A. Neil Pappalardo ’64

INTERVIEWER: Today is March 18, 2010. As part of MIT's 150th Infinite History Project, we're talking with Neil Pappalardo, MIT class of 1964, and founder and CEO of Medical Information Technology, Inc. or MEDITECH. Neil is a life member of the MIT Corporation, and serves on the Corporation's Executive and Audit Committees, as well as three Visiting Committees, for mechanical engineering, the libraries, and physics. Neil and his wife, Jane are also very generous supporters of MIT, evidenced by the number of labs, fellowships, a faculty chair, and other facilities bearing the Pappalardo name. My name is Larry Gallagher.

Neil, thank you very much for taking the time to talk with us today.

PAPPALARDO: My pleasure.

INTERVIEWER: Can you please start by telling us a bit about growing up outside of Rochester, NY.

PAPPALARDO: Well, I grew up in a very small town, perhaps population 3,000, called Fairport. About 20 or 25 miles southeast of Rochester, NY. The town was split in half by the Erie Canal. And the street I lived on abutted the Erie Canal. My early childhood was pretty much spent totally in Fairport, going to a local grammar school there. The section of the town -- the north side of the town, where I lived -- everybody's last name ended within an I, O, or an A. Obviously Italians or Sicilians, in my case. The south side of the town, the people there we tended to refer to as white bread. Obviously growing up in an Italian household, you never had white bread like Wonder Bread or things of that nature.

INTERVIEWER: Can you tell me a little bit about your family, and about the influence of your parents?

PAPPALARDO: Well, again the town was where my mother grew up. In our heritage, the youngest daughter lives with the grandparents even after she gets married. So I grew up in the house that my grandparents owned. And even though my father wanted so badly to move out of town, we couldn't do that. And hence, our life revolved around, like many of the Italians in the neighborhood, around your relatives. Your best friends were your cousins. Obviously my mom and my father had many, many siblings. And hence I ended up with well over 25 first cousins, giving me plenty of opportunity to make friends with them.

My mother had worked in the family grocery store that my grandmother, of course, had run before she retired. My father, as it turned out, was the only member of his family to go to college. He became a small town lawyer. And that was the little bit about my parents.

Of course I had an older brother. And my mom's and my dad's wish, to be perfectly honest, was that my brother would become a lawyer and I would become a doctor. For many reasons, as it turned out, the influence of my mother wanting me to become a doctor -- I had a lot to do with medicine. And to this day, and still do.

INTERVIEWER: Thank you. Were there other events or influences in your childhood that impacted your career path?

PAPPALARDO: Well I guess I should point out the first I heard of MIT. One of my older cousins was getting married. And I met her fiance. This was the first time I'd ever met anybody and heard of MIT. He was a graduate of MIT, I think in the early 1950s. He worked for GE and came from the Schenectady area. It was the first time I really talked to an engineer. I was still fairly young at the time, perhaps eight or nine. And conversations with him I think he certainly had a strong influence about learning about MIT as a school that I might consider going to. But because I was mechanically inclined growing up, I asked him many, many questions about how things worked. And he clearly knew just about all there was to know in answering the questions I would ask him.

INTERVIEWER: Which leads to my next question. Was there an a-ha moment, when you realized you had an interest or special aptitude in science?

PAPPALARDO: Well, from my earliest memories, I was particularly adept at taking things apart. The gadgets that I was exposed to were mainly mechanical, and sometimes electromechanical. And I was always curious about how things worked, and therefore learned how to take things apart. I would point out I wasn't particularly successful in the early days about putting things back together. But the primary focus was simply learning how things worked. That presumably was what spurred my interest in things having to do with mechanics or electronics. Simply learning how things worked.

INTERVIEWER: And how did your parents and grandparents feel about this inability to put things back together?

PAPPALARDO: Well my mother certainly took advantage of it. Having me attempt to repair anything that broke around the house. Certainly it was very easy to repair lamps that the wires had become frayed. I even remember attempting to rewire her electric stove when some of the wires to the burning elements frayed. I don't think I was particularly successful at doing some of these things, but I was certainly given the opportunity routinely to fix anything that appeared broken.

INTERVIEWER: And how did you grandfather feel about that skill?

PAPPALARDO: I don't have that many strong memories, because both my grandmother and my grandfather only spoke Sicilian. And since in my generation, my parents believed very, very strongly that I should not speak Sicilian, and should learn to speak English only, the communication I had with my grandparents was somewhat limited.

