OP-ED

Government as an Engine for Innovation

I’ve been thinking a great deal about the newly formed Center for Medicare and Medicaid Innovation. (CMI). This entity was established as a result of the Affordable Care Act (the new healthcare reform legislation) and its purpose is to “research, develop, test and expand innovative payment and service delivery models that will improve the quality and reduce the costs of care for” patients covered by CMS-related programs.  The legislation gives this entity over $10 billion dollars initially and broad authority to figure out new ways of doing things better and differently than before.   What is great about CMI is that they have the authority to run their programs much more like a business would without many historical governmental constraints.  That’s great news for innovation, which is sorely needed in the U.S. healthcare system.

Among the key objectives that the administration has discussed is how to transition the collective mindset from one of healthcare to one of health.  In other words, if a person is healthy, they do not need health CARE. This is a very important distinction; it puts the emphasis on prevention and wellness as opposed to what you do when somebody is already sick.  In order to affect such a transition, there must be an emphasis on innovation to change the way we have traditionally looked at the healthcare world.

This is an interesting challenge and one that requires a great deal of thoughtfulness in how to approach the universe of innovation opportunities. As venture capitalists, I and my colleagues vet, select and monitor deals and specifically focus on how we pick winners and avoid losers.  It’s a little like being asked to handicap who’s going to win the World Series, but then again, that is pretty much our job as VCs: to act like Billy Beane and pick those most likely to succeed in a capital efficient way based on detailed analysis of trends and meaningful data, not solely based on experience.

For those of you who don’t know him, Beane is the General Manager of the Oakland A’s baseball team and is known as the guy who introduced “sabermetrics” to baseball, which is the science of using detailed analysis of objective player statistics, instead of relying on conventional wisdom/traditional scouting to identify the best players. He was famous for being able to identify nascent baseball superstars who he could hire very cheaply by comparison because they didn’t fit the traditional mode. Beane was profiled in the truly awesome book, Moneyball, by Michael Lewis, in which Beane is famously described for drafting a short, fat catcher who nobody wanted based on his statistically-proven ability to draw walks.

Beane’s is in many ways a great model for venture capital in healthcare, in particular, because his goal is to find the best value in baseball—in other words, the highest quality players who could produce a winning season at the lowest cost. Sound familiar? This will be the same challenge our government officials will face as they think about all of the options available to them in order to identify which of those crazy caterpillars is going to actually turn into a butterfly.

This will be interesting, because many of the potential areas of improvement may be in organizations that don’t yet exist, such as specialized new health plans, provider organizations and payment structures that have been much discussed but barely tried in practice. This effort will require a broad range of public and private views, including that of entrepreneurs who have those “not yet existing” ideas, to be considered.

We need to nurture companies that come out of left field with disruptive ideas that blow up conventional wisdom and replace it with completely new ways of doing things, particularly thing that impart convenience, personalization, health-optimization and cost-effectiveness into the healthcare equation. Will today’s healthcare giants be tomorrow’s healthcare leaders? Good question, but not likely unless they are willing to reinvent themselves completely—something very hard to do. It’s a little like shooting your dog because he’s ugly, even though he gave you years of companionship.

It appears that CMS and their colleagues are seriously committed to innovation and to doing the work to find great new ideas.  What they do and the money they can bring to bear can make a big difference, particularly since VCs have underfunded healthcare services and IT for eons. I saw an article today that said VC funding of healthcare IT almost doubled in Q2 2010 as compared to Q2 2009 to $157 million. Healthcare services consistently takes less than 1% of VC money that goes to the healthcare sector; in Q2, total healthcare venture funding was $2.7 billion so services probably got about $27 million, if I did my math right.  $27 million sounds like a lot when you are talking about buying a house (actual cost of recent house bought by Charles Schwab), but its downright microscopic when you are talking about healthcare system innovation. It will be interesting to watch the progress in Washington as it unfolds.

Lisa Suennen is a partner of Psilos Group, co-headquartered in the Bay Area and New York City, The firm has funded and developed more than 38 innovative companies, including ActiveHealth, AngioScore, Click4Care, Definity Health, ExtendHealth and OmniGuide. Lisa regularly posts on her site, Venture Valkyrie.

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KamagradaveMD as HELLDennis (Investigator/Negotiator) at Medical BillDogRobert Kaminsky Recent comment authors
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Kamagra
Guest

Let’s be real here, the road to fitness wasn’t exactly fast-going for me. I grew up in Texas, where big means BIG – especially when it comes to food. Think unlimited soda refills, lunch buffets, all you can eat pizza for $7.99. As a result, food (in large quantities and portions) has always been a part of my life. The key—and the hard part—was gaining control. I soon became host to that ever-present extra twenty pounds. In an effort to lose it, I mapped out a diet plan that wasn’t the healthiest and a workout regime that wiped out my… Read more »

aaron
Guest

Dennis, I believe I mentioned the military, thus Los Labs and military research. It is CLEARLY the goal of the military to innovate. We developed the first 5th generation fighter. No f-16 has ever been shot down. We developed the first infrared invisibility cloak. Having worked with LMC, innovation really only comes from the private sector because they can reap the benefits of innovation. Also, there was a Medicare/Medicaid innovation lab before this one. It didnt do much of anything. It is not like a center directed at innovation will have a alternative result. Those that are practicing in the… Read more »

dave
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dave

Government as an engine of innovation? I havent seen cows flying and giving champagne. Government caters to powerful health care interests and innovation will be more of the same medicocentric palliative biomedical care that has been around for a century. The innovation engine is run by the same experts who created the status quo of poor error ridden health care- they dont believe in innovation or real change.

