This article appeared originally in the San Diego Business Journal.
The single biggest reason why startups succeed is timing, experts say, and timing is something Doug Burke did right.
Burke is co-founder and president of a health tech startup in San Diego called Cognitive Medical Systems, a company that makes sharing health information easier for doctors and other clinicians.
What better time to start a health tech company than in 2010, just a year after all medical facilities were forced to upgrade from ancient paper filing systems to electronic recordkeeping. Just after Cognitive was founded, the Affordable Car Act furthered the frenzy in 2011 to make health care more efficient and less costly. The timing for Burke and his colleagues could not have been better.
But sales speak louder than words. In 2011, Cognitive generated $143,800 in revenue. Last year, the company brought in $13 million in revenue, with about $17 million in sales.
“It’s not that we’re all brilliant strategists here, although that’s part of it,” Burke said, laughing. “It’s truly just a great time to be in health care and in health IT. And certain policies have helped energize the whole industry.”
Those policies include the HITECH Act, also known as the Health Information Technology for Economic and Clinical Health Act. The idea of this legislation was to make it easier to share important patient data from one hospital to another, said Jonathan Mack, a health information technology expert at the University of San Diego.
“There’s a communication problem in health care,” Mack said. “In hospitals, for example, you have many different systems — billing, bed management, labs — and none of them talk to each other.”
Building in-house systems was only the first step, Mack said; hospitals and clinics also needed to communicate with each other.
So the federal government passed a law that required hospitals and other clinicians to step into the 21st century and adopt electronic systems. The government heavily incentivized the “meaningful use” of these systems, rewarding those who shared information effectively (and penalizing those who did not).
Enter companies such as Cognitive Medical Systems, tech firms that have come out of the woodwork in the last few years to solve health care’s big communication problem.
“There’s a lot of money being spent in this space,” Burke said.
When it comes to Cognitive’s business, a lot of that money is federal money. About 75 percent of the company’s business comes from the U.S. Department of Veterans Affair (VA), and 25 percent comes from the U.S. Department of Defense (DOD).
“Congress came to DOD and VA several years ago and said, ‘you guys are using these old systems, you don’t interoperate, you don’t share electronic records… so here’s a bunch of money,” Burke said. “Either buy something off the shelf to upgrade your systems, or rewrite and upgrade your own system.”
Cognitive is playing a role in doing both. For the VA, the company is helping the organization build its new electronic health record system from scratch. And in Cognitive’s biggest contract to date, the company is working with 25 other contractors to replace the DOD’s system with an industry standard Cerner system. In total, the contract is worth $4.3 billion dollars, though Burke admits Cognitive’s portion of that is fractional.
Still, Cognitive Medical Systems’ break into the federal contractor arena has been relatively painless. Burke and his co-founding colleagues Dr. Emory Fry and Rick Pope designed the business to be competitive in the crowded space of government contractors. The company made smart use of programs set up to help small companies compete with big boy contractors such as Lockheed Martin and Leidos. These programs dictate how much of the total government spend goes to small businesses. To compete with other small businesses in the contractor arena, companies can split off into other underserved categories. At one point, Cognitive Medical Systems fell into five of these underserved business categories, and is still labeled a “small disadvantaged business” and a “service-disabled, veteran-owned small business” (Fry is a 22-year Navy veteran).
“That helps us more easily compete, and makes us more attractive to work with,” Burke said.
The founders had expertise that came in handy. Burke was previously CEO of DefenseWeb, a health IT government contractor acquired by Humana for $27 million in 2007. Among other positions, he also spent time at the multibillion-dollar government contractor Science Applications International Corp. before it spun off its $4 billion unit SAIC and renamed the parent company to Leidos.
Burke wasn’t the only one who came to the Cognitive boardroom with experience. His co-founder Pope was previously chief operations officer at DefenseWeb. Co-founder Fry is a neonatologist who climbed the ranks at Naval Medical Center San Diego, including positions as chief medical informatics officer and regional chief information officer at Navy Medicine West.
The founders’ expertise and connections helped to grow Cognitive from three employees in 2010 to 65 employees in 2015. Burke said the company is aggressively hiring software engineers and other tech professionals, and intends to grow the staff to 100 employees by year’s end.