of Electronic Health Records* 27:41 - Market Dynamics and Competition in Healthcare* 30:14 Antitrust Issues in Systems of Record* 32:42 - Information Blocking as a Competitive Tool* 35:49 - The Role of Non-Competes in Healthcare* 39:31 - Political Motivations and Industry Dynamics* 43:49 - Legal Precedents and Future ImplicationsTranscriptWe ran the transcript through Gemini to smooth it out. So it’s a rough approximation of the conversation (and in many cases significantly clearer than our rambling), but notably diverges from the word-by-word blows in some places.Brendan Keeler (00:01) All right, Pryce, we’re here. We’ve never done this before. This is sort of an emergency—I won’t call it a podcast since we don’t have one yet—but with the stunning news that came out today or yesterday about the lawsuit against Epic by the state of Texas, led by your home state, I felt we needed something visual. It’s dropping right as we’re waiting for HTI-5, which is still pending.Pryce Ancona (00:33) I’ve been Googling the ASTP every 10 minutes hoping there will be something new, but it’s all just articles written by you about HTI-5.Brendan Keeler (00:44) It’s like that meme where the guy is poking it with a stick saying, “Come on, do something.” Dr. Keane promised it this week. But instead, we get this lawsuit. You’re boots on the ground in Texas—what’s the take?Pryce Ancona (00:47) Well, I can confidently tell you that nobody in Texas knows. Nobody cares except the Health Tech Nerds, you, and I. I feel particularly divided between my former employer and my current home state. Though, living in a state doesn’t mean you have to agree with everything your state government or attorney general does.I’m excited to dive in through the lens of politics, litigation, and technology. Each provides a different answer regarding why this is happening and what it will affect. But overall, it’s just regular Christmas time here in San Antonio.Brendan Keeler (01:49) What jumped out at you? What was the first thing where you thought? I have many takes but I’m curious, from your educated perspective, what was most exciting or curious? I don’t know if you’ve read the whole thing front to back like I did to my daughter last night.Pryce Ancona (02:00) I thought my one-year-old might enjoy it, but we stuck to the Christmas books instead.For me, anytime Epic is blamed in a big antitrust or monopoly manner, I always feel that, yes, they are the biggest electronic health record, and they’re easy to gang up on. Just like when the Patriots or the Chiefs are winning everything, it’s easy for the whole NFL to hate them regardless of whether they’re cheating.At the end of the day, Epic is a software system. If their revenue is $6 billion a year, they’re in the Fortune 500, but not the Fortune 100. It doesn’t feel like the right place to attack if you’re trying to solve the problem of healthcare costs. It is probably the right place to attack if you’re trying to set precedents in healthcare information exchange.But I think this has a more pointed plan than just information blocking or monopolies. It’s about specific topics and political movements. That gets me angry because I feel like, “Don’t pick on the nerds in Wisconsin.” Honestly, 9,990 of the 10,000 are just trying to do their best. Some might be more cunning, but generally, they are good people.Brendan Keeler (03:46) It’s interesting because you’re gravitating towards these emotional topics. The things we intuit when we think about antitrust and monopoly are often: “How does it feel as a person interacting with that company?” But the reality is, market dominance isn’t about that. Market distortion is about that. Antitrust, as a tool, is meant to stop market distortions in the face of market dominance.Taking a step back for those who haven’t seen the news: Ken Paxton and the state of Texas have accused Epic of antitrust violations. This is a more direct form of antitrust regarding the markets they define than the two private antitrust cases we’ve seen, like Particle v. Epic. Those were interesting because the markets they claimed—payer platforms and managed care software—were adjacencies involving “leveraging” market dominance in one area to shake ground in another.Here, we have cleaner market definitions. They define:* EHR database software for acute health systems.* EHR database software for academic medical systems.* EHR applications.They claim Epic has a monopoly in the first two, and through tying and bundling, is monopolizing the third. At face value, that is a stronger, more straightforward path than the other cases regarding market definition. Market definition is the most critical first step for every antitrust case.Pryce Ancona (05:38) Right.Brendan Keeler (05:57) It is the barrier each case faces in the motion to dismiss. You can have a monopoly in a market—80% or 90% dominance—which is called a “natural monopoly.” That’s okay, so long as you’re not acting anti-competitively. Likewise, you can act anti-competitively, but if you don’t have market dominance, it’s not antitrust. If you have 10% market share, you can do all the things alleged in this complaint—like preclude access to APIs or charge exorbitant fees—but without market dominance, you cannot distort the market.Pryce Ancona (06:29) And if they’re not breaking other laws, like being certified