By DAVE CHASE
Today’s opioid crisis is one of the most dire side effects driven by our dysfunctional U.S. healthcare system. A recent JAMA Surgery report found that many surgeons prescribe four times more opioids than their patients use. This opens the door for misuse and abuse later on. In fact, the total combined cost of misuse, abuse, dependence and overdose is about $78.5 billion.
Unfortunately, there’s a direct connection between the low-quality care many patients receive, and the astounding rates of opioid addiction. Often, insurance plans offer access to high-cost, volume-centric physicians and include high deductibles — creating an expensive cycle that doesn’t focus on patient outcomes. Instead of taking the time to figure out what is actually ailing a patient, these overworked and nearly burnt-out doctors get them in and out the door with a referral and a prescription for more pills than they could ever need.
What may surprise you is that employers play a large part in setting the stage for addiction. Millions of Americans get their health insurance from their employer, and a majority of those plans are fully-insured. To determine what insurance plan they offer, employers work with a benefits broker to purchase one from a carrier like Aetna or Cigna. Each year, employers and their broker join together for an annual dance — the broker tells them that healthcare costs are rising so their insurance rates have gone up, usually by 5-20 percent. The employers don’t know better than to accept these increases, filtering them down to employees in the form of higher premiums. Despite costs constantly going up, the quality of care does not follow.
Healthcare providers are finding their “play it safe” culture isn’t conducive to breakthrough innovation.
Facing the inevitable deflationary pressures being put upon the healthcare system, innovation is critically needed. Having spoken with several innovation groups in health systems, most examples of “innovation” are decidedly uninspiring. Primarily, it is due to the fact that virtually all of their decisions have to go through the prism of how new ideas will fit with current businesses — a guarantee that will doom so-called innovation to be little more than incremental improvements. Consequently, increasing numbers of hospitals and health systems are smartly allocating money to venture funds that have free reign to find truly disruptive new businesses.
Health systems have taken various approaches such as becoming a Limited Partner in venture funds like Health Enterprise Partners. Some of the larger systems, such as HCA and Dignity Health, have their own venture arms. A new development is a much smaller organization establishing their own venture fund. Implicit in this approach is a much more hands-on approach than as an investor in a 3rd party venture fund. Rex Health Ventures is an early example of venture-capital investment funds in the country started by a community, nonprofit hospital (Rex Health Care). The fund is being launched with an initial $10 million investment from Rex Healthcare and will help finance the most promising innovations among new medical services, tools and technologies.
As both the private and public sector aggressively shift healthcare incentives from a “do more, bill more” to a value and outcome based model, healthcare providers ignore patients role in driving outcomes at their own peril. It is generally understood that patients forget 80-90% of what they are told at the doctor’s office. As incentives no longer reward outcome over activity, this is a disaster financially for health professionals. This will require healthcare leaders to think in a different way. One has to be in denial to think that healthcare reimbursement isn’t entering a deflationary period yet it’s not all doom and gloom for forward-looking healthcare organizations. In fact, it’s a massive opportunity to leapfrog competitors.
As the founder of the Institute for Healthcare Improvement, Dr. Don Berwick stated in an earlier piece:
“The health care encounter as a face-to-face visit is a dinosaur. More exactly, it is a form of relationship of immense and irreplaceable value to a few of the people we seek to help, and these few have their access severely curtailed by the use of visits to meet the needs of many, whose needs could be better met through other kinds of encounters.”
Smart Doctors Recognize Their Inefficiency
If one were to observe a doctor for a month, you would find that doctors have their own FAQ for various conditions, diseases, prescriptions, etc. They are essentially hitting the Replay button hundreds of times a month. Smart doctors are recognizing that there is a better way. The patient and family benefits greatly when the doctor has a mini package of curated content (video, articles, etc.) that is developed for the patients. This is predominantly a manual process today (e.g., writing down web addresses in an appointment or emailing them afterwards).
