Next Things First


Reform: Finally, Some Discussion of the Real Issues by Rob Coppedge

In light of all the distraction recently generated by discussions of health care IT (and even, cue the smoke machines, Health 2.0), I was very pleased to find Senator Tom Coburn, MD, and Regina Herzlinger’s piece in the Huffington Post.

In a week that for many of us has been dominated by reading the “wouldn’t-it-be-cool-ifs” of messenger bag-carrying technology evangelists, it was refreshing to see a call for a much needed national debate around the *real issues* facing the health care system.

With little fanfare, Congressional leaders may be near to agreeing on the most sweeping expansion of government in a generation – the de-facto takeover of the health insurance market by the government. Congressional Democrats are already icing the champagne. When the President’s “Medicare for all” plan is coupled with the budget, which contains a “down payment” of $634 billion over the next decade for health care, government-run health care may be inevitable.

All sides in this debate acknowledge that the U.S. has long needed easier access to health insurance. This need has gained urgency for the many Americans who are fearful of losing their employer-sponsored insurance in the midst of a recession. Unfortunately, the President’s plan will not only endanger the U.S. economy, but millions of patients as well.

They make clear that the issue here is cost containment. Or, perhaps better, that solving the “access” issue without controlling costs may be politically expedient but is a recipe for disaster.

The fundamental problem is that the President and congressional leaders lack realistic plans to control the health care costs that are already crippling U.S. global competitiveness. As a percentage of GDP, our businesses spend roughly 70 percent more on health care than competitors in other developed nations, yet we hardly receive 70 percent more in real value.

We talk a lot about cost containment – and in the world of health care venture capital, some of the most exciting investment opportunities address just this set of issues. But translating these decidedly market-focused ideas into terms that are politically palatable is difficult. Denying reimbursement for treatments, no matter their relative value or efficacy, has interest groups rushing to mount the barricades. However, as Coburn and Herzlinger point out, there is a risk of even greater hazard if we don’t engage the cost containment challenge now:

In the end, the Democrats’ health care reform will require drastic rationing… Consider Canadian patients, who may wait a year or longer to get radiation therapy. Or ask one of the nearly 1.8 million Britons who are waiting to get into a hospital or have an outpatient procedure. Or talk to the German breast cancer patients who are 52 percent more likely to die from the disease than Americans.

Concerns about rationing and patient outcomes are not demagoguery. How else can a government control costs in the real world? Many experts, including the Congressional Budget Office, dismiss as wishful thinking the Democrats’ claims of achieving efficiencies through bureaucrats’ dazzling implementation of information technology and other technocratic tools.

And this is where the real world collides with the health care technology bandwagon. It goes without saying that health care lags behind in the implementation of back office and administrative information technology. And certainly this is due in some part to all the factors that are debated regularly in the blogosphere. However, it is also due to the basic fact that there has been little ROI for physicians implementing these technologies.

I worry that we are just further confusing the issue. As my colleague Alan Buffington points out:

Isn’t it interesting that no matter how many times they are corrected, politicians and media folk refuse to distinguish between health care and health insurance.  Failing to make this distinction is what causes the problems discussed in the article.

If you watch the blogs, Twitter or CNN, you will have proof that the problem Alan points out is deep and widespread. The problem with health care is that it is “hard” – complex, path dependent, interlocking, huge, with substantial ethical and moral considerations. For most people (especially politicians),  this is way too much.

Posted by RobC

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Remembering Rick Carlson by Rob Coppedge
February 19, 2009, 9:27 am
Filed under: health policy, seattle market | Tags: , , ,
Rick J. Carlson

Rick J. Carlson

We were shocked to receive the news that our good friend and colleague Rick Carlson passed away last week. He will certainly be missed – as most good friends are – but the impact of losing Rick will run deeper. He was a living reservoir of experiential knowledge of the health care system’s experiment with managed care. He had seen the good and the bad – and was not afraid to point out the ugly, even in his own contributions to the system.

I would often introduce Rick as an architect of the HMO Act and the guy who “named” health maintenance organizations. “I am still living that down,” he’d retort.