INTERVIEWER: I understand. When did you decide you were going to attend MIT?

PAPPALARDO: I think I had decided it certainly by the eighth grade. But starting my freshman year in high school, my mother chose to take me out of the local Fairport school. And instead enroll me in a fairly new school that had just gotten started two years ago. A Jesuit high school in Rochester, NY. I would end up commuting to it daily. And as soon as I arrived there, one of the first things I sort of announced is that I would be going to MIT sometime in the future.

This didn't necessarily please the Jesuit priests who were teaching the various subjects at the school. But as it turned out, they were convinced that if they exposed me to subjects other than science, that this might influence me. And so I ended up being started in my freshman year, in a Greek honors program. Where I learned ancient Greek. I learned obviously Latin, which is another ancient language. And I learned French. I ended up in all four years at that high school not taking even one science course. The priests would tend to point out to me that if you're going to MIT, what we could teach you in science, you'd end up learning in one week at MIT. So better you should take these classical type of studies. It'll be something you'll probably never get at MIT, so it'll end up rounding your education much better. Perhaps they were right. But I never knew for a fact, other than in later times. I'm still friendly with the priests from my high school. They would point out it was part of their master plan hopefully to have me not attend MIT. And perhaps enroll at some Jesuit university.

INTERVIEWER: So were you concerned at the time, given the fact that you were committed to going to MIT, that you wouldn't be prepared to be accepted?

PAPPALARDO: No. At the time, I didn't even learn about the admission process to MIT until I first came to MIT, early in my senior year, to visit it. And in my interview in the admissions department, when they pointed out that chemistry and physics and perhaps biology were prerequisites. As well as four years of math. I'd only had two years of math. These were prerequisites to getting into MIT. I was a little surprised, and of course tried to point out the same argument that the priests had used with me. But I can learn all those things in one week here at MIT. Better I should have taken Greek and Latin and French and history. As it turned out, the admission officer simply said, "Well, I guess you're probably right. You'll probably learn these things quickly. But to be perfectly honest, if you do well in your SATs, then I'm sure you can get accepted into MIT."

As it turned out, it was the only school I applied to. In that era, you simply made the assumption that the school you applied to would of course accept you. I lucked out, obviously. They did accept me.

INTERVIEWER: In terms of your first impressions of MIT, the students, the faculty, the culture. How did that map against the preconceived notions you had about coming to MIT?

PAPPALARDO: Well I'll be honest with you. Since I had started at a new school in my freshman year in high school, starting at a new school in my freshman year in college seemed very, very similar. I didn't know anybody at MIT. As it turned out, I was the first person from my high school to go to MIT. I had no knowledge of anybody other than these were kids from all around the United States, into. Which was much different than my high school when they were simply kids from all around the city of Rochester and some of the towns around Rochester. Similar to me.

I don't remember any particular reason other than people from different states were, of course, interesting to me. Because they had a different point of view on just about every topic of conversation. I joined a fraternity immediately upon coming to MIT, and ended up living in the fraternity house for the next four years. And therefore the close friendships I had were mainly my fraternity brothers. And the conversations that I had with these kids obviously influenced me in many, many ways. Including, ultimately, trying to be an entrepreneur. Many of us would talk about eventually starting a business. And I certainly had that feeling early on during my MIT career.

INTERVIEWER: What was some of the other common ground that you shared with fellow MIT students?

PAPPALARDO: Well most of them, again, were mechanically adapt. Perhaps the thing that had interested me most was my junior and senior year in high school were spent building a hot rod, like many people in the late 50s. And of course, among my fraternity brothers, interest in cars -- building them -- was of course very important to us. I still remember very, very clearly. The car I had been building, which was a '39 Ford with a 1954 Oldsmobile engine in it. And I had left on a lot, adjacent to our house in Fairport, when I went off to MIT. And when I came back at Thanksgiving, the first time I returned home, the car was gone. My father told me he called the junk man and had it towed away. At the time, I certainly didn't forgive him. And held a grudge for many, many years thereafter. Until you become the parent, yourself, you perhaps then become a little bit more sympathetic to what my dad's point of view was.

INTERVIEWER: Were you hoping to bring it back to MIT?

PAPPALARDO: I just was hoping this would be my car than I would drive around at home or at MIT. Apparently my dad had other wishes for me.

INTERVIEWER: And what eventually drew you to physics as a major?

