“Physician, Heal Thyself – Luke 4:23”
Not knowing the originator of this phrase, I found this description on Wikipedia: “The moral of the proverb is counsel to attend to one’s own defects rather than criticizing defects in others.” It’s common for those of us in the tech industry to lament how appallingly out-of-date healthIT is. Taking the glass-is-half-full approach, one can see opportunity in that – Why It’s Good News HealthIT is So Bad.
There are a number of reasons why this is the case — convoluted decisions processes, for example — and that health systems are spending billions to prepare for the last battle. However, I’m much more interested in how we fundamentally change the equation than why we’re in our current predicament. The same tech companies that have kvetched about healthcare being behind on technology can address that defect by taking some simple actions.
The quickest way to stimulate a modern healthtech industry is to get purchasers of healthcare services to accelerate buying on value over volume. As pointed out in a recent article on the perils and potential of an employer-based healthcare system, employers pick up the single biggest chunk of the healthcare tab. Given that the tech industry has the most to gain from healthcare modernizing its IT infrastructure, it should lead the way. VCs, in particular, should use their bully pulpit for good. As Rock Health and StartUp Health have reported, there has been tremendous growth in VC funding for healthtech startups.
This is a start. After all, for a long time, many of us have said that healthcare is where tech startups go to die because healthcare has been so unfriendly to tech startups. However, what VCs care about are exits, not funding. They can greatly increase the odds of great exits if they do what I outline below. I’ll explain below why health services purchasing must change. I’ll draw from my own successful healthtech startup exit. In particular, insights from the leaders of healthcare’s age of enlightenment is critical. In addition, it’s the duty of the thought leaders of the VC industry to step up and put their money where their mouth is (beyond the obvious of making healthtech investments). The “good news” is that the dissatisfaction with the status quo is very high and enlightened providers have higher net promoter scores than Google or Apple. The health insurance industry has the lowest Net Promoter Score of any industry — lower even than cable companies.
#1 Obstacle to Healthtech VC’s/Startups Success: Uninformed/Lazy Healthcare Purchasers
After a long hiatus away from healthcare, the primary reason I came back to the healthtech sector is because there is an unprecedented opportunity in the under-performing healthcare system. My startup was fortunate enough to have an exit, however there are still far too few breakout successes in the healthtech startup community. No industry has so much smarts, hard work and compassion that gets needlessly squandered by putting clinicians in flawed models that can be best described as a Gordian Knot designed by Rube Goldberg.
Deconstructing why this is, I’ve come to the following conclusion: If we wake up healthcare purchasers (e.g., organizations purchasing health benefits) to procure healthcare services in a smarter way, the healthtech startup ecosystem would explode. Certainly there are green sprouts as VC funding has increased. However, sustainable business models are relatively few and far between.
The following is my logic (please poke holes — this is the reason I’m writing this article):
- Generating customer traction for a healthtech startup requires enough forward-looking healthcare organizations to see that the Healthtech startups are optimized for the future from the ground up. For obvious reasons, legacy vendors were optimized for the old, “do more, bill more” reimbursement model. The bottom-line is there are far too few forward-looking healthcare organizations purchasing from healthtech startups. For example, many providers stuck in their old ways expect that their equivalent of SAP/Oracle (legacy EHR systems geared toward internal use) will also become the equivalent of Facebook/Twitter/LinkedIn/MailChimp/Zendesk (i.e., consumer-facing tools). There are a fantastic set of consumer-facing tools from healthtech startups. However these will die on the vine if healthcare organizations continue to think that legacy systems optimized for internal use will magically address fundamentally different consumer requirements.
- A critical mass of forward-looking healthcare providers would create sufficient demand for new categories of off-the-shelf software from healthtech startups. Not unlike startups versus legacy software companies, there are startup/emerging healthcare businesses (e.g,. new providers and health plans) competing with incumbent healthcare organizations. Whether those are startup companies or a new business within established organizations, the successful ones recognize retrofitting old software is like newspapers who mistakenly depended on legacy content publishing systems while their nimble competitors built around new, homegrown or open source software optimized for the future. Here’s how Chilmark Research puts it: “The EHR will play a key role in PHM initiatives as a core system for the patient record, but a number of healthcare organizations today are unfortunately using the EHR as the core solution for PHM. This strategy is doomed to failure.” The new healthcare organizations only build their own solutions out of necessity and long for an off-the-shelf market that allows them to move faster. These new organizations “get it” but have their own growth challenges due to the next issue. One of the highest performing providers explained why they had to develop a new EHR in order to achieve the best outcomes. If there had been an off-the-shelf solution, they would have chosen that. The problem is there weren’t enough organizations operating like them so there wasn’t an economic model for a fee-for-value optimized EHR.
- These startup/emerging healthcare organizations can only grow as fast as healthcare purchasers buy on value over volume. The good news is the HHS has set clear goals and timeline for shifting Medicare reimbursements from volume to value. Of course, that could move faster. The single biggest purchaser of healthcare services are employers, however relatively few companies have done what IBM and some others have done. That is, treat healthcare as any other major item in their supply chain (it’s typically the 2nd or 3rd biggest cost after payroll) and shift their approach from a passive one where they simply tweak what they did the year before to a fundamental rethink.
