Hey, Known Spender!

The most remarkable thing about Health 2.0 this time around, at least for me? The growing number, and percentage, of attendees old enough to get a reference like “Hey, Known Spender.”

If that wordplay evokes the trumpet blare of the brass band that accompanied one of the more pernicious and offensive TV ad campaigns of the 1970s (derived from the 1966 musical Sweet Charity), then you would have had more company than usual at last week’s 2.0 conference in San Francisco.

For all you Gen X’ers, Y’ers, and Millennials pitching your ever more nifty wares this time around: those horrific ads featured a slinky woman – made-over from the ‘60s musical’s stripper chorus to a ‘70s “empowered” glamour-gal – crawling all over some dude in a tux and singing “Hey, Big Spender, spend a little time with me.” The ads were unambiguous proof that American culture’s direct equation of cash and sex pre-dated the 1980s.

The “Known Spenders” who spent a little time at Health 2.0 this year were, for the most part, old enough to remember that ad. And they are actually make a living today working in corporate health care jobs. They’re the people they call “The Suits” in Hollywood, and they can actually get your products out of beta and into the real world. The slow steady creep of relevance not just of Health 2.0 as a marker of the market, but of the entire dream of consumer health IT, can be measured by the slow steady influx of the salt-and-pepper folks my own age who work for health insurance companies, employer groups, hospital systems, and drug companies. Six years ago, at the inaugural 2.0, The Suits were nowhere in sight. This year, they were everywhere you looked, kicking tires and taking business cards. Skepticism was abundant among those I talked with, as it should be with industry lifers who have endured two full cycles of health IT hype. (Healtheon and Revolution Health were the market toppers of valuation, grandiosity, and absurdity; if the current boom goes bust, we lifers know exactly who it will be.)

Among the two dozen or so people I’ve known over the years and who have yet to be paroled from health care, the consensus at 2.0 was “these are mostly good products, not companies, there is too much overlap, they have too narrow a scope of functionality, and many need to be rolled up. But a few actually have replacement revenue potential.”

As for the first part of that consensus, nothing new here. Nor anything new about the classic chicken-and-revenue problem that has hampered Health 2.0 start-ups from the start. I’m hardly the first, and surely won’t be the last, to point out the obvious: health care is not lacking for great consumer information products, services, systems, or apps; those products etc. are lacking users, adoption, exposure, traffic, critical mass, revenue. By “revenue” I mean “cash,” from paying customers, not promises, sales pipelines, booked revenue, or even signed contracts with guarantees. And I certainly don’t mean investors’ cash. I’m talking about revenue from consumers, patients, providers, or any of the myriad third parties who are spending money today – just not happily.

That is why it was gratifying to see a mushroom of people with real-world jobs at 2.0, and even more gratifying to hear several entrepreneurs make references in their presentation to the “known spend” out there in their target markets. Also good to hear many in this newest generation of entrepreneurs calling them “markets” again, not “spaces” – worn out dotcom-speak for markets without actual revenue.

This was hardly the majority of presenters at Health 2.0 this year. But “known spend” was something I heard at least once every ten or so pitches – a phrase probably not uttered at 2.0 six years ago. The frequency was even greater during what was, for me at least, the most interesting part of the conference – the “DC to VC” venture competition on the third day, co-produced by the indomitable Missy Krasner and her firm Morgenthaler Ventures and Matt Holt and the Health 2.0 people.

For anyone watching an entrepreneur’s PowerPoint magic show, “known spend” means somebody might actually buy his or her product. This is especially important for venture investors, or what Hollywood calls the “Supersuits.” Once bitten and twice shy, health IT venture investors these days actually expect returns on their investments – something more difficult now that the broader public offering market appears to have wised up to the “space versus market” thing somewhere between the start of the Great Recession and the Facebook IPO.

“Known Spenders” might actually buy that new product because they are currently spending a non-trivial amount of their company’s money trying to solve a problem the new product solves better, faster, and cheaper. What far too many Health 2.0 entrepreneurs still apparently do not understand: the Known Spender is usually not a household, but someone housed inside a corporation – which means their pitch needs a three-way (or more) value proposition, not the simpler two-way value prop – something I learned the hard way in my time with HealthGrades, a Health 2.0 company so old it was actually a Health 1.0 company before there was such a thing.

In the interest of combining both full disclosure and a good example, I’ll point to AgeTak, whom I had the great pleasure of serving as “Mentor” for the DC to VC segment. Mentors do not get any equity or other compensation in the companies we work with, but we get the pleasure of coaching and cajoling people who are doing what we once did, i.e., working 80 hours a week for little or no pay to turn a dream into a reality. Perhaps because Mentors are like Uncles and Aunts – some of the pleasure of helping raise the kid and none of the drudgery – I take of course great pride in AgeTak, so discount the following pitch accordingly.

AgeTak is a middleware company that normalizes, warehouses and secures massive amounts of patient data for many of the very difficult tasks undertaken by other 2.0 companies: care management, coaching, wellness interventions, etc.. AgeTak was one of the least glamorous companies showcased at 2.0 last week – another reason I’m excited about its prospects. It is a “Big Data” company – or what used to be called a “data” company – and the tools and services AgeTak provides are essential for everyone from 2.0 apps makers to health insurers, hospital systems and drug companies who want to sort through and identify patients for education, marketing, or help.

Today, AgeTak’s potential customers are spending large amounts of money all trying to solve the same technical, security and privacy protection problems; the company solves them with a unifying technology and services platform, at what will amortize across multiple customers at a fraction of this “known spend.”