PAPPALARDO: Well, to be perfectly honest with you, even though I had mentioned that my cousin had married an engineer. In fact an electrical engineer. Engineering per se wasn't the immediate attraction to MIT. I wanted to become a scientist of some sort. And in particular a physicist.

I've thought about it many times and I don't have a strong recollection on why physics, as opposed to chemistry or biology or any other field of science. But for some reason physics, perhaps based on much of the science reading I had done in high school, appealed to me.

I still remember an early meeting with one of the scientists at MIT that I knew about from high school. I had first seen a TV program on cosmic rays. And one of the characters in the TV program was Bruno Rossi. Bruno Rossi was a very famous physicists who studied cosmic rays in his early years, and later on x-ray astronomy. And I remember as a freshman walking into Building 26, one day early in my freshman year. And Bruno Rossi was walking towards me. Not that he was interested in me. But I did notice him and I immediately stopped him. And said, "I remember you're from this TV program." And I'm sure the conversation lasted all of 30 seconds. But in my mind I magnified it probably to 30 minutes. And discussed much of what I knew about cosmic rays with him.

INTERVIEWER: And then there was a shift because you -- Can you describe the shift that took place when you were looking for a topic for your undergraduate thesis.

PAPPALARDO: Well first I should point out, I did enroll in the physics department. And my intention was to get my Bachelor's in physics. But quickly, you learn in physics that if you're going to be an experimentalist, as opposed to a theorist, you have to learn how to build things. And many, many of the physics majors would also take the various subjects in electrical engineering. Because that was thought to be the best experience for you if you were going to end up being a experimentalist. And I did it as well. So I pretty much did what today would be called a double major. Taking all of the required subjects in electrical engineering as well as all of the required subjects in physics. But at that time there wasn't a formal double major program that I'm aware of. And when it came time to graduate, you could pick either. It was up to me. I could say I'll get my Bachelor's degree in physics, or my Bachelor's degree in electrical engineering. It's still a B.S. degree, so it didn't matter.

But I think the thing which finally influenced me on whether I'd go with physics or electrical engineering was the thesis I did. There I picked a thesis having to do with medicine. And having to do with building a device which could detect and tabulate arrhythmias in one's heart rhythm, if you will. Arrhythmias are fluctuations in the steady beat of the heart. And this could involve me designing and constructed various electric circuits to do that.

It wasn't the first time I ended up doing something involving medicine. In my junior and senior year in high school, I also got interested in doing a major science project. At that time there was this Westinghouse science search in that era. And to enter it, you pretty much had to do a major science project. And the project I chose at the time was to develop a method to determine the rate at which a cancer grows. I ended up doing it at Strong Memorial Hospital. I actually built the equipment in high school. It was simple. I built a radiation detector. Shall I say a Geiger Counter, but attached to a counter so I could count the number of clicks per unit time. And that would give me an idea of how much radioactivity I was measuring. I ended up -- I had a batch of about 30 some odd white mice. I injected each of them with a type of a cancer that grows in the abdominal cavity. I then injected a radioactive isotope into each of them. And over a period of time, killed each of these mice, extracted the cancer, a sample of it, and measured the effective radioactivity per cell.

INTERVIEWER: And this is as a junior and senior in high school?

PAPPALARDO: Yes. It ended up -- that was possibly another one of the reasons that MIT as it turned out accepted me. I did fairly well and ended up being one of the finalists, based on this particular project. Even though to some extent you could assume that in doing these projects, I did them totally on my own. And of course that's not totally true. I met a physician at Strong Memorial Hospital -- high school -- whose field was cancer. He was a researcher in cancer. And he's the one that suggested this kind of an approach. And even though at a conceptual level, it's straightforward. If you could measure the radioactivity per cell, and then take into account the decay period of the cell, you could tell effectively, based on how the radioactivity is changing per cell, how the cells are actually splitting. So to this day, I'm always troubled by whenever cancer is detected, the medical solution is always to surgically remove it as quickly as possible. It seemed to me then and it still seems to me today we ought to at least determine the growth rate of the cancer before you surgically remove it. Especially if it's in certain parts of your body that shouldn't be opened up.

INTERVIEWER: Prostate cancer, for example?

PAPPALARDO: Perfectly good example. It's only as of late that people are eventually agreeing that you ought to determine its growth rate before you attempt to do something about it surgically.

INTERVIEWER: And so this interest in medicine was there all along. But then particularly renewed as a junior in college.

