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How will big companies like Amazon affect how healthcare is paid for?
Last Thursday, Vator and HP held the first of four events centered around the advances in healthcare. Taking place at HP Headquarters in Palo Alto, this event centered around the future of clinics, and how local clinics can become hip to a new generation.
The first panel centered around venture capitalists who are investing heavily in technologies advancing the way we receive care and other services from walk-in clinics, urgent care clinics, to virtual care clinics using telemedicine.
Led by moderators Archana Dubey (Global Medical Director, HP Health Centers, HP) and Bambi Francisco Roizen (Founder and CEO, Vator), the panelists included Dave Schulte (Managing Director, McKesson Ventures ), Michael Yang (Managing Director, Comcast Ventures), Ursheet Parikh (Partner, Mayfield Fund), Scott Barclay (Partner, DCVC), Alexander A. Morgan (Investor, Khosla Ventures) and Casper de Clercq (Partner, Norwest Venture Partners).
In a continuation from the other part of the conversation around how VCs define the future of clinics, Morgan stated that healthcare being 20 percent of the economy is actually a good thing because it means that more and more aspects of what we do are becoming tied to wellness.
“I dont think it’s a bad thing that its 20 percent of our economy. Healthcare is actually moving out into all of our industries. Your furniture is becoming a medical device. Your food, what you eat three times a day, and you have nutritional questions; you’re not just eating the food of your ancestors who happened to grow in the climate we live in now. You’re making decisions, many of which are guided toward goals related to health and wellness. The economy of the food, all the way from production to distribution, is actually becoming a medical industry. Beauty, you think about your appearance, that’s becoming a medicalized area of our economy. Even something as simple as how you feel is actually becoming medicalized. You don’t just feel the way you feel, you actually go and you study it, you seek to optimize it, you listen to pop psychologists tell you what to do, you’re interacting with many digital devices that actually use psychology and data science to manipulate your response. So, instead of thinking about, it’s 20 percent of the economy and we’re going to shrink it, I think it’s going to become a huge part of the economy is going to have biotech and medicine built in. So that’s all the reasons why I’m excited about it," he said.
In response, Francisco pointed out that it's not so much the wellness part of healthcare that people want to lower and fix, it's the waste.
"It’s the part that’s sort of like advertising, where 50 percent we don’t know where it’s going. Some 40 percent is redundant spending because there’s people who get multiple procedures or multiple MRIs, when they don’t have to," she said.
Morgan responded by comparing healthcare to education, rather than comparing it to a company like Amazon, with a bottom line. With education,
"What we’ve seen in recent decades is there a big shift in privatization in education, and actually that improved a lot of consumer access to education. Back in the day, after secondary education, you’d have to go to some college town and if you were a working person who wanted to have a continuing education it was actually not an easy thing to do. A lot of for profit colleges, and they said, ‘Ok, there’s an office building right up the exit ramp off the highway, I’m going to put college a there and people coming home from work can start to work on their executive MBA,’ you actually had increased access to education. The private and for profit education groups were very aggressive with online learning because that was a money making opportunity," he said.
"Not everything went well in that space and there’s an excellent Frontline documentary called College Inc. about many of the problems in for profit education, but it actually shifted a lot of access to education, which I think is similar to healthcare in it an outcome that is very hard to quantify or describe what we really want. It’s really hard to quantify what we want in education, sort of like pornography: we know it when we see it, but when you try to define it carefully it becomes very difficult. So I think historically there have been many of the same geographic monopolies around education that we have had around healthcare. Reason by first principles is probably a better thing to do, but by analogy I might not look at commodity sales channels like Amazon but more towards how education is evolving.”
Dubey then took what Morgan said about Amazon and pivoted the conversation toward how big employers will affect the future of clinics.
“Since we’re talking about Amazon so much, how do we address Amazon joining hands with Goldman Sachs and other folks to start their own way of addressing health care in general? Not just the cost part of it but the care delivery part of it. Bringing it back to the future of clinics, how does that pan out and how the future of clinics would look like when large employers will start to create consolidated cost modeling?" she asked.
“I think the biggest innovation in the ecosystem is basically caring the risk on a population, so employers and, I guess, medicare," Parikh responded.
"For what it’s worth, I actually disagree with, 'Lets take healthcare and make it 30, 40 percent of the economy,' because if you look at the federal reserve data since 1970, the employer cost to compensate employees has gone up 60 percent in real dollars, but the employee wage on average has actually been flat. So all of that 60 percent has gone into the cost of healthcare and with two and half members per employee that's $25,000 in premiums, that's beginning to become a middle class wage in most of the country. You overlay that with how much education plays a role in careers, you have 60 percent of the country that hasn’t gotten a pay raise and feels that they will never really get ahead, that others will cut in line, so I actually think it's becoming an American competitiveness issue, it’s a board room issue, it's a top issue for all the leadership and CEOs and that is what is going to drive this change. What that means for the future of clinics is innovation comes faster."
One would tend to think all this great wellness talk and products, the insurance plans are only now catching up with it.
"So I think we’ll see this innovation come faster mainly because of the fact that it will be the Amazon and the Berkshire Hathaways and the Microsofts, Googles and Facebooks and Comcats who are really taking charge.”
Barclay was next to speak, and he was critical of the role that companies like Amazon play in the healthcare space.
