Recently, there was a bit of a dust-up over whether it was appropriate for the Secretary of Health and Human Services (HHS) to engage the National Football League (NFL) to help HHS with the process of drumming-up enrollment for health insurance exchanges. In the end, the NFL and other sports leagues decided they were not going to be involved fearing the appearance of taking political sides.
In our view HHS is better off with this outcome. To our way of thinking the exercise would not have delivered the desired results and would have left individuals confused and created a political distraction. At the heart of most public health communication plans are three main functions: create a message, deliver the message and get people to act on the message (many variations: example, example, and example). The HHS/NFL combo would likely have failed the test: What exactly does someone who catches a football for a living say that would make the uninsured purchase insurance on an exchange? While it’s easy to single out HHS and the administration, the opposition party also thinks messaging alone will solve all of its ills but that is far from correct assumption in our view.
In terms of creating a message, our first instinct would be to recommend a governmental agency like the FCC but for healthcare. We would call it something like the clinical communications clarification committee (CCCC). However, given recent concerns about “Orwellian” government information gathering, perhaps a more open-source, crowd-sourced approach to communicating may be more readily accepted. What we have in mind is a something like Pubmed meets Wikipedia where the information is readily available, credible, and based on updated facts. Inevitably something like this would need to be proctored to keep unreliable information out. Many crowd-sourced communities do a good job of self-policing but it couldn’t hurt to have an adult watching just in case.
Assuming we can create information (the message) in a way that is understandable and credible, how to transmit this information (the medium) becomes the next challenge. While we are pretty sure the “wired generation” who wear body monitoring devices are getting the “right” information via mobile devices, the web etc., we think that more important populations that are not technologically savvy may be missing out. Dual-eligibles for example, who are major drivers of cost and poor outcomes in the system, are not in our view, easily able to access useful information via high-tech gadgetry.
The Kaiser Family Foundation (KFF) recently released a study that showed that 42% of Americans are unaware that Obamacare (the Affordable Care Act) remains the “law of the land.” News like this seems to us, to act as a Rorschach test on how observers feel about the law. Considering 50% of Americans can’t identify New York on a map we tend not to read too much into these polls. However, according to the logic of extrapolation, since we know that the ACA remains law, we are in the elite 58% (it’s about time we made it into the elite of something).
In almost parallel to the KFF news, the New England Journal of Medicine published a follow-up study of the “Oregon experiment.” For those who haven’t been following closely, the study found that previously uninsured people who were enrolled in Medicaid did not see an improvement in clinical measures when compared to those who remained uninsured. The study did seem to show a reduction in the amount of financial distress for the insured however.
Another contentious study, another Rorschach test (example, example). The problem we see with the polarity of views is that both sides seem to be cranking up the extrapolation machine and use single studies/data points to draw broad conclusions to gin up opinions about ACA’s success or lack thereof. In light of the fact that for most practical matters ACA doesn’t really get going until 2014, use of the extrapolation noise generator approach smacks of a lack of analytical rigor in our view. We will know soon enough how the program is doing… exchanges start enrolling on 10/1.
As investors, we should state upfront that we tend to give more weight to financial returns than what the philosopher-kings might call the political context. So what caught our eye in the Oregon study was that Medicaid recipients had higher healthcare utilization rates (and associated costs) than the uninsured. The connection between gaining insured status and healthcare utilization should not come as a surprise since there is a very extensive literature elucidating this connection.
Recently, there has been an uptick in newsflow around the “series A crunch”/ “the valley of death” in regards to financing. Because of who we are (a firm that connects investors with private equity investments); we at Poliwogg see a lot of the “crunched” and “valley-dwellers.” We have some good news. The good news is that we are seeing increased interest on the part of accredited investors who have not invested in private companies before and who are now more open to the idea in light of lackluster returns in other asset classes. Aggregating this group of investors allows for investments in the range that are too large for a traditional “friends and family” round but are too small for traditional institutional investors where the crunch is most pronounced. The caveat is that companies need to be ready to meet the demands of this new crop of investors. Probably, what will be required will be more stringent than what companies have been asked for in the past. On the plus side in exchange for more requirements, these investors are often more patient and more passionate (especially in the disease categories) than traditional investors.
A few observations about what we are seeing (we view mostly healthcare companies):
• Asset prices seem fairer than they have been in a while especially when compared to the prices of similar assets in the public market; spurring investor interest.
• There do seem to be a large number of companies that raised seed rounds (sometimes in substantial sizes) from friends and family. That said given the lack of arms-length transactions the supporting documentation ( e.g. possessing an accountant and law firm, audited financials) often seems a bit lacking in our view and can make a more institutional looking round challenging if not impossible. More disclosure is always better.
We recently participated in a program at Columbia Business School’s Healthcare Program on whether ACOs (Accountable Care Organizations) will fail. For those of you that don’t know, ACOs are one of the structures promulgated by PPACA (aka Obamacare) designed to encourage better cost control and quality improvement in the healthcare system.
The current zeitgeist among the commentariat is that ACOs will fail (examples: here and here). We think the reason for the one-sided nature of the question is that those of us who lived through the healthcare upheaval in the early and mid “90s” saw first hand the failure of PHOs, PPMs and IDNs (and all of the other acronyms now relegated to the dustbin of history). When ACOs are touted as a saving grace for the system, you can almost hear the collective groan of the industry veterans.
Ever the contrarian, however, we took the side of the debate that said ACOs will NOT fail. The premise of our argument was that since we already have a good idea of why the structure will fail, we can, a priori, fix the shortcomings, and though likely, ACO failure is not inevitable.
There is an extensive list of why list of why ACOs will fail. We put them into four general buckets.
Infrastructure: The system has mis-allocated resources so we have too many of some things and not enough of others leading to inefficiencies.
Technological/telecommunication: For a number reasons the healthcare system has not adopted technology as fast as other industries.
Cultural: Providers are habituated to fee-for-service payment mechanisms and patients aren’t likely to change their own healthcare behaviors.
Inertia: The well known system problems (e.g. asymmetry of information, the Pareto nature of patient demand, unexplained variation of care, counterproductive incentives) have been around forever and are difficult to overcome.
Because we spend most of our time identifying private healthcare companies with investment potential, we often get a view into what is happening in the entrepreneurial space under the punditry radar.