MD as HELL
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MD as HELL

Until you change the demands of patients for care they cannot afford themselves and would not buy themselves, you will fail.
Every person cannot access “the system” for a million dollars of reassurring negative tests.
Every doctor will not stop ordering these tests until the legal environment is less toxic.
Bottom line must be to change patient demand.

Dennis (Investigator/Negotiator) at Medical BillDog
Guest

Well, aaron and Doc99, the examples you gave weren’t established with innovation as the guiding principle–clearly the case with the CMI. NASA is a government tool and was quite successful as an innovation source as long as they had government attention and government-sponsored goals. As for the claim about the military not counting, uh, the military are government tools and they account for over 60% of government spending. They count in spades. Sadly, they also have as many failures as successes, but again, their goal wasn’t innovation. All the nay-sayers aside, I think the best way to get the most… Read more »

Robert Kaminsky
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Innovation is a necessity in healthcare given the striking rise in costs and the declining healthstatus of the American population. However, government is rarely a source of innovation. Also, is radical innovation what we need? There are so many ideas on the table already — patient-centered medical home, evidence-based formulary management, value-based benefit design to just name a few. The challenge is developing the evidence justifying each idea and determining the best way to implement these solutions. Evidence often takes years and years to develop. Maybe what we need is to focus on sorting through the ideas we have and… Read more »

Doc99
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Doc99

Government? Innovation? As in The Indian Health Service? As in The Post Office? I recall the brouhaha about care rendered at Walter Reed. So far, what I’m seeing is the formation of multiple bureaucracies which promise to function with the efficiency of the Department of Motor Vehicles with the Warm Fuzzy Feeling of the IRS.

Vikram C
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Vikram C

Refering to Barry’s statement about lobbying issue it may appear that only hope would be people being healthier by their own volition and in their own wisdom.
Like Barry I am not so optimistic. However the best thing they can do is to bring about transparency in dealings and attack the health ignorance that could be the best use of money.

aaron
Guest

BTW, the title is a oxymoron. Government is hardly EVER the engine for innovation. It is only when they fund private researchers is there some hope. To me the only successful government innovators, are the military (which do not count as a member of the government) and the IRS (for being the most shockingly “reverse” innovative body in the history of the US government, ha ha.)

aaron
Guest

From my Finance/ Economics mindset, I do not see payments or all of these government created problems as the issues. I think there needs to be a study done on the carrot or the stick method of funding healthcare. I am proponent of creating a secondary market in which individuals can invest freely in hospitals. This OTC will be privately held market in which only those who trade know the information, like pinksheets. If hospitals are flush with cash, these small changes in this or that created by the government will matter less, in theory. I am not sure any… Read more »

Lisa Suennen
Guest

Anon–Okay, valid point on the A’s winningness, but the Yankees have traditionally sought to win at any cost, and we, as a healthcare system, simply cannot afford that model anymore. We have spent more money than anyone and gotten less for it, kind of like the Yankees of 2008. Creating great value for the money has got to be a core goal, even if it doesn’t result in perfection. (the U.S. is ranked pretty low on the health quality curve–see my blog post at http://lisasuennen.wordpress.com/2010/07/01/we%E2%80%99re-number-one-er-i-mean-seven/).

Anon
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Anon

The Oakland As have not won a World Series or AL Championship since Billy Beane has been GM. While he offers a unique approach, it results in a team that is just good enough to lose in the first round of the playoffs. Interestingly, the way people outside baseball have taken to fawning over him is similar to the way he was treated as a baseball prospect which is described in the book. If you want to emulate success you should pick role models like the late George Steinbrenner or the Rooney’s of the Pittsburg Steelers – sports owners who… Read more »

Paul Levy
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Beau McNeff
Guest

I think a critical role in this conversation will be held by the folks on the IT side of the fence. The EMR (or EHR) is changing the way providers are able to deliver care and communicate with each other. We are now better able to address care gaps, identify health trends in individuals and populations, and aggregate data to determine effectiveness of practices. This information rolled out across the country will vastly improve the way we deliver care, and will reduce costs in the long term. One item that I see missing is the link between EMR systems. There… Read more »

Lisa Suennen
Guest

Barry, I agree that significant systemic changes will be both necessary and hard to implement. There are also a lot of solutions that have already been successful in select areas of the private and public sectors. Wouldn’t it be wonderful if we could find a path to healthcare redemption that capitalizes on known successes and minimizes the role politics plays in making good decisions. Lisa