Epic Systems faces its first antitrust lawsuit over alleged monopolistic activities

AND• Founder and CEO Judy Faulkner announced four new customers at Epic System’s annual meeting in August. Instead of typical hospitals using Epic’s software to electronic health records for 280 million U.S. patients, these customers were health insurers Healthfirst, Highmark, Independence and Molina.

Epic’s entry into the health insurance market is currently at the center of an antitrust lawsuit filed this week in federal court in the Southern District of New York. The complaint says Particle Health, a $39 million venture-backed startup that helps retrieve and analyze medical records, claims that Epic is a “monopoly” in the electronic health records market. It claims that Epic is using “its position of dominance to penetrate the core of the US health care system and destroy competition.”

While those in the healthcare industry love to complain about Epic’s dominance, this is the first public and reported antitrust lawsuit. Rob Klootwyk, Epic’s chief interoperability officer, in a statement dismissed the lawsuit as “baseless” and said the company “will vigorously defend itself against Particle’s baseless claims.”

Epic, which generated $4.9 billion in revenue in 2023, is the dominant player in the hospital EHR market, with its software used by 51.5% of 890 hospitals, according to healthcare IT consulting firm KLAS. 000 hospital beds in the US; it was the only EHR vendor to “achieve net market share gains” in 2023. The next closest competitor, Oracle, through its acquisition of Cerner, has 23.8% of hospital beds and Meditech has 13.4%.

Thanks to federal regulations requiring hospitals to use electronic records, the market for administering records has become saturated over the past decade. For years, the only way to acquire new customers was to extort them from the competition. However, new federal regulations that go into effect in 2026 require insurers to share data with patients, healthcare providers and other insurers. And this will significantly open the market to new business. Particle argues that Epic will use its broad market power as a gatekeeper of patient data to unfairly dominate this emerging market.

“Searching for new sources of revenue is not wrong or even inappropriate,” said Barak Richman, a business law professor at George Washington University Forbes. “The question is how to do it. This lawsuit alleges that Epic is using its monopoly position in the EHR market to provide itself with an unfair advantage or to exclude competition in this new market.

Particle alleges violation of Art. 2 of the antitrust doctrine known as the Sherman Act. Richman said it was similar to a lawsuit the Justice Department filed against Microsoft in the 1990s, alleging it was using its operating system monopoly position to suppress the nascent web browser market.

“There are no smoking guns. This is always a case that requires a lot of data and analysis.”

Tthere are no hard and fast rules determining what percentage of market control a monopoly constitutes. These types of cases are “hard to win,” Richman said. It is not enough to prove that Epic harms Particle, he said. The startup must prove that Epic uses monopoly power to harm the customer’s interests in the market by stifling competition, raising prices and limiting innovation. Richman said this is much more difficult than, say, a price-fixing case, in which two parties send emails agreeing on a price. “There are no smoking guns in Section 2 cases,” he said. “It’s always a data- and analysis-intensive case.”

Given that people can now instantly transfer money from one bank account to another via an app, it’s hard to understand why doctors and insurers have to fax documentation and patients are forced to receive MRI scans on CD-ROMs. To understand the context of the Particle case, we need to go back to the later years when the federal government was trying to persuade physicians to use electronic records in favor of paper versions. Regulators didn’t want to impose too stringent regulations, said David Blumenthal, then the federal National Coordinator for Health Information Technology. “You have smart buyers and sophisticated suppliers, and there was no reason to expect the market to fail,” Blumenthal said Forbes.

But at the beginning there was one fundamental mistake. Hospitals and physicians wanted to be able to share data within their own hospital system, but there was no requirement to share it with external systems, and no hospital wants their patients to go elsewhere. “I think very few people anticipated the economic and political disincentives to sharing,” Blumenthal said. Now, more than a decade later, the federal government is trying to retroactively impose data-sharing requirements, which gets to the heart of Particle’s issue: who controls the flow of medical record data.

Particle claims that Epic, with 280 million patient records of its hospital customers, controls more than 80% of the data exchange market. That’s because, according to the complaint, companies like Particle, which act as data exchange intermediaries, must ask Epic, not the hospital, to “turn on the faucet” of the data.

Each time Particle customers want to “turn on” the tap at a specific hospital or doctor’s office, they must provide confirmation that the purpose of the data exchange is to treat the patient. Particle began working with health insurance clients who are both providers and payers so that it could receive patient data in accordance with the principles of “treatment.” However, the company’s business model was to pivot and use it for the insurance part of its business, which is known as “secondary use.”

This is where Particle’s initial spat with Epic began: Epic determined that three Particle customers had misrepresented a “treatment” certificate. Instead of cutting off just these three customers, the complaint alleges that Epic launched a “multi-pronged campaign to destroy Particle and actively eliminate competition” by slowly transmitting tens of thousands of data requests from Particle customers through a network called Quality of Care. As a result, Particle has seen its revenue decline so rapidly that Epic’s alleged monopoly on the data feed threatens Particle’s “very existence,” according to the complaint.

Epic claims that Particle’s version of events “misrepresents” what actually happened. “Particle’s unlawful activities on the Carequality health information exchange network violated HIPAA privacy regulations,” Epic’s Klootwyk statement said. “Epic software is open and interoperable, enabling healthcare organizations to easily share data in compliance with HIPAA and all applicable regulations.”

Antitrust proceedings are complex and expensive. Particle CEO Jason Prestinario declined to reveal how the lawsuit was financed, although company attorney Adam Wolfson of Quinn Emanuel is no stranger to fighting giants. He currently represents medical device startup AliveCor in its ongoing dispute with Apple. “We felt we had to take a stand,” Prestinario said Forbes“in ensuring the existence of competition and the possibility of sharing information.”

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