“The cheapest form of capital is customer revenue”
David C. Jones, Altus Alliance
Crowdfunding has had success in high-tech, where people are eager to explore new models. MedStartr is bringing this concept to healthcare where it can be particularly challenging to get a startup off the ground. They have a twist on crowdfunding to address requirements of healthcare, an increasingly popular way to raise capital for startup technologies and interesting projects.
MedStartr is like most crowdfunding sites that are non-equity. They have plans later to have an equity model once SEC rules are clarified. In the meantime. MedStartr is attempting to hit the sweet spot that crowdfunding poster child, Pebble Technology hit. That is, customers get a great deal and early access to a product. Meanwhile, the startup gets non-dilutive funding and market validation to help it grow to the next stage.
“Advertising is the tax you pay for being unremarkable.”
Robert Stephens, founder of Geek Squad
When I’m not writing pieces here, my “day job” is working with healthcare providers recognized as Disruptive Innovators who are reinventing healthcare and slaying the healthcare cost beast as a byproduct. In some cases, these are entrepreneurs. In others, they are pioneers within existing healthcare providers.
Even though this is the month that the Supreme Court is supposed to rule on the constitutionality of Obamacare, it is striking this fact rarely that ever comes up in discussions with healthcare providers.
Philip Betbeze described this in a HealthLeaders Media piece entitled “Disruptive Healthcare Innovations Trump SCOTUS Worries“ when he asked senior executives about their perspective regarding upcoming the Supreme Court decision.
But when you ask one question, you might get an interesting answer about something else entirely. That’s the way my sources for this off-the-record conversation surprised me. They agreed they are much more concerned about disruptive innovation than what nine people in black robes are going to say at an indeterminate date sometime this month.
The roundtables, set up for me by the good folks at Premier Inc., which is holding its annual “Breakthroughs” conference here in Nashville this week, revealed that these leaders fear less what the government may do in response to whatever decision the Court makes, and more what nontraditional competitors may do to their resource and capital-heavy healthcare delivery systems.
Health system CEOs would be well advised to study what newspaper industry leaders did (or perhaps more appropriately, didn’t do) when faced with a dramatic industry change. Turn back the clock 15 years and the following dynamics were present:
- Newspaper leaders knew full well that dramatic change was underway and even made some tactical investments. However they didn’t fundamentally rethink their model.
- Newspapers were comfortable as monopoly or oligopoly businesses allowing for plodding decisions. Their IT infrastructure mirrored the plodding pace with expensive and rigid technology architectures.
- Newspaper companies bought up other newspaper chains and took on huge debt.
- Owning printing presses was a de facto barrier to entry allowing newspapers unfettered dominance.
- Depending on one’s perspective, it was the best of times or the worst of times to be a leader of local media enterprise.
Before they knew it, owning massive capital assets and the accompanying crushing debt became unsustainable. The capital barrier to entry transformed into a boat anchor while nimble competition dismissed as ankle-biters created a death-by-a-thousand-paper-cuts dynamic. Competitively, newspaper companies worried only about other media companies or even Microsoft, but their undoing was driven by a combination of craigslist, monster.com, cars.com, eBay, and countless other marketing substitutes for their advertisers. In addition, there were easier ways to get news than newspapers. Generally, the newspaper’s digital groups were either marginalized or unbearably shackled so that the encumbered digital leaders left to join more aggressive competitors. The enabling technology to reinvent local media didn’t come from legacy IT vendors who’d long sold to newspaper companies, but from “no name” technologies such as WordPress, Drupal and the like.
In a piece for the New Yorker, Dr. Atul Gawande outlined how, early in the 1900s, more than forty per cent of household income went to paying for food and food production consumed roughly half the workforce. Beginning in Texas, a wide array of new methods of food production were tested. After many pilots, tests and information dissemination, food now accounts for 8% of household budgets and 2% of the workforce. As a wide array of small innovations ultimately led to the transformation of farming, so too is a rapidly building wave of innovative new care and payment models leading to similar breakthroughs in healthcare. I call this Nimble Medicine.
