Among the most troublesome relationships in healthcare AI

The hottest AI startups in healthcare are at a crossroads. Health Records Giant Epic Systems, the closest partner and former shareholder of medical scrivening company Abridge, has become the biggest threat.

In August, Epic said it plans to launch its own AI product to help doctors with administrative tasks. One of these tools automatically transcription and summarise patient visits.

Abridge won a landmark partnership with Epic in 2023. With Epic’s distribution, Abridge has become one of the most talked about startups in healthcare, attracting top hospital customers and raising hundreds of millions of dollars. According to five people with knowledge of the transaction, the transaction also gave Epic a single-digit percentage of Abridge interest. Two of them said Epic sold its shares earlier this year.

Epic’s push to AI highlights the huge tensions that are taking place beyond technology reflected in relationships like Microsoft-Openai, Google and humanity.

Abridge encountered the classic startup dilemma, building a business that relies on a giant’s ecosystem that risks undercutting if the giant deploys competing products. The minefield clings to the epic, so you need to sail through the minefield. This is to maintain the income of major hospitals while trying to solidify their wealth beyond the reach of health record companies.

That reach is not something to smell. Epic will dominate electronic medical record software and sell its technology to about 42% of US hospitals, resulting in around $5.7 billion in revenue. The closest health record competitor, Oracle’s Cerner, has around 23% of the market. So Abridge wasn’t surprised by Epic’s AI announcement, the investor told Business Insider – it seems inevitable that Epic wants its own slice of healthcare AI pie.

However, these investors said they couldn’t expect Epic to grow as quickly as Abridge would do that.

The epic partnership that made Abridge’s technology easier for its spectacular customers to use was Abridge’s Golden Ticket. In the two years since that transaction, the startup raised over $700 million from top investors such as Andreessen Horowitz and Khosla Ventures, reaching a $5.3 billion valuation and signed more than 150 customers, including major epic buyers such as Kaiser Permanente, Mayo Clinic and Johns Hopkins Medicine.

Adjusting to Abridge’s current $5.3 billion valuation, Epic’s single-digit shares in Abridge are worth hundreds of millions of dollars. Epic and Abridge declined to comment on their relationship for this story.

Abridge Insiders agreed that the future of that collaboration could become troubling with Epic’s AI strategy exposed. According to Stat News, Abridge claimed that its software would remain integrated with Epic in a call with hospital customers at the end of August.

“It’s hard to come to a conclusion, are they fighting or are they friends? They’re still talking to each other, but you feel good, wait, what’s going on here?

Abridge also faces many rivals that were caught by ventures, such as Amvience Healthcare, which raised a $243 million Series C round in July. Epic’s plans have turned that competition into their heads.

The epic boasts an unparalleled distribution. Like many incumbents, it sometimes lags behind innovation. Abridge investors hope that the startup technology has moved ahead so far that Epic can’t keep up.

“They have something to do, and they probably have the money to do it unless none of their new investors are mad at them,” said Bryan Roberts, a partner at Venrock who is not an investor at Abridge. “But they won’t be able to milk epic cows for the next five years. When you have the rating you recently ordered, that’s what you should expect.”

Related Stories

How Abridge took off

Abridge has been woven from a collaboration with the University of Pittsburgh Medical Center, Carnegie Mellon University and the University of Pittsburgh in 2018 to burn out clinicians. Two years later, CEO Dr. Shiv Rao launched Abridge’s flagship product, automatically transcription and summarizing doctor-patient conversations, cutting back on the horrifying “Pajama Time.”

Abridge also builds its own large-scale language model, enhancing its suite of software for tasks such as medical coding and real-time pre-approval.

By the time of the deal with the Epic fork, Abridge had raised about $30 million and expanded several hospital pilots to full-fledged contracts. The grand integration proved to be the ultimate stepping stone. This partnership put Abridge in front of more spectacular customers, allowing doctors to use Abridge’s tools within Epic’s workflow, including mobile apps. Other applications may require a doctor to exit the health record software and open a new window or enter the data manually.