Despite his ability to effortlessly list (and list and list) the failings of the current system, he was a close advisor to many of the biggest players in the business. His Rolodex was deep and full of friends – he often counseled me on the importance of actively cultivating and investing in one’s network. He was always early. He always followed up. He said it was because he was Swedish, but I haven’t met any other Swedes like Rick.

He was extremely excited about the changes on the horizon for the health care system – and spoke often of what he called the “Next Health Care Delivery System” where innovation focused on service delivery and treatments were assessed for comparative effectiveness. In the Next System, we would get back to managing the care of patients and use technologies to empower patients with the information they need to take better care of themselves. It was for him the logical extension of what he and his colleagues had attempted to build in the 1970s.

I valued Rick’s professional counsel and was honored when he joined Faultline Venture’s advisory board. He was excited to jump into the activities of the firm – helping communicate the exciting opportunities in the health care market to potential investors and advise early stage companies how to avoid the potholes he had seen. But more than that, he was a wonderful friend. He was one of the first calls I made when we decided to move to Seattle (“Great idea… its the right time”) – and has provided counsel on a range of subjects that he knew well (little local restaurants, great cups of coffee, amazing hiking trails, etc). Rick took an interest in us and we have been so much the better for it.

Many of us will feel the void his loss has left, and not just those who knew him well. It is the loss to the young health care entrepreneur that won’t have the value of Rick’s counsel that worries me most. I’d love to tell him that he was the one that got us into this mess and he has to stick around to help us get out. However, as I survey all the lives he has touched and careers he has influenced and friends who will carry his memory, I believe maybe he’s done just that. Now it is up to us to build the Next Health Care System.

RICK J. CARLSON

Rick J. Carlson, a renowned health consultant and one of the prime architects of the “Health Maintenance Organization Program” (HMO) died of a heart attack on Friday February 13th. Rick, who lived with his family in Aspen for twenty years had an impressive, illustrious and full career.  Born in 1940 in Minneapolis, Minnesota

Rick went to St. Olaf College and then went on to receive his JD at the University of Minnesota.

In 1968 Rick joined the Institute of Interdisciplinary Studies (currently Interstudy of Minneapolis, Minnesota) as a research attorney where he drafted the legislation which initiated the health maintenance organization movement across the country.  Following this work he was invited to be a Visiting Fellow at the “Center for the Study of Democratic Institutions” in Santa Barbara, California and during his 18 month tenure there he published his first book, THE END OF MEDICINE, which was a seminal book in the health field.  His work at the Center on issues pertaining to law and justice led to his writing his second book, THE DILEMMAS OF PUNISHMENT in 1976.

While living in California Rick served as the chairman of the California governor’s Council on Wellness and Physical Fitness and became the first director of the California Trend Report Project.  Over the years Rick worked as a consultant to major institutions in the healthcare industry, such as the Blue Cross/Blue Shield Associations of America, the America Hospital Association, the Health and Human Services Administration, the MacArthur Foundation and others.  In 1978 Rick authored THE FRONTIERS OF SCIENCE AND MEDICINE and in 1985 co-authored with Clement Bezold THE FUTURE OF WORK AND HEALTH.  From 1987 to 1990 he served as President and Chief Executive Officer of NewHealth Centers/PPP Inc which worked in the development and establishment of Primary Prevention Program Centers and state-of-the-art risk assessment systems.  In addition Rick was “Of Counsel” to Epstein, Becker & Green, P.C., a law firm with offices across the U.S..  Rick also served as the President and CEO of HealthMagic, a healthcare technology company headquartered in Denver and was Vice Chairman of Age Wave Health Services located in the San Francisco Bay area.

In 1987 Rick co-authored ISSUES AND TRENDS IN HEALTH with Brooke Newman and in 2002 co-authored with Gary Stimeling THE TERRIBLE GIFT, an assessment of the promises and perils of biotechnology.

In 2001 Rick became Clinical Professor Policy Programs Department of Health Services and Affiliate Professor Department of Pharmacy, School of Public Health at the University of Washington, Seattle.

