For those of us interested in new business models and open source software, Modern Healthcare has a nice overview story the evolving relationship between Medsphere and the open source movement.

On June 26, 2006, Medsphere filed a $50 million, 12-count lawsuit
in Orange County (Calif.) Superior Court against the Shreeves and 20
other unnamed defendants, alleging – among various
complaints – misappropriation of trade secrets, breach of contract,
breach of duty of loyalty, violations of the Racketeer Influenced and
Corrupt Organization Act, commission of computer crimes, intentional
interference with contract relations and unfair competition. The
Shreeves' employment at Medsphere also was terminated, though Steve
Shreeve remained on the board.

In November, the Shreeves filed a countersuit against the company, its
then-CEO and board chairman, Kenneth Kizer, and other officers.

At issue was the posting in early June of Medsphere computer code to, a popular Web-based platform for open-source
development projects. At the time, in addition to his position on the
board, Steve Shreeve was the company's chief technology officer and
Scott Shreeve was its chief medical officer.

You can read a history of the company that Steve Shreeve, posted here
after the Medsphere lawsuit against him and his brother
was filed. Brother Scott Shreeve said after the settlement,

“We hope he (new Medsphere CEO, Michael Doyle) has the freedom and wisdom to run it as a true,
open-source company, dedicated to a transparent development process, a
transformative business process and a clear commitment to openness so
as to engender trust in the community and the marketplace.”

The Schreeves' position aside, there is no litmus test for open source software vendors. All such enterprises derive most of their revenue from services. Some offer software that is fully open source, and some offer software that is mostly open source while withholding some “secret sauce” as proprietary.

When I met with Ken Kizer (former Medsphere CEO and now Chair) at HIMSS 2007, we spoke about Medsphere's tiff with the Schreeves. He noted Medsphere's commitment to open source and the company strategy to retain product differentiation through keeping some software proprietary.

Balancing open source and proprietary software is not easy. A product must be open source enough to attract a community of developers who will contribute to the code base. Your resulting solution, including services, must be sufficiently commoditized (i.e., priced lower) than conventional solutions, otherwise the market will stick with conventional vendors.

The barriers to entry for the software business are low. The biggest barrier to health care IT is the investment required to develop big applications like EMRs and other key hospital information systems. If an application is purely open source, that primary barrier falls away. A fully open source solution also presents product differentiation challenges to a vendor. As an open source vendor, you want reasonable competitive barriers to entry and sufficient differentiation to provide a basis upon which to compete with other's in the open source community.

The question frequently comes down to how much is enough, and when do you go too far?

Ignacio Valdes is a Texas psychiatrist who hosts, a
Web site devoted to open-source healthcare IT where much of the debate
about the Medsphere approach to software development has been argued.

Valdes said Medsphere needs to open up more of its software to be
considered a true open-source developer, including several applications
“that were intended by the Shreeves to be open source.”

“One of them was JUMPS, a Java implementation of MUMPS,” the
Massachusetts General Hospital Utility Multi-Programming System, Valdes
said. Both the VA's VistA system and the WorldVistA version run on
versions of the MUMPS database and programming language.

From the rumors he has heard, Valdes said JUMPS “would be a pretty big
bridge between the MUMPS world and the Java world. If that's going to
be open-sourced, that would be a significant event.”

According to Medsphere's complaint, however, the source code to JUMPS
was part of the June 2006 release to SourceForge that triggered
Medsphere to let loose its lawyers on the Shreeves.

Is the creation of a new development platform on Java an irresistible incentive to attract open source contributors to the VistA code base, or an important product differentiator for Medsphere? Of course, there is no one right way to draw that line. What matters is the result, commercial success or insufficient adoption.