PAPPALARDO: But I did point out my mother wanted me to be a doctor. And even though I was going to MIT, my mother, the product of a third grade education, and didn't really know anything about MIT, she assumed I would go to college and I would become a doctor. That was her assumption. And because it was MIT, that didn't in any way prove to be -- suggest to her that maybe I won't become a doctor. And in fact upon graduation, I went to work at Mass General Hospital. My mother might have assumed I was a doctor, for all I know. Her knowledge about these things was somewhat limited.

INTERVIEWER: We're going to circle back on that story a little bit later.

PAPPALARDO: Let me just add one thing. When I did my thesis at MIT, there I was influenced -- I worked at Peter Ben Brigham. I did it under a physician there. And that physician was a cardiologist. And therefore, again, helped influence why I should be measuring arrhythmias, and what in particular about arrhythmias should be tabulated to give the type of possible disease of the heart that we should be trying to deduce.

INTERVIEWER: And then you ended up with a degree, after all of that, in electrical engineering rather than physics. But as you pointed out, these days you might have gotten a dual degree.

PAPPALARDO: Right.

INTERVIEWER: Did you have any mentors in college or influential professors?

PAPPALARDO: Well there was certainly one professor that influenced me. And it happened to be in my first electrical engineering course. Amar Bose. That was a very early influence. Not only because he was an excellent professor. An excellent teacher. The course and my first course sophomore year in electrical engineering was, to be honest with you, very exciting. Because for the first time, I learned really how electricity works. I'd said before I was adept at taking apart things mechanically to understand how they work. Or even electromechanically to understand how they worked. Taking apart radios. Shall I say purely electronic circuits, doesn't actually tell you too much about how they work. So you first start to learn how electricity and how electronic devices worked in that course. And so that was an exciting course for me.

But more importantly, not only was Amar Bose a great teacher, but he would offer students the opportunity to come back to his lab. And he would show some of the devices that he was working on. The first devices of course that he exposed us to were these very, very small speakers that produced sound equivalent to what much, much larger speakers in those days produced. And simultaneously, this was the origin of the Bose Corporation. So not only was he a professor that you were exposed to him doing his research, but you were exposed to his ideas of trying to make devices that he would ultimately form a company to sell. And that was certainly one of the early periods of time in my life when I said, yeah that sounds like a very interesting thing to do. To build something. To create something that hadn't been created before. That you could ultimately form a company about. And this, of course, was part of the reason even though I was enrolled in physics, I continued to lean toward the electrical engineering side of things. Figuring that was the set of courses that would ultimately affect me for the rest of my life.

INTERVIEWER: So is that one of the special things about MIT, the fact that you are taught by these very bright people who then also apply their expertise in setting up companies.

PAPPALARDO: Sure. As it turned out I met many professors who had started a company themselves, or were involved with other professors in starting a company. As it turned out to be almost, if you will, the norm around here. It was almost expected of MIT graduates that they might end up starting their own companies. And as I said earlier, when chatting with my fraternity brothers, this was a dream for many of us.

INTERVIEWER: Well that leads to after graduation, you went on to work at Mass General?

PAPPALARDO: Correct.

INTERVIEWER: And so how did you wind up working on computer systems at Mass General?

PAPPALARDO: Well, I pointed out I did my thesis under a professor in the electrical engineering department. Professor Jackson. But he of course introduced me to this doctor over at Mass General who was a cardiologist. Which I actually did the actual thesis. But as it turned out, I met another doctor there, while doing my thesis, who was also, it turned out, he was a non-practicing physician. That was interested in computers. And it turned out he was offered an opportunity to move to Mass General literally a month after I graduated. And invited me to join him. And he was offered an opportunity at Mass General to head up the MGH side of a hospital computer project that had started two years before as a joint project between Bolt, Beranek, and Newman, BBN, and Mass General, or MGH. So this joint project between BBN and MGH had been going for two years. It was originally conceived by a visionary at Bolt, Beranek, and Newman. One of their senior vice presidents named Jordan Baruch.

In 1962, BBN had developed perhaps one of the first time-shared computer systems. About the same time, by the way, that MIT was developing its first time-shared computer systems. It wasn't a surprise because many of the professors at MIT got involved with BBN. The founders of BBN, of course, were MIT professors. And since both MIT and BBN were in Cambridge, there was a strong relationship.

