providers and payers in terms of improved outcomes and clinical workflow efficiencies at a lower cost to the system. For example, we are investors in a company called Gamma Medica, which has a breast imaging technology that detects four times more cancers in women with dense breast tissue versus mammography. It’s going to solve a huge problem in women’s health and is already in use at leading hospitals like Mayo Clinic. These kinds of opportunities are in stark contrast to many of the deals we saw a decade ago that were often “me-too” incremental improvements over existing technologies.
X: In the past, the target customers for health IT companies were usually doctors and other healthcare providers. But over the past couple of years, we’ve seen more and more companies selling products to consumers, insurers, and employers. What’s driving that shift, and what are the implications in 2016 and beyond?
DE: Virtually everyone agrees that widespread adoption and interoperability of healthcare IT is a necessary ingredient for system improvement. But achieving this along with a meaningful, sustainable, and value-based impact on clinical quality and outcomes is difficult to do and complicated to measure. Therefore, many of the early health IT companies went after the “low-hanging fruit,” which generally involved revenue cycle management solutions that improved practice efficiencies from an administrative standpoint. We then saw more rapid adoption of electronic health records, which was fueled by stimulus dollars from the HITECH Act. But rather than delivering on a clinical value proposition, they were generally bought on the basis of meeting meaningful use standards and billing optimization. The environment is changing for a couple of reasons.
First, economic incentives are aligning across all stakeholders in healthcare because the financial risk traditionally borne by payers (i.e., insurers and employers) is now being shared. Cost shifting to individuals through high deductibles and co-pays means they are finally starting to become true consumers in terms of understanding—and presumably being incented by—the cost and quality implications of their lifestyle behaviors and healthcare decisions. Meanwhile, the lines between payers and providers are blurring with the shift in reimbursement from fee-for-service to fee-for-value in new risk-based arrangements such as bundled payments and ACOs (Accountable Care Organizations).
Second, we are finally seeing a convergence of technologies around things like cloud-based and mobile computing; big data and machine learning; mobile and telehealth platforms; and devices and sensors that enable remote patient monitoring. All of this is creating exciting opportunities to deliver solutions that inform care decisions, improve care delivery, and enable comprehensive care management across payers, providers, and patients.
X: Health IT companies talk about how their software is supposed to lower the costs of healthcare, while improving the quality. Are more of them making good on that promise? What are some examples you’ve seen?
DE: The new wave of health IT innovation has a value proposition that is firmly rooted in the so-called “triple aim” framework. This means companies are increasingly focused on improving the patient experience of care (including quality and satisfaction), improving the health of populations, and reducing the cost of healthcare. And more of them are starting to deliver on that promise.
Until relatively recently, either the technology wasn’t quite ready or the market wasn’t primed. Today, a lot more of these companies aren’t just talking the talk. They’re actually walking the walk by bringing together IT, communications, software, and hardware technologies that deliver platform solutions with demonstrable ROI.
As an example, HealthMine (another Psilos portfolio company) is a personal clinical engagement platform that has delivered over $100 million in healthcare savings across more than 1.4 million users. Their program has been shown to reduce hospital readmissions by 50 percent and also improve the likelihood of identifying undiagnosed chronic conditions by five times, leading to lowered costs through earlier intervention. Another good example is Omada Health, which just raised a $48 million Series C round. Omada is delivering a “digital behavioral medicine” solution to people at high risk of chronic illnesses like diabetes and heart disease, and has shown substantial improvements over traditional prevention programs in terms of both sustained engagement and outcomes. Their business model is interesting because they put their money where their mouth is, only getting paid for participants who successfully complete the program.
X: What’s one New Year’s resolution that you’d like to see healthcare investors adopt in 2016?
DE: I’d like to see healthcare investors stay sober when it comes to investing in these exciting digital health opportunities. It’s easy to get seduced by new technologies and imagine the possibilities (and riches!) that will come from reinventing healthcare.
For example, one of the newest unicorns is a New York-based health insurance company called Oscar, which has raised over $325 million and is rumored to be valued at $1.75 billion (almost $44,000 per member) in just its second year after going live. I like their concept of a reimagined, consumer-focused health plan, but I also believe that valuation can only be justified by explosive growth in membership, along with flawless risk underwriting and operational execution.
We all want to build businesses like Google and Facebook: companies that take the world by storm, rapidly grow into their valuations, and deliver monster returns to investors. But healthcare is very different from other industries in terms of its complexity and the pace at which we can effect change. We will achieve those home run returns in digital health if we exercise patience and discipline in getting there.
We are on an inevitable path toward improving outcomes and quality while lowering the cost of healthcare in this country. As venture investors and owners of the transformative companies that will drive this change for the better, we need to make sure that supersized capital rounds at irrationally high valuations don’t turn successes into failures. Unicorns are mythical animals. We need to have thoroughbred horses for the race we’re in—and recognize that we’re probably not even to the first turn yet.
