Xconomist of the Week: Lisa Suennen on Healthcare Reform Post-Election
It’s been a stress-inducing year for innovators in the healthcare arena. The Patient Protection and Affordable Care Act, which calls for the creation of state exchanges to extend health insurance to millions of people who currently lack coverage, passed Congress by a slim margin in 2010 and has been under assault by Republicans ever since. This week’s presidential election was widely seen as a referendum on whether the reforms in the law should move forward.
As long as that question was up in the air, it was hard for businesses to guess what the economics of healthcare might look like a year or two from now—and that kind of uncertainty makes it all the more difficult for startups to sell new products and services.
Xconomist Lisa Suennen is co-founder and managing member at the healthcare-focused venture capital firm Psilos Group, which runs three funds with over $580 million invested in healthcare services and healthcare technology companies. She’s on the boards of startups AngioScore, PatientSafe Solutions, OmniGuide, and Veralight, and also serves on an advisory board at the Department of Health and Human Services that oversees the department’s “Investing in Innovation” prize program. In other words, she evaluates the opportunities in healthcare innovation for a living. So we were curious to get her take on President Obama’s victory this week. Does it really clear the way for enterprises, investors, and startups to keep experimenting with ways to improve health and reduce costs?
When I spoke with Suennen Wednesday morning, she said she didn’t think either candidate had done a great job explaining what he’d do to get healthcare costs under control. And even if Mitt Romney had won, she added, it wouldn’t have staved off the coming transformations in the healthcare industry, which is under huge economic pressure to increase efficiency.
Still, Suennen thinks President Obama’s reelection should help to calm skittish healthcare investors—and at the very least it means we can skip over the period of anarchy that would have greeted an incoming Romney Administration. She sees big opportunities for companies that can offer consumers new ways to stay healthy, or hospitals and insurance companies new ways to cope with changes like the decline of fee-for-service billing.
“I am in healthcare venture capital because I feel like in addition to the ability to make money, you can actually do some good,” Suennen says—and she’s excited about Psilos companies such as SeeChange Health that are coming up with radical new ways to improve the health of patient populations.
Here’s an edited version of our talk.
Xconomy: Healthcare played a big role in the presidential election, but I’m not sure the real issues about costs and access to care ever got discussed. As you watched the votes come in Tuesday night, what was uppermost in your mind?
Lisa Suennen: It was the concern that the two parties seemed to be fighting about different methods of not fixing the problem. We have to have a framework to address value and cost in healthcare. While the health reform law is not one that reduces cost, it can be worked on and fixed and tinkered with and improved. But it wasn’t clear what [the Republican] alternative was going to be, except “not that.”
In general, I’m always amazed by how well people can separate talking about the economy from talking about healthcare. If you dig into the numbers, healthcare is the biggest, fastest-growing expense in the economy. If you don’t address that, healthcare costs will become such a large portion of our overall national spending that it’s unsustainable. It really has to be addressed as part of economic recovery. It is not separate from the economy. They are intrinsically intertwined.
But no matter what happened with the election, a lot of things that have been set in motion in the healthcare world would have continued on anyway. We are experiencing a seismic shift in the way the system operates, more as the result of economic pressures than as the result of any particular law.
X: In attacking Obamacare, the Romney campaign seemed to be trying to tap into some primal fear on the part of conservatives. What do you think is the main source of the opposition to the Affordable Care Act?
LS: There is a legitimate concern that you are opening up insurance that is paid for by the government, and maybe by employers to a certain extent, to 30 million new people, which has a significant cost. And it isn’t clear how these costs are going to be covered, at a time when we are already under great economic pressure in this country. I think that is the main issue, and it’s a legitimate concern. Certainly, there was also a lot of rhetoric around giving benefits to people who weren’t earning them, and whether that’s the job of government.
X: Imagine that Governor Romney had won. Do you think the healthcare reforms kicked off by the ACA would have completely unraveled?
LS: No. When the ACA was first being debated a couple of years ago, there was this standstill period of chaos, anarchy, and entropy. There was a lot of standing on the sidelines, which affected progress and investment in this space. That is something that could have happened again. Everybody would have stopped and said, “Wait a minute, we have all these exchanges we’re building, all these accountable care organizations, all these pay-for-performance models, and we need to stop.” It would have slowed down progress, even though, as I said, some of these things are going to happen no matter what.
X: But Romney didn’t win. So what happens now—full steam ahead?
LS: There is a whole timeline for what is supposed to get done around value-based benefits, accountable care, pay-for-performance, and other things that are talked about in the ACA. I think now you will start to see organizations getting back to the timeline and marching on. The marketplace will probably move even faster because there is certainty that 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.