'We're onto something Big'

'We're onto something Big'

COMPANIES by Janet Leiser | Senior Editor

EpicTide is at the forefront of a national push to protect patient medical records from thieves. Health care fraud cost an estimated $80 billion to $120 billion annually.

"Medical Identity Theft: The information crime that can kill you."

That was the title of a report issued by the World Privacy Forum, a nonprofit group that estimates as many as 500,000 people have been the victims of medical identity theft, and with organized crime becoming more involved in the fraud, the number of victims is expected to double or triple over the next year or two.

Enter Kurt J. Long's newest venture, EpicTide Inc., a St. Petersburg company that he says is the market leader in the protection of hospital medical records through its FairWarning software.

Long, 44, started the St. Petersburg company in 2005, the same year he sold his previous startup, OpenNetwork, to BMC Software Inc. for $18 million.

"The next big thing I felt was going to be the set of security challenges related to authorized users doing things they shouldn't," says Long. "There's organized crime everywhere that has moved into computer security because it's lucrative."

FBI Director Louis Freeh says some cocaine smugglers in South Florida and southern California have turned to medical identity fraud because it pays so well and carries less of a criminal penalty.

"Drug dealers who are committing health care fraud know that they likely will face minor punishments because law enforcement is not yet equipped with the laws needed to effectively tackle this problem," the report quotes Freeh.

Medical identity theft can obviously harm patients, when their bogus records include the wrong blood type or diagnosis.

One Florida woman received a bill for the amputation of her right foot, which wasn't injured. When she was admitted to the hospital a year later, she was treated for diabetes, which she didn't have.

In addition, health care fraud is costly. It accounts for about 3% to 5% of all health care costs, or $80 billion to $120 billion annually, according to the 56-page report.

Harvard professor Malcolm Sparrow, who has studied identity theft, estimates that health care fraud costs run as high as $500 billion annually, states the report.

Whatever the actual costs, it's a growing problem as more hospitals go to digitized records and a national database for medical records is contemplated.

It's a problem that presents a big opportunity for EpicTide, which expects to hit $1 million in sales this year and to be a global leader in medical identity theft within three to five years.

"We know we're on to something big," Long says in a recent interview at EpicTide's small St. Petersburg headquarters at the Koger Center.

But even Long is somewhat surprised by the coverage EpicTide has received in national trade publications, including Healthcare IT, Oncology Times and Radiology Today.

"I didn't expect to be truly at the forefront of national conversations," Long says. "To see the company on the cover of so many prominent periodicals, I didn't expect that."

In medical identity theft, a person's medical insurance information, along with basic data such as date of birth, address and telephone number, are taken from records at a hospital or clinic.

The thief, usually an insider and maybe even a nurse or physician, might sell the information to others, including organized crime groups, which file fraudulent claims with Medicare or insurance companies. Some doctors have filed fraudulent claims on their own behalf.

It's difficult for an employer with 5,000 or 50,000 employees to monitor each person's activity on the computer without specialized software. And since a hospital is a collaborative setting where many different people, from the emergency room doctor to the radiology department, review a patient's record, it's even more difficult.

"Whenever you get that many employees, even when the percentage is very small, only one out of a thousand, they can do great damage," Long says.

Long tells of an organized crime group in South Florida that bought more than 1,100 patient records that belonged to the Cleveland Clinic, filed $7 million in fraudulent Medicare claims and received $2.5 million before members were caught.

"That could have happened to any player, Cigna, Aetna, anybody," Long says.

"This conversation is core to health care's future," Long says. "If we can't get security cleaned up, the criticisms around electronic health records have some validity. They jeopardize patient safety. That's why people are buying our software and why we're being included in the national conversations."

Different from the start

EpicTide is a much different technology company than its predecessors, says Long, who worked at Kennedy Space Center and IBM prior to starting his first business.

"The traditional technology model is to pour in $5 million early," he says. "At another stage, you pour in another $10 million, maybe another $15 million, and you're burning money the whole way."

Long initially invested $450,000 in EpicTide. Lee Arnold, a successful real estate broker, invested another $1 million in the company last year. The two became friends more than 10 years ago when Long's first company created a Web site for Colliers Arnold Commercial Real Estate Services.

"You don't need $25 million to start a software company anymore," Long says. "In today's environment you don't have to do that."

EpicTide's non-core work, from legal to marketing to human resources to production, is outsourced all over the world to suppliers, Long says. Plus, the company partners with others to provide services. And with the Internet, there's no need to travel much.

As for the core architecture, he says, "It's here and will remain here." But the software is sold, deployed and maintained over the Internet.

"We've architected the business to be an amazingly digital business so that we're able to sell the product online and they're able to evaluate the product online," Long says. "We reach them without traveling. They evaluate the product without traveling, and we deploy the product without traveling. What that means is we can deliver higher value and lower cost than the IBMs and Computer Associates."

It's not an easy task and it's not just about the tools and technology, he says, adding: "It's more of a cultural thing to get the buy-in. If you're in a big company today, the culture is to fly everywhere and to build things where people have to take it there. If you get to start with a blank piece of paper like I did and you know what you're doing, you can set the culture of the company up to value not traveling."

That translates into higher employee productivity, higher profits for EpicTide and lower costs for customers, he says.

"They're not paying us for five sales people to show up," he says. "As long as it's part of your culture from day one and you get great people, you can do it."

He initially expected EpicTide's target customer to be mid-size facilities. But that has changed in the past six months, with larger hospitals becoming customers.

In late February, EpicTide, which provides privacy auditing solutions, partnered with ForwardAdvantage, which serves 2,000 hospitals with 500 or less beds.

"Without them it would have taken a long time to reach those small hospitals," Long says. "Now we have immediate distribution to the smaller market."

Prior to creating EpicTide, Long identified the market's needs through research and then hired engineers to design a product.

His plan for EpicTide from the beginning was to make the company profitable early on and to grow the company through its own cash, without debt. He says he has done that. The company, which has 15 employees, became profitable last year.

"If at some point we need $10 million because we think we have a global opportunity or something bigger then we'll do it," he says. "But there's no need to do it at this point."

Arnold expects the company to tackle other markets, once it secures its place in the health care industry. Those might include the military or homeland defense, for starters.

Fun stage

Long doesn't consider EpicTide a startup anymore, since it's profitable with national customers, including one of the largest nonprofit hospitals in California.

He describes it as an "emerging company," still in the fun stage. For him, the fun stage is when he spends most of his time, about 80%, working with customers and prospects.

It's also where he creates the most value as an entrepreneur, he says.

Long plans for EpicTide to be the global leader in medical identity theft with sales somewhere between $10 million and $100 million in three to five years.

Arnold invested in EpicTide, he says, because it wasn't Long's "first rodeo, so to speak. He has a lot of strategic planning skills that entrepreneurs don't develop until they've been in business a number of years."

As for the software, which has a patent pending, Arnold says: "We may be one of the No. 1 applications in identity theft in the world. We are one of the unique solutions at this point."

Long says the secret to his success, he says, is finding special employees.

"For companies $100 million and under, it comes down to great people," he says. "It's about passion. It's about talents. It's about team."

It's also about timing, he says, knowing when to push employees harder, to increase the energy level to reach the next plateau, and when to go easy.

"I love this stage," he says. "I hope this stage can last for a long time."

REVIEW SUMMARY

Entrepreneur. Kurt J. Long, founder/CEO EpicTide Inc.

Industry. Health care identity protection

Key. EpicTide outsources non-core work, including legal, marketing, production and HR services, to keep the company lean.