In either case, they had developed one of the early time-shared computer systems. Built around a PDP-1 computer, the first computer that Digital Equipment Corporation made. Had modified it somewhat and adapted it with adding a swapping drum and a very large drum to store information. And a device which was capable of running up to 64 teletypes. And this visionary from BBN was convinced that he could get the NIH and the American Hospital Association to fund a research project on using this computer to automate a hospital. And got in touch with MGH, and this project was started.

You could easily describe the first couple years of the project as developing a lot of specialized software for demonstration only, if you will. So when I showed up at MGH in 1964, I was exposed to the project from MGH's side. But determined that this would be the greatest learning experience that I, as a 22-year-old, could possibly hope for. And I would spend much of my time over at BBN talking to the computer scientists there and the programmers there. And that's when I got strongly introduced to programming computers, etc. And within a year, I had my own computer at Mass General. Started developing a similar system that I'd learned from Bolt, Beranik, and Newman. It was built around a PDP-7, also from Digital Equipment Corporation. And I developed a time-shared system for it. A fairly high level language, in contrast to the language that the BBN people were using to develop the, "hospital applications." Which was -- they used an assembly language. I instead developed a very high level language. Felt that productivity could be increased significantly if we had access to a high level language. Because in trying to learn the systems of how hospitals are run. Whether it be a department like the laboratories which to analysis on blood and urine. Or whether it's a pharmacy which, obviously, delivers medication to the floor. You don't have something -- It is not obvious how a computer system will make that process more accurate, and therefore perhaps run better. And it was important from my point of view to be very quick on your feet as far as programming. Programming in a low level language simply took too long. And so within a year I pretty much had developed enough of this technology to convince the people at MGH that perhaps MGH should go it alone, and not include BBN in the project. And from that point on, we actually started developing a lab system, an admissions system. And actually let it run in the hospital.

INTERVIEWER: And what was the initial reaction of folks at Mass General to this system? And a follow up question is what was the eventual impact that computerizing these results had at Mass General?

PAPPALARDO: Well I could argue that the first six months to a year was to convince people that a young 23-year-old person should be given the authority to spend upwards of $400 thousand on a pair of computers, and staff of two or three programmers. And be allowed to let loose and develop such a system.

INTERVIEWER: There must have been a lot of skeptics. PAPPALARDO: There were a lot of skeptics. But as it turned out, I was able to quickly develop some programs. We first automated the chemistry lab at Mass General. And we got it working in a fairly short period of time as a test case. And the people in the chemistry lab liked it. We put about three or four terminals, in this case teletypes, in the chemistry lab. And when specimens came in the lab, they were logged into the computer. And the computer would produce worksheets of what analysis was to be done on these set of specimens. And they would load it into various machines, if they were automated machines, or do it by hand. And eventually the results were keyed back into the computer. And the computer produced for the first time legible printouts of test results. So it was certainly one of the very earliest examples of using a computer to automate a function within a hospital.

INTERVIEWER: So you're 23 years old, 24 years old. You've already touched on the fact that you were kind of predisposed to look for entrepreneurial opportunities. So in 1968, just four years, you decide that you're going to turn this work into a company. Can you tell me about that?

PAPPALARDO: I certainly made the decision to leave MGH at the end of 1968. But in reality, I made the decision to start a company in early 1967. And I spent not only continuing my work at Mass General, but talking to anybody and everybody who could possibly help me in forming a company. In early '67, I was 24. It didn't stop me. One of the amazing things that I learned about young people today is they don't know that certain things can't be done. And obviously back then, I was a young person. And didn't know that you couldn't start a company being 24 years old. As it turned out, you make up for things with a certain amount of bravado. It's one of the things that MIT pretty much gives its students. They come out of MIT with an awful lot of confidence. That anything they want to do, they can do.

So anyway, I spent almost two years talking to people, including people from MIT. One of my partners became a professor in the Sloan School here. Ed Roberts. Still a member of the board. He helped advise me in how to go about starting my company. Among others at MIT. But I also spent a lot of time with people who supposedly had money. Venture money that could start a company. And in reality was when I finally determined that for the company to really get off the ground, I had to simply leave MGH and devote 100 percent of my effort to starting the company. As opposed to part time, if you will, while I'm working at Mass General. And I think that was the major triggering event in my life, at the end of '68 when I left MGH and, shall I say, was gainfully unemployed. i.e. no money coming in. It took pretty much to the end of July in '69 to actually raise the money I was looking for.

