At SplashX, healthcare investors discussed emerging value based business models
Last Friday, Vator teamed up with HP to hold the SplashX: Invent Health event, where we asked some of the most prominent VCs, entreprenuers and members of the health community to give us their thoughts about the state of the healthcare system.
The topic covered was value-based care: the road to accountable healthcare economics. Value-based care is when caregivers are paid on the basis of quality vs per service. But how is quality measured? How can caregivers deliver quality without patients also doing their part? There's a lot of challenges to this model, but a lot of upside for everyone.
At one point, Vator CEO Bambi Francisco surveyed the panel about which value-based care models are working.
"As you work with your companies, what are some of the new value-based models that you've seen that have worked, that have scaled, and what are those that haven't?" she asked.
Melton spoke first, discussing what it actually means to be value based.
"Value based is way of thinking about your business, and a way of actually contracting. It is not itself a business. It's a business model and for most of the entities in this ecosystem, they're just doing components of their business that are value based," she said.
"So, one of the big challenges is that you think about it as this idea, 'Oh, value based care," but they're going to test it. Like, it's bundled payments or Centers of Excellence, or there's a lot of these programs that have already existed where you're just trying to align that there's an outcome that you get a fixed payment for, and you get penalized if you don't have the quality. I think about it as, you've done this test case and people start taking more and more risk. Where do you see different entities in this ecosystem making business model changes, and then how do I enter that ecosystem?"
What matters more, she said, than labeling something as value based than figuring out who's writing the checks and why.
"That's evolving right now and, honestly, it's been a little bit rough because I never thought they'd touch bundled payments and when they started touching bundled payments I was like, 'oh god,' I'm getting out for a year on this. That's the obvious one. These are Republican concepts, so the policy is really in mix. They've been promoting bundled payments and just recently they started to say they might go away. So, I think that what we have to do is actually look for providers, going back to this business imperative, that are taking populations on risk and figuring out what are the needs that they have. I'm more interested in looking at: what am I seeing in the customer base and who's writing checks, where and why, than I am if they're calling it value based or not."
For O'Keefe, it's more important to invest in "solutions that are going to increase quality, reduce cost," but it's less important that the company's business model be dependent on a value based care model.
"I think you have to achieve those goals because that is, ultimately, where healthcare is going but you don't want to risk a commercialization model on the fact that value based care models will overtake fee for service in the next two years or, otherwise, you don't have a commercialization strategy. So that's how I would address that."
Moss discussed the need for carrots and sticks in these new models, rewarding doctors by sharing in the upside, while also making them share in the downside.
"I would bucket what's working into carrots and sticks and other, I guess. On the carrot front, I think that's what's working best first, because it's the easiest to share in the upside. Shared savings is starting to work, and bundled procedures. Those are not as hard to do as some of the things we know we need. In terms of stick, I think, in the longer term, we'll need to do things like full financial sharing of both upside and downside between parties and possibly things like global cavitation, things that are much harder and further out. We're not yet seeing those working," he said.
The "other" part that Moss mentioned had to do with taking all of the healthcare data that now exists and turning it into something actionable.
"In terms of other, we're seeing glimmers of hope in conceptually disambiguating all of the data that's coming into and out of our various medical record systems. We've spent decades putting our records into an electronic format, and now we have data coming at us from every direction. It's like going through a car wash with the top down, there's just data flying everywhere. If you're a doctor, you're getting all these reports but you don't know what to do with them, they don't necessarily make sense, and we're starting to see companies that are disambiguating the different elements of data so that people know what to do and can take action," he said.
"For instance, in the case of readmissions. If the readmission rate is up, there are like four or five parties getting involved in that. So you can tell someone your readmission rates are up, 'Pay attention,' and they'll say, 'I didn't have anything to do with that. I'm a doctor and these non-doctor providers involved and the payer and the facility and there's the provider and they all have policies that affected this, so it's not my fault.' So companies are starting to tease apart this data and say to the doctor, 'Look, you had a patient come in just two days ago and here's what you can do to prevent that.' So I think that's something that's just starting to work.'