Abridge also secured venture funding from some of Epic’s customers. Two months after the Epic agreement was made public, Abridge announced a fresh funding round that includes all Epic customers Kaiser Permanente Ventures, Mayo Clinic and UCI Health. By August 2024, Kaiser Permanente said it would abandon its previous surrounding writing contracts with AI startup Nabla and deploy Abridge’s technology, covering around 25,000 clinicians in eight states, across the health system.

Along the way, Abridge’s C-Suite carefully nurtured its relationship with Epic’s AI head. This is totally hilarious on all accounts. Investors say the startup has spent countless hours on Epic’s campus in Verona, Wisconsin, developing new features and tips on trading techniques. At Epic’s annual meeting in August when Epic unveiled upcoming AI capabilities, Epic executives introduced the Abridge team to potential new customers, Abridge Investor said.

The startup didn’t want to compete with the epic.

“I think there will be some startups and they’ll be new EHRs. We weren’t interested in going that path,” Abridge CTO Zachary Lipton said in a podcast interview in July. “We need to partner very closely with other high-tech providers that make up the backbone of our healthcare system.”

Epic’s competitive playbook

Epic has a storied history of welcoming new technology to connect to software and moving to compete with them a few years later.

In 2020, we removed our own telehealth features with Twilio to compete with companies like Amwell and Teladoc, which integrated video visit tools with Epic. The previous year, Epic rolled out built-in messaging capabilities that overlap with integrated third-party tools like TigerConnect. Epic wasn’t afraid to ingest larger fish. In 2022, we announced our customer-related management tool directly proposed for Salesforce’s already connected health cloud.

Related Stories

With AI, Epic is running similar play. A week after announcing the Apridge partnership in 2023, Epic has deepened its relationship with Microsoft. That Nuance business dominates AI transcription in hospitals. Currently, Epic is working with Microsoft to build competing ambient documentation technology that is scheduled for a limited release in early 2026.

Epic has telegraphed its AI ambitions for years with its investment in machine learning dating back to the 2010s. Some of these bets come with missteps. The company released an algorithm in 2017 to improve sepsis detection in hospitals. Four years later, a study in Jamah Medical Science found that the algorithm missed two-thirds of sepsis and issued false reports frequently.

The epic spokesman noted that several other studies have been demonstrated over the years since, including a significant reduction in septic mortality in Epic’s septic model in the clinical setting. “We have continuously improved all our products and as part of that, we recently released a second version of our sepsis model that works even better,” the spokesman said.

Many of the timelines for Epic’s new AI releases are unclear, and various features are expected until 2027. But even if it took Epic years to release these AI products, Startups is likely to face a fallout from the announcement, said Carl Byers, a partner at F-Prime Capital and former CFO of Epic Rival Athenahealth.

“IBM also had a habit of freezing their competitors by issuing a press release saying, “We’re going to build this feature next year,” Buyers said.

Like IBM, Epic may feel like a safe choice, especially for hospitals that have been contracting with Epic for many years, if not decades, byers said. Also, if your company chooses to bundle new AI features with existing essentials, it could be a cheap choice for your epic customers.

Byers said:

Abridge Balance Act

Abridge must take on delicate dance. It will lock up existing epic customers beyond existing epic customers, push deeper into new product areas such as revenue cycle management, and expand integration with rival EHRs such as Oracle’s Cerner, Athenahealth and Meditech.

The small healthcare AI startup, currently dressed in the shadow of Epic, is forced to consolidate and opens up an opportunity for Abridge to make an acquisition. Rao told Business Insider in August that the startup was considering Buys to accelerate its growth even further.

Meanwhile, epics face new antitrust laws. The company is fighting two lawsuits from Particle Health and Cureis. This overlaps with claims that Epic tried to suffocate competition in the market.

Against this backdrop, Abridge investors argue that startups intend to continue working closely with Epic.

“I don’t know how this whole market will unfold, so why aren’t you a good partner for someone good for you? One Abridge investor said, “Anyway, at least in some way, you’re going to work together forever anyway.”

Other VCs that have no financial ties with Abridge are not on sale in that story.

“I’m sure they’re saying positive things about each other. They both have good reasons. They don’t want to scare investors or customers, and they’re grand because they need to look not to let other companies go crowded,” Roberts said. “But epics want all health systems that use AI to use AI scribes using epics. That must be true.”