Jonathan Bush, 46, has never been one to closely follow tradition. He took two years off from his studies at Wesleyan University to work on the 1988 presidential campaign of his uncle, George H. W. Bush, and to train as a combat medic. While in college, he spent two summer vacations working as an emergency medical technician and ambulance driver in New Orleans, where he first got a sense that the U.S. health care system was bloated with inefficiencies.
After getting a bachelor’s degree from Wesleyan’s College of Social Studies, Bush went to Harvard Business School. With his MBA in hand, he signed on as an associate at J. Bush & Co., a firm founded by his father, Jonathan, that provided banking services to foreign embassies, and later did a stint as a managed-care consultant at Booz Allen Hamilton. Driven by a desire to “do well by doing good,” in 1997 he and Todd Park, a colleague from Booz Allen who would later serve as White House chief technology officer under President Barack Obama, opened a birthing center in San Diego. They planned to develop a network of maternity clinics around the country, but their company, Athena Women’s Health, struggled financially because of unreliable and inefficient payments from insurers. There was no organized system for managing the practice’s billings, so with the help of Park’s brother, a software developer, the company created one.
The first product, an electronic medical billing service called athenaCollector. debuted in 2000 and was quickly followed by multiple other services to help health care providers with everything from data management to secure communication with patients.
Bush views athenahealth as a disrupter. He says the company’s mission is to “create the health care Internet.” Products include athenaNet, an online community and application network for doctors; a patient engagement portal called athenaCommunicator; a clinical decision support point-of-care app called Epocrates, which the company acquired in 2013; and athenaOne, a suite of cloud-based services that combines electronic health records, practice management and care coordination, which the company began offering in 2010.
Bush moved the company to Watertown, Massachusetts, and in 2007 took it public at $18 a share. The stock tracked steadily upward, reaching a peak of $204 per share in March 2014, prompting activist hedge fund investor David Einhorn of Greenlight Capital to target it as a prime example of what he considers a health care technology market bubble. The stock has since retreated, to $159 as of October 23 (a level that values Bush’s stake at $151 million), but it still boasted a market cap of 7.3 times sales, compared to an industry average among health care information technology companies of 4.7, according to Morningstar. The stock jumped more than 27 percent on the 23rd after the company reported that revenues rose almost 24 percent year over year for the third quarter, beating estimates. Earnings expectations for this year had been conservative, but Garen Sarafian of Citi Investment Research chalks that up to athenahealth’s decision to tackle more projects in recent months. “The bears may say additional investments are an excuse, but the products athenahealth is selling now score very well,” Sarafian says. The company should be valued as a software as a service, or SaaS, provider rather than a business process outsourcer, he adds. According to Sarafian, athenahealth’s projected 2016 multiple comes in well below that of SaaS peers such as Salesforce and Tableau Software.
Bush brushes off bubble claims but says athenahealth and the broader health care industry are facing significant hurdles. The Affordable Care Act is a clunky and inefficient piece of legislation that is a drag on innovation, he contends. Then again, you’d hardly expect George W. Bush’s cousin — who also has raised funds for Jeb Bush’s presidential campaign — to praise the signature and controversial accomplishment of President Obama.
Bush discussed the outlook for his company, Obamacare and the broader health care industry with Institutional Investor Associate Editor Kaitlin Ugolik.
Institutional Investor: What do you see as athenahealth’s role in the U.S. health care system?
Just like Amazon has created a chunk of the Internet that’s safe enough, reliable enough and connected enough to the offline world that mainstream consumers feel comfortable using it, we’re doing the exact same thing. Most of health care is offline. It’s people behind sliding glass windows with charts and machines that still generate analog data. We’re connecting all of that and then saying, Look, give us a small percentage, like a merchant processor fee, of each encounter, and we’ll do all that work. We’ll research the reasons why this insurance company adjudicates claims this way versus that way. We’ll research all the different ways that all the different laboratories define a complete blood count and combine it into one consistent, reliable definition for you and then serve up a membership on this network for a very low fraction of what it would ever cost you to create that infrastructure yourself.
There are now 69 million patients on athenahealth, which we keep in three different data centers, so we have a lot of business continuity that hospitals and health systems could never afford to have.
Where do you see the most growth happening in the next few years?