health IT or information blocking, then it stands.Given the laid-out markets, what’s your take? Do you feel like those three markets are distinct? You mentioned that in your article. Unless you’re talking about a “headless EHR,” which is a tiny fraction of healthcare software, I don’t really understand this take on a “database system” versus an “application suite.”Brendan Keeler (07:15) You’re right to hone in on that. There are a number of challenges Epic will likely rebut.The first is commercial reality. As you define markets, they need to be tied to commercial realities. It’s glaring to people who have worked at Epic or in the industry that the buyer is the health system. They aren’t buying an “EHR database” separately. Very rarely do you see an EHR where you swap in PostgreSQL versus the next thing. As we shift toward the cloud and SaaS platforms, it’s yoked together. In the Athena world, for example, you don’t choose which database is under the hood. So, that nomenclature is off-putting and could affect the case—maybe it’s fatal, or maybe it just forces them to amend their complaint.The second thing regarding market definition is the categorization: EHR databases for academics, EHR databases for acute, and the apps. You’d traditionally expect one core monopolized market and then the tied market. Reading the tea leaves, you sense weaknesses in the two core markets. In the acute market, do they have dominant market share? Usually, you need 70% or 80%. Epic might have 50% or 55%.Pryce Ancona (09:38) Yeah, not even that.Brendan Keeler (09:42) On the academic side, is that a distinct market? Do academic medical centers purchase a different set of software that isn’t interchangeable with the acute market? This winnowing down is often referred to as “gerrymandering” the market—which is funny in the context of Texas.It ties back to the United States v. Oracle case in the 2000s. The DOJ said high-functioning enterprise HR software was monopolized by Oracle purchasing PeopleSoft. They lost because the judge said, “Actually, you’ve gerrymandered the market.” Precedents are there regarding systems of record.Pryce Ancona (10:38) Earlier you mentioned my emotional reaction has no legal bearing, which is true. But from this market definition perspective, I’m thinking there is a legal tactic here. If we gerrymander the markets appropriately—exclude the mom-and-pop clinics and just talk about Epic dominating the “whales,” the academics, and the pediatric hospitals—that’s an interesting tactic.From an emotional perspective, the way they talk about the “EHR database” will probably resonate with the public. It sounds like Epic holds and hoards your medical records like Smaug sits on gold in the Lonely Mountain. That’s ironic because Epic doesn’t own any of this data. Most customers are self-hosted; they aren’t even hosted in Verona. The hospitals manage the database.Even if I don’t think the definition that “Epic hoards all these charts” is true, the political implication is impactful. People are thinking, “What is this little company in Wisconsin? Why did my nephew have to move to Verona right out of college instead of staying in Texas?” I’m looking at what will hold up in court versus what is advantageous in the court of public opinion.Brendan Keeler (12:44) The court of public opinion matters. It could be a jury trial. It could go to a bench trial, which often happens in antitrust due to complexity, but you certainly want public opinion on your side. It also emboldens others to file private cases or negotiate harder with Epic.Let’s go straight into optics. Ken Paxton is an optically forward, contentious figure given his staunch conservative support of Trump during topics like the 2020 election, abortion, and trans rights.Pryce Ancona (13:48) We’re seeing a clear line from this case to trans rights, minors having access to their data, and parents having agency over everything their kid does. I started sending my kids to school this year thinking they were going to have the 10 Commandments hanging in every classroom because that was happening in Texas. There is a clear line being drawn between points in this case and the political atmosphere writ large.Brendan Keeler (14:23) They lumped it in here. It’s a pretty good antitrust case that is fascinating to follow, and then they said, “What if we throw in parental rights?”They take this angle that the “Do No Harm” lobbyist group has been pushing: that Epic and Oracle promulgate settings to hospital customers so parents can’t access their kids’ data at age 13 or 16. Maybe they’re right or wrong. But in my experience, these hospitals have lawyers and implementation staff; they aren’t going to violate state law. Setting those things up correctly is of paramount importance. The failure to do so is on the hospital in my mind.But trans rights and the HIPAA intersection have been in the news. Ken Paxton is taking advantage of that to give this the “glow” of antitrust—making it not just a culture war, but advancing a conservative agenda. This cannot be seen without the backdrop of him running for Senate. He has crusaded against Epic and tech giants pushing “liberal values.” I wouldn’t be surprised to see that dialogue pop up as he moves forward with his run.Pryce Ancona (15:49) You always talk about software bundling, and now we see “argument bundling”—sneaking