To raise the seed money for Practice Fusion, founder Ryan Howard sold his house and car.

“I was really going all in,” the 34-year-old CEO told MassDevice.

Howard might have made a smart bet. According to Practice Fusion, the company has the fastest-growing user base of any electronic medical record company in the country, at 40,000 members. Its offering is free for physicians, using a largely advertising-based business model.

Forty-thousand doctors is a large and desirable audience, if you’re a pharmaceutical company or medical device maker trying to target its advertising. That’s why the company grew its user base by 400 percent in 2009. It also achieved the backing of Band of Angels, SalesForce.com and Morgenthaler Ventures, in that order.

“Last year was a really good year for us on the funding side,” Howard said.

He added that the company recently brought Morgenthaler partner Rebecca Lynn onto its board of directors and last week announced an EMR package with Dell for doctors with small practices. The company will soon announce the addition of an Intuit general manager to its board, Howard added.

Not all of Practice’s Fusion’s business model is based on advertising, but advertising is a large portion of it. Its cloud computing-based model, with ads serviced by Google, is also looking into anonymizing some of the data it collects and using it for research. It also offers a pay model, priced at about $100 per month per physician, which Howard said is still a dramatically lower price point than his company’s competitors offer.

Lately, Practice Fusion has been trying to leverage the federal governement’s HITECH Act, which allows physicians using EMRs to qualify for a $44,000 check as part of the stimulus package. Not a bad deal if the practice is using a free EMR service.

MassDevice: Why does an ad-based business model work?

RH: Advertising is special in our product, because our community is high-value. What I mean by that is that there is purity within the community. All the doctors on the platform had to be verified as doctors, so because of that, we can guarantee that advertisers are reaching the targets that they want to reach — specific specialists, for example. The advertising also takes place while the doctor’s at work and in the context of a patient visit, so he or she is a very high-value user. These are some of the key reasons why the advertising is much more valuable than other constituents. If you’re advertising to a consumer, for example, the doctor has more control of what’s spent, but again, because it’s in the workplace, the advertising’s not going to take place while he or she’s at home. We’re not just more relevant, we’re in the actual context of the business, so our product is just better. Period.

MassDevice: You say that not all of your revenue is ad-based. Where does the other top-line income come from?

RH:There’s other transactional revenue in the model, but there’s also the potential for data revenue with the anonymization of the data. We work with the data now with researchers in a social-value, altruistic way. We take the data and we’re doing different studies and we’re publishing some of these studies, but the data itself has significant value in aggregate and we’re working with that as well. So think about clinical research. Having real-time data from electronic health records that is anonymized, we accelerate the path for research to help bring better drugs to market and can help show the efficacy of certain drugs. So this results in better medicine. De-identified data has been used for decades to do this, it’s just that we have a tremendous amount of data. We’re one of the biggest electronic healthcare communities in the U.S., so by leveraging that data, there’s just a major benefit to numerous parties and the community as a whole.

MassDevice: In 2009, your company grewits user base by 400 percent. Have you reached a critical mass that’s enabled you to turn a profit?

RH: We are close to breaking even, but really what the company’s focused on is growth. I’d say we’re focusing, for the next couple years, on becoming as strong as possible and we have a tremendous amount of effort and resources devoted to expanding the company. We’re at 40,000 users right now and we’ll probably be at over 100,000 by the end of the year. I feel like we’re in a land-grab situation and that growth is really what’s critical to our path.

MassDevice: Can physicians turn the ads off?

RH: Yes, absolutely. Say you come in and sign up today, you can actually opt out of the advertising. You’ll pay $100 per month per physician and the reality is that it’s still dramatically lower than any vendor on the market, but it’s still a fully functional product. You cannot get an EMR with connectivity to labs and pharmacies for under a grand a month, if not 40 or 50 grand up front, so the price point is still dramatically lower. The advertising model, without getting into the numbers, is just more popular. A unique attribute to doctors is that they’re pitched product more than anyone else. Whether it’s pharma or labs or medical device manufacturers, everyone is pitching the doctor all day long. The average doctor sees, I think, four pharma reps a day, so selling software to this constituency is really, really hard. Our competitors don’t get that and that’s one of the reasons why we have the momentum that we do.

By giving the product away for free, it solves one piece of the puzzle, but free isn’t everything for this model. Doctors don’t pay anything, they can be up and using it in a few minutes, we verify them the same day, and we can turn on the lab connectivity and e-prescribing the same day as well so they can be sending scripts over our network to 50,000 pharmacies. That’s part of the magic of this validation process. No one else has the operational capacity do to this.

MassDevice: How are you able to keep the ad-less product at $100 per month?

RH: The economics of a [software-as-a-service]-based model are just dramatically different than that of an enterprise model. My cost to support to the community is less because I have one infrastructure. It’s a higher-quality and a more expensive infrastructure, but nonetheless, I don’t have 40,000 installs for my software across the country, I don’t have a professional services team because I don’t need one. It’s an economy of scale that allows us to run the service at a much lower cost than our competitors can.

I think there’s a lot of interesting dynamics going on right now. There is no coincidence, I’m getting on my soapbox now, that the stimulus plan gives the doctors back $44,000. From our take, that’s about what it costs for the average solution out there, and it’s not a rebate, you pay whatever you want for an EHR solution and you get $44,000 whether you use a free service or install a $200,000 enterprise model. You just have to demonstrate that you’re using the product. Even if the government doesn’t cut any checks, our product makes doctors’ workflow much more efficient. The average prescription refill takes seven minutes, but when doctors use our e-prescription service, patients can call in a refill and the request becomes a to-do item in our software. The doctor just needs to click approve or deny. We’re potentially saving a doctor hours a day just from that one workflow.

MassDevice: Are you planning on staying private?

RH: I’m planning to run the company as fast, long and hard as I possibly can. We already are close to being the biggest [EHR] community in the country. At the end of the year we definitely will be, based on our growth numbers, because right now our growth is less of an art than a science, in the sense that we can predict it so we have a good idea of where it will be. Based on that and based on revenue ramping up the way it is, and depending on what the investors want to do, I think this company becomes very viable as a public company, but we’ll cross that bridge when we get to it.