"If there’s a spectrum of, ‘Oh, this is a really big deal,’ on the one hand of the spectrum, to, ‘Don’t you remember that there’s been like seven really large employer groups have gotten together to say, ‘That’s it, healthcare’s broken and we have to solve for the future of our grandchildren and our competitives, etc.’’ I’m on the side of the spectrum that’s far past radical that this is a really big deal, and I’ll tell you why, which is I could not find a bigger pool of capital that is willing to take 15 year patience to say, and I’m mainly centering on Bezos when I say this, ‘I don’t want to be a services business but I will not succumb to just playing by the oligopolistic rules and even if it takes me 10 to 12 to 13 years, I will find a cash flow positive way, in the long run, to do a fixed investment that just waits it out and takes out that part of the economy so that it works more efficiently.’ So, I think, sure, we’ll see them pull together as a certain type of employer, which is what most people think, ‘That’s what this really is.’ I think they’ll buy and or take out premiere very quickly and suddenly they’re in the middle of the supply chain on the medical side," he said.
"Look at the pharmaceutical supply chain, and there’s no sharp elbows towards our friends at McKesson when I say this, and look at the impact on market cap and say, ‘Actually, maybe we don’t even need to do anything, we’re actually clearing out, there’s no more TPMs to disrupt, they’re all, at this point, owned.’ Then they sit there and they watch for a year or two, and particularly sitting on the medical supply chain, and they say, ‘Oh, this whole hospital thing is really, really inefficient.’ But they’ll say, ‘We don’t want to own hospitals.’ I live in a future where you can take almost every interaction, if you’re liberal and your definition of it and it becomes a bundled episode, and so I think Amazon is the one wedge that could help dictate what math and CMS have know but failed for the past 10 or 15 years, which is: most of where we get care when it’s going to be expensive should be part of thoughtful bundle. If you go into the math of bundles, where I get excited are the second and third order. It’s one thing to say, ‘What if hospital systems didn’t just price as a functional economic system but to actually compete on the bundle of, say, the 12 months surrounding a knee replacement, as an example.' It turns out they get relatively competitive and you can cut the line off so it's always somewhat above average in quality but competing in an average or slightly lower cost."
The reason he's excited, he said, is that in 15 years primary care will look nothing like it does now.
"Project onto that that primary care will be functionally much broader than you’re actually experiencing. When we created these silos, which are none of our fault, of mental health, the clinic, the triage, where and how you’re walking aside along very closely type 2 diabetic, various silos in the future, that will all be part of a team-based, clinically driven, data compute shifted towards the patient environment, where all of those things are part of your primary bundle. Primary care will be much broader. The second thing I’m saying is that it will look like it was made for you. My closest example would be, we’re also early but small investors in Forward, but I would say if you are a working, late 30s professional, and your employer works with Crossover, if you’ve had a chance to touch that experience. That’s the closest example I can give to what it will look like. But then I’d say imagine you had Crossover for my mother when she’s 68 and she has, it’s going to look entirely different than whatever may daughter’s going to be going to when she’s 22 and living in New York City. My point is it will in some ways become much more branded, consumer centric, verticalized, probably full stack, each one will fell like this is something that fits to who I am and it will literally have brand, we have not seen any true brands. And the other will be very functionally broad and clincally. So I’m excited about that," he said.
“It seems like the clinics are becoming an operating system in which you can download or pick your apps and create a modular experience for yourself, in a way. Crossover or Forward, we have Premise Health Centers, they are trying to create that experience but its largely, going back to your point, it’s been asserted by the self insured employers because, not just the cost, but they also value their talent and they want the experience to be the front and center of healthcare delivery," Dubey responded.
At the end, Yang brought the conversation back to being about how to actually deliver healthcare to people and to make their lives better.
“I’ll swing it a different way, which is I think problems that we’re talking about so far are privileged, first world problems. The state of healthcare in America is such that we, frankly, don’t even deserve to be talking about it because we have far more primitive crawl problems, not even walk, not even run or whatever the next thing is. I’m talking about people, a family of four, that will go the ER 30 times a year because they never taught it was an option to get a primary care doctor and to go for a physical. So they incurring $5,000 to $10,000 a pop times 30 to whoever is underwriting that bill. Just simply giving them a nudge, “You know, we’re actually happy to go find you a PCP that’s near your home on the way home from work,’ that is cost reduction right there of a massive magnitude, going back to the waste. It’s fundamentally literacy, to your point, which is we’re not smart enough and the influx of the demographics and poverty and other social economic drivers, we’re not allowing people to be consumers, let alone sophisticated consumers to take on the consumerization of health," he said.
"I focus more on what I would say access, I would focus on contextual barriers, I would focus on societal impacts, this kind of stuff, just to level the playing field to have normalized participants in the healthcare ecosystem. I think waste and utilization is the dominant thing before you even have the right to service people because they’re living longer, they have more chronic and all that kind of stuff. Again, we live in a privileged geography in the country, where people have therapists. All your questions, Alex, you go anywhere else, that hospital that they’re building in that other town over there that they see on the highway but they’re never been, they don’t know people in their own network that even are fit, they have generations of people in their family who have smoked, so you grow up knowing that’s what you’re supposed to do when you hit 17. That’s the cycle that we’re focused on, which is why, for better or worse, tech enabled services, frankly, we’ve tried a lot of software, we’ve tried a lot of other DIY solutions, but tech enabled services where there’s human person that is going to bond and ultimately be that coach in the care of a patient, member, employee, whatever you want to call it, that’s what we have found to be most ephocacious at moderating behavior and driving, ultimately, positive outcomes, both quality and cost in heathcare.”
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