certain thoughts in with others that more people will get on board with. Obviously, that’s just politics.Brendan Keeler (16:16) I’m like, “Keep my antitrust away from my culture wars.” I don’t think there is much synergy there aside from the optics.The other interesting strategic angle is the choice of venue. Did you notice it’s in Texas court and not federal court?Pryce Ancona (16:49) I don’t know how advantageous that is legally, but home-field advantage is a serious thing. When I think of Epic lawyers, I think of people who know everything about healthcare policy. But Texas state law is an abstraction away from just hometown advantage. Having it in Texas is definitely strategic. I know you can’t work for Epic and live in Texas unless you have a special position.Tell me more about why that venue is important. Judges are meant to be impartial, but they’re human. Does interpretation of law play into this?Brendan Keeler (18:25) Totally. Federal judges are appointed. You see partisan swings with Obama, Trump, and Biden appointees, but by and large, you get bipartisanship or multiple viewpoints. In states, judges are elected. Even if they are supposed to be impartial, who they are and who elects them plays into things. The jury pool is another aspect.But the bigger piece is they chose to stay out of federal court. They could have used the Sherman Act—the federal antitrust law. Instead, they used the Texas Free Enterprise and Antitrust Act. My understanding is that it gives them procedural advantages, specifically regarding the Twombly pleading standards.The motion to dismiss is the first gauntlet. In federal court, market definition faces a high bar. While state laws are supposed to harmonize with federal law, there is more discretion at the state level. I think they believe they can get through the weaknesses in their market definition via state court. This allows them to get to discovery, where they can potentially find new things and amend the complaint.Pryce Ancona (21:05) Okay, so market definition needs to survive to move to discovery.Let me ask about the proxy access to health charts. I felt like Houston Methodist and Texas Health Resources have agency to change nearly every setting in their Epic instance, including proxy access. Patients and caregivers commonly have access to MyChart for someone else.This feels like suing Toyota because I drove 90 miles an hour. Toyota made the car, but I’m the one configuring it and using it. Can the initial argument say, “This has no merit because we don’t even play a part in making that decision?” Or does that happen during discovery?Brendan Keeler (22:13) That’s a good question. The order of operations is: pretrial motions (motion to dismiss), then a formal answer to the complaint, then discovery.Typically, you see market definition as the angle of attack for dismissal in antitrust because the bar is high. For the other claim, which isn’t antitrust, any claim has to be plausible. In the pursuit of judicial efficiency, judges can dismiss claims that aren’t plausible to avoid wasting time on expensive trials.Expect Epic to push back and say, “This is not plausible, we shouldn’t waste your time, Judge.” Intuition says the hospitals control the settings, but we have to apply the law.Many people online say, “Epic is the clearest monopoly I’ve ever seen.” But by standard measures, where are they? You can feel it, and anyone who has developed in healthcare has felt blocked from competing fairly. Anyone who has developed against a system of record—in property management or banking—knows they have superpowers in cross-selling and up-selling. So, you see a lot of empathy for the claims.Pryce Ancona (24:26) That amazing Acquired podcast episode talked about Epic for four hours. Their research was well done. Their opinion was that of all the systems of record, the EHR must be one of the hardest to displace. It is ingrained in the lifeblood of the organization: billing, clinical, regulated private information. It’s survival mode.Ken Paxton complains it would take billions and decades to switch. I don’t think that’s hard to dispute. Maybe you argue where those billions are spent—labor, project management—but it is one of the hardest software systems to displace. That’s why we see the federal government pushing regulations like information blocking: if your software is compliant, it must allow for data exchange and organic competition.I want to hear what you think is advantageous to Epic versus Texas regarding market definition.Brendan Keeler (26:49) If they clean up the market definition regarding acute and academic databases, they might get to something plausible enough for discovery. The leveraged market (the apps) is downstream of that; it falls apart if the core market isn’t monopolized.Some stats they list are weak. Saying “90% of patients have an Epic record” doesn’t mean market share, because patients have records across multiple systems. It’s a “vibes-based” metric.You mentioned that healthcare is unique regarding displacement. I think this is true in every industry. Core banking systems haven’t changed since the 1950s. Tyler Technologies dominates government systems. Systems of record have an exponential competitive moat of switching costs that rises with data density.This leads to the paradox of antitrust for systems of record: they almost always fail the SSNIP test (Small but Significant Non-transitory Increase in Price). If Epic raised prices, would someone switch? No. The cost of migration is huge. By that test, every system of record is a monopolist. But when you look at market share, they are often at 30% to 50%, not the 80% or 90% ubiquity you see in network-based businesses like railroads or telecom.Historic antitrust laws are ill-equipped to deal with systems of record, which is why the DOJ failed against Oracle and Microsoft. We need different tools.Enter: Information Blocking. It is really interesting as a pro-competitive law. It allows for the outcomes we want to achieve—interoperability and fair access for apps—without the high bar of antitrust. It achieves a similar policy goal regarding the ecosystem, but it doesn’t “push Epic down” or break them up. If people are looking for that outcome, antitrust is the tool they want.Pryce Ancona (31:45) Who do you think is pushing for that outcome most?Brendan Keeler (32:00) The outcomes should be driven by thinking about what is pro-competitive. The thesis is: give providers choice of applications, and healthcare will be better.Information blocking cements the angle that innovators should have fair access. We see this playing out in cases like Real Time Medical Systems vs. PointClickCare and Intus Care vs. RTZ.If you’re looking for tinfoil hat theories, people point out Oracle is in Austin and speculate about Larry Ellison. I don’t buy that. I buy this case coming back to Paxton running for Senate.Pryce Ancona (33:32) I wonder how this ended up in his crosshairs. It’s interesting how one thing gets plucked from the bunch.Brendan Keeler (33:47) People wonder who is pulling the strings. Investigative journalists can look, but often it’s not one “Wormtongue” whispering in an ear. It’s the aggregate frustration of an industry. The frustrations regarding costs and outcomes are lumped at the feet of insurers and tech companies. It really is aggregate vibes feeding into the discourse.Pryce Ancona (34:27) If Ken Paxton doesn’t like Epic, he’s not unique for that.One more thing: Texas and California have strong political identities. In the past, Texas has favored non-competes (or at least generally enforced them). Now they’re arguing that Epic’s non-competes are detrimental to the industry. What are your thoughts there?Brendan Keeler (35:35) It’s interesting. Under Lina Khan and Biden, the FTC advanced a rule banning non-competes. That was struck down in a challenge led by Texas, arguing the FTC didn’t have the authority.Now you see this claim against Epic about non-competes, and you think, “Okay, Ken Paxton, you’re on board now?” But the motivations are different. Democrats are historically pro-labor; they dislike non-competes because they restrict workers. Texas is arguing this from a pro-business, competition standpoint: they claim Epic is suffocating potential businesses because labor can’t move.I think if you are pro-capitalist, you should favor fluid innovation and liquidity of talent. This selective application doesn’t resonate with me. But overall, no one is going to defend Epic’s non-competes.Pryce Ancona (38:28) Was the initial Texas case against the FTC ban in federal court?Brendan Keeler (38:57) Texas isn’t anti-non-compete entirely. They go after health system non-competes when they distort the local market. But the challenge to the FTC ban was based on the idea that the FTC lacks congressional authority to issue a blanket ban. That is different than targeting a specific monopoly’s use of them.Pryce Ancona (39:00) Man, there’s a lot to digest here. I’m glad you got your new court case after getting a whiff that one of your other favorite court cases might be settling.Brendan Keeler (39:23) I’m so bummed. It looks like Real Time Medical Systems and PointClickCare will settle. That is good for the companies, but from a precedent-setting perspective, it would have been exciting to see courts decide the intricacies of information blocking.Pryce Ancona (39:35) What does that rob you of? I thought we saw in that case that the exchange of health information—even via robotic process automation (RPA)—shouldn’t be legally discouraged. What else would have shaken out?Brendan Keeler (40:09) That case was in the preliminary injunction stage. The district judge decided for Real Time Medical in a precedent-setting way regarding the interpretation of information blocking and how federal statute interacts with state tort law. That was appealed and upheld.But to set hard precedent, you need to go through the actual trial. A bench trial allows for a “facts-intensive” review of security, performance, and data. The preliminary injunction is a “speed run” to decide if claims are plausible and if there is immediate harm. If they settle, we’ll never find out the deeper result. We’ll have to wait for Intus Care vs. RTZ.Pryce Ancona (41:31) Well, if what we’re hearing from HHS is true, we’re not done thinking about info blocking.Brendan Keeler (42:08) If you know any good lawyers, the OIG is hiring up to five lawyers for information blocking. They are revving their engines.Pryce, I hope you had fun with this. Let’s see if the internet loves it.Pryce Ancona (42:20) I loved it. Thanks for chatting. Get full access to Health API Guy at healthapiguy.substack.com/subscribe