One company per panel I attended at 2.0 had this phrase (or the concept, stated differently) somewhere in their pitch, as did many of the starter-uppers who pitched me privately. They seem to have figured out that if you want to grow your business, you have to sell your product or service to the Suits (not the Supersuits) who actually have both the money and will to buy it.

Sadly, it seemed not much better than one company per 2.0 panel. The idea of going after a “known spend” was still missing from the product-driven idealists (and a few obvious pure opportunists) who dominated the show this year, as they have from the beginning. These mostly well-intentioned people are hellbent on making markets, not entering them. Godspeed to the sincere ones. But back out here in the real world, the number of health care companies looking to add spending to their budgets for anything is going from few to almost none.

For insurers, there is the pesky matter of the profit and administrative cost margin restrictions of Obamacare (now a politically neutral term), or what the wonks call “the MLR rule.” For providers, it’s the coming financial meltdown associated with reduced payments under “sequestration,” thanks to an imminent political nuclear war on Capitol Hill over the federal deficit and debt. For drug companies, it’s the cumulative effects of a decade of price compression by PBMs, generic switching, and increased patient cost-sharing, combined with moribund new product pipelines. The one exception to this rule is the fools’ gold rush into Medicaid, which I discuss here.

Beyond the Medicaid scramble – which could end tomorrow, with one bad earnings report or soured acquisition detail – there is almost no new money coming into the infrastructure of health care to support a sliver of these companies.

As a very different song from days gone by would have it, “we all wanna change the world” – with richer technology, sweeter UIs, more features. But my own two decades of slugging it out in the biz has taught me one thing: much of the world does not want to be changed, at least not very fast. Health care is drowning in paperwork, stupid process, and patient/provider disconnects because there is no known spend out there ready to invest in changing it. (Yes, there is HITECH, and its known spend computerizing physicians at $44k per throw, but there is one big private company running the table right now, another much bigger company still trying to make a 20-year old legacy product work like a 10-year old product, and a very long tail of struggling wannabees. Good luck getting the first two to return your biz dev emails.)

The sad truth about so many of the great products – or glorified product ideas – that we have always seen at 2.0 is that the world has never seen anything like them. They don’t replace any “known spend.” Rather, most seek to illuminate the enormous darkness surrounding the physician/patient “visit” that has been for a century, and that remains for the foreseeable future, the epicenter of the modern health care “system.” Many other 2.0 products shed light where a different army of Suits don’t want patients to go – alternative out of network providers, newly available surgeries, more expensive doctors, clinical trials. Luckily, the sheer march of technology everywhere else in our world – and the double-edged sword of ever higher cost-sharing by patients – forces more and more of the old guard to meet the new guard halfway.

And so the 2.0 audience ages. It fills with people who can actually implement a handful of its bold product visions, and is sprinkled with a few entrepreneurs who are catching on. These exceptions to the rule are not part of the latest generation in health IT who believe, as did Healtheon and Revolution Health, “if we build it, they will come.” They are building great new products and services to replace crappy old products and processes already included in somebody’s shrinking budget.


Speaking of The New New Thing – if you don’t get that reference, you really are new to 2.0 – the newest new thing at 2.0, as I mentioned earlier, was its own process improvement: the merging of the DC to VC competition with the Health 2.0 conference itself, which had previously been held weeks apart. Last week at the combined event, which replicates in public the grueling private ritual of entrepreneurs pitching their plans to venture capitalists, we watched what a joy it is to try and explain your dream to a panel of smart, tough people who have seen just about everything – and are not shy about telling you exactly why you will probably fail. (Even if they are a little nicer about it in public.) Congrats to the winners of the various competitions: Aidin, Beyond Lucid, and CarePlanners.

There is enormous overlap for both DC to VC and Health 2.0 – in terms of audience, obsessions, needs and opportunities – so thanks again to Missy and Matt for recognizing this and making all of our business travel lives a little less horrible.

Because the other thing that Known Spenders, Mentors, Suits, Supersuits and everyone else who cares about consumer health IT surely don’t want to spend more of is our time – which I understand is really money, at least when someone is not singing about how it is really sex.

J.D. Kleinke is a Resident Fellow at the American Enterprise Institute and a pioneering health care information entrepreneur, medical economist, author, and business strategist. He has helped create four health care information organizations; served on numerous health care company Boards; worked with hospitals, health systems and physician groups and drug companies; and provided business, product and technology strategy services to start-ups and established companies. His latest book is Catching Babies.

5 replies »

  1. Totally Agree…. I keep saying that life is always a balancing act and we need to be always aware of such details that would make world better…Thanks for informative post !!!!

  2. So true! The most potent forces moving healthcare IT today are crowd-sourced, like Wikipedia and Kickstarter, not many of the sources on display at conference road shows. For all the tens of millions of dollars invested in Healtheon the platform they built that was supposed to transform medicine never moved a bit of data that helped a patient or clinician. Revolution was not a revolution, but at least it had some good content, and its assets are doing well under the management of Everyday Health.

  3. JD awesome recap, then again, I’m in the grey bucket!

    There is definitely this thing called ‘elder-wisdom’ which can and need be part of all the giddy startup enthusiasm.

    Institutional memory, properly positioned and processed, is an asset!


    I look forward to our chat on Wednesday, 10.17.12 at noon Pacific/3PM Eastern time on ‘this week in accountable care’:


    Next up on program? Mike Long for some overdue insights and current day relevance of the Healtheon experience. To be scheduled shortly…