Kim reiterated what Moss said about data, and how necessary it is to have technology that can make some sense of all of it.
"I think one of the things that is really interesting is what you do with the data. Because there is a lot of data and there are a number of companies that are doing, people are using the word artificial intelligence but let's say predictive analytics, taking a large amount of data and they can actually start to predict some kind of an outcome. If you have that insight then perhaps you can do interventions that will do really well," he noted.
"One of the things that is clear is that, whether it is the value base or even fee for service, with all this information, how can you get in front of it and how can you start to make predictions about where things are going? Even just assessment of quality. I have the fortune, or the misfortune, of actually working to find all the data that goes into a quality measure for an ACO. It's a lot of stuff and you need that underlying technology to make heads or tails out of it. To automate it, it's actually a lot of work. So there are opportunities, even within whatever system that you want to do, if you want to take data and do something really interesting with it."
Precision health business models?
Later, Cyriac Rodik got up to ask a question about the feasability of startups focusing on value-based care.
"Everybody talks about driving up quality, driving down costs, even in D.C. everyone would agree with that statement as long as it stays really general. But then, when it comes to precision health, which is the ultimate form of driving up quality and lowering costs, which is preventing disease from the beginning or treating it really early, I have yet to see the first startup that is not complaining, that is in that area, that can tell me that they have a business model that actually gets them rewarded for something that didn't happen. There's no model for that, as far as I know, but I would love to hear whether you have seen any models that are cracking the nut of getting paid for something that didn't happen, because it would be a breakthrough."
Kim answered that the problem is that it may take a long time before the company would see any financial return, and that may scare off some investors.
"For precision health, ultimately, when you do the initial test, and when you see a financial outcome, it could be pretty long depending on what disease process. If you want to take population management as an end result of precision health, that's one of the reasons that people are going after diabetes. Because, if you have certain interventions you may actually be closer to a financial outcome than you do with, let's say, congenital heart disease, where you're trying to diagnose somebody at age five, when they actually start to show symptoms at age 25. That's kind of the extreme two examples but, unfortunately, a lot of innovation and the business solutions are driven by how quickly you're going to get to a financial return. So, with precision health, I think that the idea is big and, whether it's companion diagnostics or there's certain diagnosis for very curable diseases, this is another situation where it may not be in the purview of a lot of investors. Some investors are going to look in the long run because the market is pretty big, and that's kind of true in biotech, but other investors may be looking for revenues in two years and that may not happen for precision medicine."
O'Keefe also answered, and spoke about some of the ways that personalized medicine is already happening.
"You need to have step 1, then step 2, then step 3. And step 1 is: can we manage populations better? Then we get to personalized medicine the way that you're saying. I think we are managing populations better, in terms of the step 1 of this evolution. I think about Livongo; we are reducing ED visits by helping patients manage their diabetes well. There are things that we are avoiding because of that, and we have an ROI because of that. I think we have that. Now, getting down to that personalized approach for that individual, I think we're going to get there eventually, but I do think that is happening now, and we are taking shared savings, or upside in risk based contracts. Many of our companies do that today to prove that," she said.
Next, a member of the audience, Mark Goldstein, Managing Partner at Advisors.fund, gave his opinion, calling on HP to provide incentives to its employees.
"The insurance industry actually figured this out, where you get, basically, discounts if you don't smoke, you get discounts when you don't get into car accidents. So I think basically the way that you could inspire at HP is to score your employees, give them discounts by going through wellness plans," he said.
"As an entrepreneur, I think that entrepreneurs just have to solve problems. We have to build great products, solve problems. We can't care about the pricing model. I remember when I was at Apple years back, Steve Jobs told me, we were trying to price the Apple IIc, and he said, 'Screw pricing, doesn't matter. Just create a great fucking product.' I think it's the same thing here, which is, companies just have to create great products, but maybe that's where you guys come in. You can create the incentives for employees."