Once again, it came indirectly from MIT. I ended up getting venture money from a company called EG&G. And obviously EG&G is another one of the MIT companies. Edgerton, Germeshausen, and Grier. Started by an MIT professor. Edgerton, of course. And two of his students. And they're the ones that provided the venture capital for starting MEDITECH.

INTERVIEWER: But what did you think you could do with your own company that you couldn't do as an employee?

PAPPALARDO: Well, MGH, presuming that's the employer.

INTERVIEWER: Exactly, yes.

PAPPALARDO: It was interesting. They wanted me to automate more of MGH. And of course during the time frame and the -- shall I say from 1966 and '67 and '68, we had many visitors come by MGH simply to observe the system that we were running in the chemistry laboratory. This being again perhaps one of the earliest examples of automating part of a hospital other than an accounting function. This was a clinical function where a computer was integral to the running of that department. And we even put some of the teletypes out on the floors so that the reports could be printed directly at the floors and put into people's charts. Or that physicians could walk up to a teletype and inquire about a laboratory result. So we had a lot of visitors come by. And the visitors usually would ask me. This is great. How can I get such a thing? And of course at that time, I'd say well I guess if you buy your own computer, I'd be more than happy to give you a copy of the software. The project was funded, as I said earlier, by the NIH. And therefore the software was in the public domain. I'd be more than happy to share it. But of course offering that to someone from another hospital wasn't going to necessarily get the job done. They needed technologists who perhaps adapt the software, or even run the computer system. And knowing how to back up the database and how to maintain it if anything got damaged or whatever. This took a skill set that hospitals didn't have. So it became clearer to me that the only way to get shall I say my work into the marketplace was to form a company that would offer this kind of software and service it accordingly.

INTERVIEWER: And when you went off at 24, did you -- And you approached EG&G, they came through --

PAPPALARDO: That was when I was 26. [INTERPOSING VOICES]

INTERVIEWER: But did you also have on your team MIT faculty as well back then? Or this was the point when you went off on your--

PAPPALARDO: I brought along the three people that formed the first employees of the company. Were myself, one of the programmers that I had had working for me at Mass General, and a salesman from Digital Equipment Corporation. The three of us formed MEDITECH, with me being the principal one. I'm the one that obviously left in '68. They both kept their jobs until we got financing. Hence the early company, everybody agreed, it was sort of my company to run. The reason I brought someone from Digital Equipment Corporation was again at the advice of the professor at the Sloan School. That it would be nice to have somebody with some business experience. And in particular some selling experience. Because this stuff has to be sold to the marketplace.

But as a technologist myself, I was capable of doing any and all things. And ended up doing any and all things in the company.

INTERVIEWER: What were some of the most significant challenges during the early years of MEDITECH? And how did you persevere?

PAPPALARDO: Well the biggest problem was achieving a modest amount of success before running out of money. To be able to achieve success, you had to convince people in hospitals to buy the software that you were trying to sell. In 1969 and 1970, a very strong argument could be made that virtually no one knew what software was. I did of course. But the people you're trying to sell to have no idea exactly what software is. Let alone how a particular application, whether it's automating the admissions department of a hospital, or automating the laboratory or the pharmacy. They had no conception of why these departments had to be automated in the first place. Everyone sort of agreed that computers could be used for accounting functions. But how they could be applied in other processes that went on in a hospital defied the imagination of anybody. So it was a big uphill battle.

INTERVIEWER: And if I can interrupt. I did hear a story. Could you describe the significance of the "try before you buy" in establishing MEDITECH.

PAPPALARDO: Sure. Well of course that is the concept that I finally came up with prior to getting the venture capital. When I pointed out that our first piece of software, that being the software to automate the running of a chemistry lab, I intended to sell for $25 thousand. But simultaneously, I pointed out to the venture capital community, that the customer, if they're to buy my package for $25 thousand, they had to simultaneously spend upwards of $200 thousand for the computer from Digital Equipment Corporation that the software would run on, for them to make it work. And if they didn't buy my software, spending $200 thousand for the computer would be simply a device which could warm up the room when turned on. But if they paid my software--

But the point is the leverage was obviously wrong. People weren't about to buy from me because of the inherent cost of the computer and the software. Therefore I had come up with the idea of the "try before you buy." Part of the reason that I went to the well from EG&G, and actually got close to $700 thousand from them, was I intended to buy a couple of computers for MEDITECH at day zero. One to continue our development on. And the other one to run in a time-shared mode, but allow remote access through the phone lines to terminals. In the years teletypes, and eventually display terminals. So that customers could try out the software without making any capital commitment for the computer. I would charge them $1,000 a month per terminal. Perhaps they could try it out with one or two terminals in a laboratory. Paying MEDITECH only $1,000 each per month, without any commitment. And if they liked running this software and became convinced that it could do the job that I proposed it would do for their hospital, then they could ultimately make the decision to buy a computer. And at the same time spend $25 thousand for the software from us.