Until recently, attempting a new care or payment model meant long planning and development cycles. The cost and complexity of testing new models prevented many from being tried. Even today, the leading HealthIT vendor is known to charge $100 million and up for its software. Amazingly, they require three months of training before they even let people administer the software.
As Health Innovation Week kicks off, before 1300 of our best friends arrive for the Health 2.0 Conference on Sunday-Tuesday, on Saturday we are hosting a Health 2.0 Code-a-thon in San Francisco at the PariSOMA loft (11am Saturday 25th to 3pm Sunday 26th). Spots are filling up fast but you can register here & yes, it’s free and there’s $10,000 in prizes at stake (not to mention pizza & beer). But it’s not just SiliValley techies who care. Big pharma Novartis is getting into challenges big time including sponsoring one at this very code-a-thon. THCB favorite (and CEO of Avado) Dave Chase explains more–Matthew Holt
“We’ve spent billions developing new drugs and we’ve spent billions marketing drugs but we’ve spent nothing on the actual use of our drugs.” That is how a senior executive at a major pharmaceutical company described the model in which they’ve operated historically. In a “do more, bill more” reimbursement environment, there was little economic incentive for a pharmaceutical company to pay close attention to what was happening with patients in clinical practice. This has been in stark contrast with clinical trials where a trial makes or breaks a drug. For obvious reasons, in clinical trials, there is a tremendous amount of attention paid to what happens with an individual’s use of a drug.
Times have changed. Not only have the first warning shots been fired across the bow of the pharmaceutical industry, the first shots have landed. Whether the payer is a national government or private insurance company, increasingly, they are refusing to pay for drugs that haven’t demonstrated efficacy in clinical practice (not just trials).
Recently ZocDoc had a huge funding round demonstrating the success that they are having. There’s a number of lessons learned from ZocDoc’s experience. Unfortunately, many haven’t demonstrated Zocdoc’s wisdom leading to a large number of healthtech failures. A recent study highlights this phenomena. After interviewing 110 digital health entrepreneurs, RockHealth recently released its study Rock Report: State of Digital Health demonstrating the disconnect between the startups getting funding and what many startups are pursuing. This disconnect is the last and most important reason healthtech companies have failed that are detailed below. The following are the top reasons why healthtech companies have failed or had to do major pivots in order to survive:
Lack of Specific Focus or Adoption point
It’s well documented that a lack of focus kills startups whether they are in healthcare or not but it is particularly prevalent in healthcare. The diversity of opportunities in healthcare is so great that it’s tempting to try to solve it all. These startups are ignoring the old saying about how to eat an elephant — one bite at a time. Too many startups are trying to swallow the elephant whole.
Expected consumers to pay
With the exception of weight loss programs, there aren’t many examples of consumers paying directly for health services. Over time, this is likely to change as more of the burden of healthcare costs gets shifted to consumers as was highlighted in a Healthcare Disruption series (see links below). However, I’d be very cautious about any business expecting to have consumers pay in the near-term.
Bob Fabbio is a tech industry veteran most known for founding systems management company Tivoli which went public in 1995 and a year later sold to IBM for $743 million. He’s been a part of other successful exits such as selling Dazel Corp., which was acquired by HP in 1999. His latest venture is WhiteGlove Health’s which now has 500,000 members primarily in its home state of Texas.
An enterprise software veteran isn’t the obvious person to lead a healthcare provider. However, as outlined in Healthcare Disruption: Healthcare Providers Repeating Newspaper Industry Mistakes, it’s frequently not the obvious competitors that create the greatest disruption in the marketplace.
The legacy healthcare payment model for primary care is a Gordian Knot designed by Rube Goldberg. Consider the legacy model versus WhiteGlove’s model in the tables below.