High Growth Companies Should Lead the Way. VCs Can Help
By definition, high-growth venture-backed companies have achieved success by thinking differently. Unfortunately, the vast majority of them aren’t purchasing health benefits any differently than a crusty old company. While health benefits are typically the second biggest cost for these companies after payroll, it’s about a lot more than cost (though who can argue with saving 50-90% off of high cost procedures). Their purchasing patterns have other negative consequences.
- They expose their employees to unnecessary harm. Overtreatment is pervasive and was the subject of a best-selling book by Shannon Brownlee. If you think over treatment is benign, listen to Brownlee describing examples such as a woman who came in with a pulled muscle from a new workout and ended up requiring a heart transplant. Conservative PwC believes half of healthcare spending is waste, providing no clinical value. Enlightened employers are saving their employees from risky procedures such as transplants and spinal procedures where 40% or more are deemed medically unnecessary by top institutions such as the Mayo and Cleveland Clinic.
- They waste previous time. Even though doctors consistently tell me that two-thirds of appointments don’t require a face-to-face encounter, they force you to come in as that’s the only way they get paid. You can’t blame the provider but modern providers enable encounters without requiring wasting a half-day away from work. Reimbursement guidelines are changing (to pay for telehealth) but old habits are slow to change.
- Indirectly, healthcare costs are contributing to education budgets getting devastated. None other than Bill Gates made the direct connection between education budget cuts and healthcare’s hyperinflation that has had no correlation to improved outcomes.
Observing Zenefits’ phenomenal growth, it’s clear that companies are open to new approaches in HR. Unfortunately, Zenefits is simply a reseller of the under performing health benefits models. This is where VCs can come in.
The best VCs help their portfolio companies plug gaps and address weaknesses that are holding them back. Oftentimes, the company doesn’t even know the mistakes they are making. VCs (and accelerators) can not only help their portfolio avoid the aforementioned waste and harm, they can help their portfolio companies establish a competitive advantage. Health benefits matter. I can recall that when I left Microsoft a dozen years ago to work in startups, the primary concern my wife had was the impact on our health benefits.
I wish I had been able to tell her that I was going to have something like what Tony Hsieh is offering to Zappos employees. Turntable Health employs the Direct Primary Care (DPC) model that highlighted in The Marcus Welby/Steve Jobs Solution to the Medicaid-driven State & County Budget Crisis and The Hot Spotters Sequel: Population Health Heroes. As I have personally experienced with family members who have moved into DPC-based care, they are blown away how much better the patient experience can be.
Grassroots Adoption by Tech Industry Can Turn Around Healthcare
Once upon a time, the Fortune 500 and Department of Defense were the places new technologies were first deployed. Those of us in the tech industry know that today new technologies frequently start with consumers and smaller organizations before migrating to slower-moving large organizations. From peer to peer networks to social media to cloud services, it’s startups and high growth companies that adopted these new approaches. It’s imperative that this must now extend to health benefits.
Though incumbents have snookered most employers into thinking healthcare is too difficult to fix, plenty of organizations have proven otherwise. For example, while typical healthcare cost transparency solutions are a step in the right direction, they give the “best bad deal” while I’ve seen how a truly transparent marketplace can get triggered by one modest-sized employer in a region pushing for radical transparency as I wrote about here. In less than 90 days, incumbent providers were forced to do the equivalent of a Best Buy price match or they’d lose employers’ business. Meanwhile, traditional cost transparency tools haven’t radically altered the marketplace — at least not yet.
Self-insurance is no longer the exclusive domain of large organizations. Increasingly, enlightened employers are realizing that they don’t have to be a behemoth to take control of their destiny and go self-insured. I’ve seen orgs with as few as 20 employees take that step. Naturally, there are some prudent steps to take to do it right but it’s hardly rocket science. Recent conversations with Dr. Rajaie Batniji from Collective Health (Founders Fund-backed self insurance enablement vendor) and benefits expert Jim Millaway at The Holmes Organization made clear to me how straightforward it is to go self-insured.
Once upon a time, only big, well-funded companies had access to capital to build out highly scalable datacenters. Today, that’s available to organizations of all sizes. The same is true for the best health benefits packages. I predict the same smart organizations who recognized the value of the cloud before others will recognize that applying a new health benefits playbook can generate even greater dividends.
People are creatures of habit so the high-growth phase of a startup is a natural window of opportunity. The rate of hiring is high and the competition for talent is fierce. It’s hard to imagine a better time to introduce a new benefits approach than to new hires in an exciting, high growth company that is disrupting the status quo. If VCs aren’t willing to encourage their portfolio companies, they should expect the same kind of sub-par returns from healthIT that they’ve suffered in the past. If, however, they seize the opportunity, they’ll do their their LPs, their portfolio and the country as a whole a great service.
Of course, the “Preservatives” (i.e., those trying to protect the status quo) will use FUD to try to slow things down. This is why there is the open source project to define the optimal health benefits playbook. It is in the early stages of development and will be designed to thwart the inevitable FUD (read more here for playbook items). More than any other industry, the tech industry should be able to understand the predictable tactics of the FUDmeisters. The first four (out of nine) playbook items are very simple to understand and deploy (see Tweetstorm excerpt below). Doing so will lead health IT out of the Dark Ages while enabling healthcare’s Age of Enlightenment.
Dave Chase is the CEO of Avado.