As it turned out, this turned out to be a good idea especially because the $200,000 computer system, within a year or two, became a $100,000 computer system. And as time went on, as I think everyone knows to this day, computer system prices dropped and dropped and dropped. And if anything the piece of software that I sold for $25,000 40 years ago, I now sell for about $100 thousand. Not because it's increased in price per se to manufacturing it. It's software, and therefore can be replicated for nothing. But because its functionality has been greatly expanded. And therefore I can easily justify $100,000. So the great thing about my business. The old days, the hardware would sell for upwards of 10 times what's the software would sell for. Today it's just the opposite. Software goes for about 10 times what the hardware would sell for.

INTERVIEWER: That's a better business to be in.

PAPPALARDO: And also, of course, perhaps 30 years ago I stopped needing to offer the "try before you buy" solution. Because everybody was convinced. They knew what software was. They knew what it could do for a hospital. And it was easy for them to make a buy decision without having to try it before they buy it. There were plenty of other customers who they could go see, see how it worked.

INTERVIEWER: So Neil, what were some of the most significant challenges during the early years or months of MEDITECH?

PAPPALARDO: Well as I said, I left Mass General in December of 1968. Because I was convinced that start my company, I really had to begin full time in earnest. Perhaps pressured by not having a salary anymore. And I spent most of early '69 knocking on doors of venture capital companies that presumably had money that I felt was needed to fund the company. I was originally looking for $300 thousand. Needing about $200 thousand to buy a computer system from Digital Equipment Corporation. And another $100 thousand to carry myself. Carry the company for a while. Until we started generating our own money.

I quickly learned in my presentations to various venture capital people that my idea of selling our first product, which was to be a laboratory information system, that customers would be very reluctant to buy. They didn't know what software was. And they certainly didn't know how a computer system could possibly make the running of their laboratory more error free and more reliable. And even more efficient. Especially when I pointed out that the laboratory information system I proposed to sell for $25 thousand. And that the customer would have to spend an additional $200 thousand for the appropriate computer system. They constantly pointed out that nobody's ever going to buy anything from you. And I'm sure they were right.

But then it occurred to me that perhaps if I had a second computer system that I could set up in our company, which I would connect through phone lines to customer sites. With a terminal at the customer site, the customer could try it out before they would ever make such a buy decision involving the kind of capital of $200 thousand for a computer and $25 thousand for a piece of software. When I explained that idea, it's amazing how the venture capital people were far more interested in what I was talking about. Even though, by the way, they really didn't have any idea what software was, themselves. No different than hospitals did. Software but was a very different concept. And MEDITECH was to be one of the very first software companies in America. Perhaps in the world then.

Anyway, as it turned out, when I changed my tune, and focused on needing far more than the original $300 thousand, I actually went for about $700 thousand. To spend $200 thousand for each computer. And an extra $300 thousand to get the company running before it became profitable. With the understanding that since it would still take some time for the "try before you buy" concept to turn into a real sale of the $25 thousand piece of software.

In either case, that was the -- by the time I did raise the money, and I raised about $700 thousand from, of all places, EG&G. Another company effectively spun off from MIT. Dr. Edgerton was still a professor at MIT who I'd taken one of my courses from. And his company, EG&G, when I presented the idea to them, they offered to finance the company. Not because they necessarily knew about software. But because they were also into a "try before you buy" concept. Their venture capital arm would tend to provide early financing for companies in very novel technology based environments. They, by providing the initial seed capital, got to learn and try out the company, try out the technology, in the hopes that some day they may acquire it and it become part of EG&G. As it turned out, we were never acquired by EG&G. I wanted very much for the company to remain independent and that's the way it went.

INTERVIEWER: Was

there interest expressed?

