the efforts will not be in vain. Also you might now see an acceleration of the development of insurance exchanges and an acceleration of the consolidation among provider organizations.
X: Does Obama’s reelection clear the way for more innovation in healthcare, and if so, in what areas?
LS: I certainly think it should. The ACA changes the healthcare system in a fundamental way, but then there is this seismic shift going on as a result of the fundamental economic imperatives, and this is going to create a lot of opportunities for new business models that drive costs down through quality measurement.
It creates opportunities across a couple of sectors. No. 1, the whole concept of figuring out how to deliver low-cost, accessible, high-value care to people, especially the 30 million who are going to be entering the system for the first time, and for all the other people who will enter in other ways. There will be new types of front ends to the system, and they will need infrastructure and approaches to managing their business, and really good products and services for managing chronic care efficiently.
Then, as people move out of hospitals faster, organizations will need systems to keep people out of hospitals. The law has specific requirements about readmission rates, so there is a lot of effort in the market about how to prevent readmission through effective clinical management.
There is also this giant shift in financial risk and clinical risk assumption. We are going from fee-for-service to not-quite-fee-for-service, in a pretty broad way, where you are paying fixed amounts for cases. Hospitals don’t know how to deal with that. The profit now will come from being efficient instead of being prolific. So they will need tools and programs and analytics to help them make that transition.
The other area is the whole “retailization” of insurance. There is a huge, fundamental shift in the business, as individuals are driven more and more to buy their insurance from exchanges. Insurance companies don’t sell that way. They don’t have good brands from a consumer-satisfaction standpoint; in fact they have some of the worst brands in the world. So organizations that work on consumer brands are coming into the marketplace.
New players are emerging and more styles of insurance products are emerging. You see the evolution of value-based benefits, meaning insurance products that incent healthy behaviors and preventative behaviors and consumer accountability. SeeChange Health, one of our companies at Psilos, is one of the companies working on that.
So I think there is this whole big opportunity around the emergence of health exchanges, retail insurance, and products and systems that support them. If you go inside the big players now and look at the enterprise software they use to run their businesses, they can’t administer these new products. It is literally impossible to pay a claim in a fixed-rate manner. New technology companies are emerging to help payers administer this.
X: What about in the area of personal and preventative health? The Obamas planted a vegetable garden on the White House lawn, but other than that, what kind of reforms has the administration pursued that would encourage people to eat better, to exercise, to avoid diabetes and obesity, and control healthcare costs that way? And what’s happening in the private sector?
LS: Actually, there’s a lot happening there. Yes, the Obamas planted a vegetable garden, but Michelle Obama also had the Let’s Move campaign against childhood obesity. And look at what Bloomberg did with the soda ban in New York. I’m not suggesting that’s fixing the problem, but the whole debate has become part of the public awareness, probably for the first time ever.
What’s happening in the private sector is that for the first time ever, there are incentives for building preventative health programs and paying for preventative health visits. The marketplace has seen the emergence of value-based health plans, things oriented toward incentivizing consumers to take their health more actively into their own hands.
If you look at what SeeChange is doing, for instance, they have an insurance product where if you agree to get a basic blood test every year—and it pays you $500 to do that—it merges the data it gets from that with the data on your personal health record and your claims data and it says, “Okay, we just found somebody who is likely to get diabetes in the next year or two, and we are going to design a benefits package for them, and if you agree to do the four or five basic things that people need to do to prevent the onset of diabetes, we will pay for you to do that.” It’s mass customization. It takes away the financial barriers to taking care of yourself and reminds you what you should be doing, and then once you start doing these things it continues to reward you.
SeeChange sells directly to employers and they are the fastest-growing insurance company in California right now by membership. When you look at the data, they have managed to keep their premium increases under 3 percent per year, which is shocking compared to the competition, but they are also finding things like higher compliance with people getting things like HbA1c tests if they are diabetic. They are a very good example of what is going on in the healthcare entrepreneurship system to build products designed to engage consumers and hold them accountable and incent them to take better care of themselves so the costs don’t grow later. And it’s not just managing healthy people so they don’t get sick. It’s managing sick people so they don’t get sicker.
X: Overall, you sound pretty optimistic.
LS: Sitting in my chair, I feel there is so much opportunity to invest in meaningful companies. I am in healthcare venture capital because I feel like in addition to the ability to make money, you can actually do some good. There are some fundamental shifts in the industry that are pointing us in a positive direction, if people will just work together and cooperate, which is happening more than you would expect. There is a lot going on that is different from what we have seen happening in the past. It’s exciting.