The big new area of growth for us is that we’ve started to be able to serve pretty much everything that goes on in a hospital. Until recently, we were only able to serve the ambulatory medicine side of the health system. Once a patient became an in-patient, the rules for managing their medical records and billing changed dramatically, and we just didn’t have the technology or the knowledge or the operational infrastructure to help. Now we do, with athenaOne. It allows a patient to move through the whole continuum of care — doctors, specialists, operating room, nursing home — and still be on athenaNet, still have those services be applied. That creates an enormous amount of unplowed soil. We already serve over 600 hospitals, none of which use us on their in-patient network.
What is the most disruptive thing you’re doing for the health care industry?
We are thrilled with the pace of innovation that we’re able to pull off with our services, but I’m still appalled at how slowly we’re going. So what we’ve tried to do is figure out ways of going to market and re-architecting athenaNet, which is our national application network, so that other entrepreneurs and other inventors can use it too, whether it’s a hospital system that has built an app that is useful in its own clinical practice or an entrepreneur that has built a whole service. We’ve opened up our application programming interfaces to the outside world.
Now there are 135 companies out there connecting to athenaNet and adding new services that we never thought of into the practice for the hospital or to the home of the patient in some cases.
What do you think of arguments from people like David Einhorn who have said athenahealth’s stock is overvalued?
Well, everything that’s working is overvalued compared to what it should be valued if we had real innovation going on in our economy. You have a very small number of big companies that are mostly preservers, sort of holding on to the assets that they’ve built over the years. They represent the vast majority of the market cap of the stock market. Then you have a very small number of companies that are actually organically growing and doing a new thing. So those are over-sought because there are just not enough of them.
By comparison to how many athenas there should be in America, we’re overvalued. But there aren’t, so there’s only a few of us, and we’re valued fairly. We are less than five times revenue, less than Salesforce, and our strategic advantage is greater than Salesforce by a long margin. So it all depends on how you look at it.
You have expressed concern that government regulations hamper innovation. How has the Affordable Care Act affected athenahealth’s business and the health care industry more broadly?
The Affordable Care Act really acted like a sugar high. Suddenly every doctor in America was chased at the end of a stick to go buy electronic medical records. Some of them ran to us, panicking, with white eyes and swollen veins asking, “What’s an EMR?”
In general, I wish it hadn’t happened because I think we were building a new Internet for health care that would have attracted them on their own terms and would have flushed the enterprise software companies that a lot of doctors ended up in the arms of out of the market. But instead, they ended up in these horribly, sort of rushed shotgun marriages. You can picture Obama behind the chapel door there saying, “You’re getting an EMR.” That created a sort of step backwards, I think, in terms of the automation of health information around the country.
In terms of the product that is known as health care today — the mainstream, third-party, reimbursed, all-you-can-eat buffet of intervention procedures — the ACA made those instantly available and, I suppose, more affordable by subsidizing them to everyone. The problem is, with that push, with that lockdown of what the product is, the definition of what health care is, it made it a lot harder to make it truly affordable. It’s going to be hard to get the cost of health care down as a result of the ACA, even though it’s available to more people.
So you think health care should be defined more narrowly?
Yes. You more narrowly define the subset of health care that is under federal jurisdiction. Health care is a million things to a million people. A Republican administration could pull that off easily and call it blowing up Obamacare but leave all the infrastructure in place.
I don’t think the ACA should be burned to the ground. I think there are things that can be done to dampen the most deleterious effects. You could add new legislation that doesn’t fight with the old legislation. For example, 80 percent of seniors would love to turn down care for themselves if they could turn it into an inheritance for their grandchildren. Let people decide.
You wrote a book about how to fix health care in the U.S. called Where Does It Hurt? Can you talk about your prescription?
Instead of bitching and moaning about how the game is wrong, there is opportunity to be a market person and be in health care and profit by doing great social good. There’s actually a lot of it. It’s hard to see from a distance, and the intent of the book was to sort of wake people up to this, both consumers and entrepreneurs and regulators. To say, “You don’t have to make this so miserable, but at least don’t make it worse.”
What do you see as the next major hurdle for the industry?
I think the big hurdle is to allow these disrupters to prosper. You have a lot of new and exciting telemedicine companies that will offer you a medical consult without the big building and the office and all of that stuff. But there’s corporate practice of medicine law that sometimes gets in the way. There’s interstate practice of medicine going on in a good telemedicine company — the doctor gets licensed and credentialed in all the different states that he may have a patient pop up on the screen from. That’s really annoying. But there is an opportunity to blow up the notion of a local monopoly hospital as the only way to get care. •