PAPPALARDO: In them acquiring us? Yes. Don't get me wrong. For their $700 thousand, they eventually walked away with over $20 million from their investment. So it was a very good investment from their point of view. But as it turned out, perhaps because I believed that I didn't ever want the company to be a public company, that it probably wasn't in the cards for them to acquire us. So they ended up selling their interest and we actually bought it all back from them.

INTERVIEWER: And so tell me how MEDITECH then grew over the years into a leading supplier of information systems for hospitals.

PAPPALARDO: Well first we were very early in this business. There weren't too many people focused on automating hospitals. But I kept blinders on. I was convinced that hospitals were the technological center of a community. In that if I could automate hospitals, ultimately this would be the best thing I could do for the well-being of patients in that hospital. I started out with one software product. The laboratory system. I quickly expanded to a pharmacy system, to radiology system. Eventually automating the medical records. And eventually getting into accounting functions. I do everything from payroll to general ledger. But most importantly billing accounts receivable, which is very specialized for a hospital. So today, I pretty much have a very, very large chunk of software, which pretty much automates the complete running of a hospital.

My approach has been to keep blinders on and continue doing that, hospital after hospital after hospital. At this point in time, we've automated a total of 2,300 hospitals. Mainly in the US, Canada, and the UK. Of those about 1,900 of them are in the United States. That represents about a 30 percent share of the hospitals in the US. So I continue to do that. And the reason it's grown so much is because that's all I do. Some of my competitors have chosen not only to be involved with automating hospitals, but to do a lot of other things for the medical establishment. Automating physician offices. Having consulting companies which consult the hospitals and teach them how to change their process. Stuff like that. I focus on one thing. Making software to run hospitals.

INTERVIEWER: And could you talk a little bit about MEDITECH's work in developing a management system to help clinicians determine the best patient treatment?

PAPPALARDO: Well as it turns out, you don't have to do too much to teach physicians how to manage patients. The process has been pretty well established on the best course of action for most disease processes. But what you can do is to make -- in automating the process, to do it as accurately and as quickly as possible.

In a hospital, for a particular patient who's going through some sort of therapeutic procedure, and that's the normal reason patients go to a hospital -- they need a therapeutic procedure -- what you want is to allow the 10, 20, or 30 clinicians who are simultaneously performing some aspect of that therapeutic procedure, you want them to be able to do their job as accurately and as quickly as possible. And that's where the computer system helps out. From perhaps the physician in charge of the patient ordering a procedure for that patient. It'd be ideal that if the physician could order that procedure directly from a computer terminal on the floor where the physician is, make sure that the order is communicated properly and accurately to whatever department is involved in executing that procedure. If he's ordering a medication, that order has to be conveyed to the pharmacy. If he's ordering a diagnostic test, it has to be conveyed to a laboratory. In which case the rest of the process gets automated as well. If you ordered a laboratory test, the computer has to tell a phlebotomist to draw blood from a particular patient in a particular location in the hospital, and bring that blood specimens back to the appropriate laboratory to perform that test. And in which case after the test is performed in the laboratory, to gather the results, merge it with the rest of the information about that patient, and allow the physician back on the floor to see that. In all cases, what you're trying to do, once again, communicate information as quickly and as accurately from its source to its destination. And as a byproduct of that communication, to form an electronic medical record so that all clinicians within the hospital or even outside the hospital can simultaneously access the patient information to help them in the process of delivering care.

INTERVIEWER: And that's what MEDITECH has done so well.

In terms of your own role in MEDITECH. After training and working as an engineer, how did you find the job at being a manager?

PAPPALARDO: Well I certainly took no particular management courses at MIT. My physics and my electrical engineering courses had nothing to do with management. Common sense. My style of running MEDITECH in the very early years was very, very simple. I did something. If it burned, I didn't do it again. If it didn't burn, I kept on doing it. So many of the things about MEDITECH that we do to this day are all based on that concept.

For instance, in the early years, we could only hire entry level people. Because mature, experienced people weren't going to start working for a start-up software company. Especially because they knew nothing about software. And it seemed to be a great risk of coming to work. So the only people that would tend to work for us were quite often recent graduates of MIT. And many of our early employees were recent graduates of MIT. Not all of them stayed. But the ones that did stay obviously grew with us. And I learned from that -- far better to have entry level staff that grows with the company. And they become very loyal, and it works out well. So to this day we've yet to ever hire anybody in a supervisory, management, or officer position. All of those people in the company all started as entry level people. I'd even point out, of course, I started as an entry level person.