Rick’s enormous body of work was an impressive accomplishment but his absolute greatest achievement in life was as an extraordinary loving, devoted, wonderful father to his four children Blue (Gyorgy), Joey, Josh and Rebecca, and his step-children Nikos and Samantha Hecht.
He will be dearly missed at the Aspen Ice Garden where he spent many an hour proudly watching Blue and Joey playing hockey.  And, indeed he will be missed by the hundreds of people he deeply influenced and touched personally.

The date for a memorial service will be announced within a few weeks.



Wielding Technology’s Wonders by charlottegee
January 22, 2009, 8:57 am
Filed under: health it, health policy | Tags: ,

Google “Obama and health care” and be prepared to wade through link after link, opinion after opinion. During the excitement surrounding Tuesday’s activities, many in the health care world listened intently to the President’s speech, all ears for health care mentions. The Wall Street Journal’s Health Blog highlights the two:

———-

We, focused as ever, listened for any tidbits about health care and heard two. First, there was an acknowledgment of the expense of health care in a long list of woes the nation now faces.

That we are in the midst of crisis is now well understood. Our nation is at war, against a far-reaching network of violence and hatred. Our economy is badly weakened, a consequence of greed and irresponsibility on the part of some, but also our collective failure to make hard choices and prepare the nation for a new age. Homes have been lost; jobs shed; businesses shuttered. Our health care is too costly; our schools fail too many; and each day brings further evidence that the ways we use energy strengthen our adversaries and threaten our planet.

Later, in keeping with Obama’s seemingly ceaseless message of hope, health came up again as the president talked about how the U.S. can “lay a new foundation for growth.”

For everywhere we look, there is work to be done. The state of the economy calls for action, bold and swift, and we will act – not only to create new jobs, but to lay a new foundation for growth. We will build the roads and bridges, the electric grids and digital lines that feed our commerce and bind us together. We will restore science to its rightful place, and wield technology’s wonders to raise health care’s quality and lower its cost. We will harness the sun and the winds and the soil to fuel our cars and run our factories. And we will transform our schools and colleges and universities to meet the demands of a new age. All this we can do. And all this we will do.

—–

People are appropriately a-buzz with the prospect of money being poured into renewed focus on health information technology. Many are for it, saying the time is now and let’s get moving–yesterday!; many are against it, arguing that there are plenty of other (better) ways to help the system; many say that it sounds good on paper and over the speakers, but you’d better have a pretty smart checklist in place before making any moves.

After the speech, Virginia Postrel and Shannon Brownlee had an online conversation, posted on The Atlantic, about the intricate nature of the health care system–touching on issues ranging from interoperability to EMRs to innovation in medicine. Shannon notes:

What’s interesting is the fact that the federal gov’t has to get involved in stimulating EMRs in the first place. I can’t think of another major industry that has not decided to invest in computerized records. Why not health care? Because you don’t get rewarded for doing a better job of caring for patients, or doing it more economically, two things that EMRs could help providers do.

Wherever you fall on health care reform, 2009 is sure to be an interesting show. Set the DVR.

Posted by CharlotteGee



The Big Push for Healthcare IT … Economic + Political Perspectives (From Howard Luks) by charlottegee
December 15, 2008, 10:57 am
Filed under: economy, health it, health policy | Tags: , ,

During a speech last week in DC in front of the Department of Health and Human Services Health Policy Forum (with nearly 50 of America’s thought leaders on disruptive healthcare), Ben Sasser, the Assistant Secretary of Health, commented that the projections for Medicare Part A funding were wrong. The Department figured out last week that Part A funding will be bankrupt prior to the end of Obama’s second term!! And solvency of Medicare will not be the only healthcare (HC) issue this administration will need to tackle.

President-elect Obama, Senator Baucus and others are crafting numerous initiatives they plan to bring forward early during the new administration’s first term. Most of these initiatives are geared toward *reforming* the healthcare system. There are innumerable issues that need to be addressed under the auspices of HC reform. Access, quality, efficiency, diminishing medical errors, minimizing duplication, waste and affordability are *simply* a few of the issues the administration will need to contend with.

It appears the incoming Obama HC team believes, right or wrong, that a big push into HC IT infrastructure will pose as the spark toward adoption of more widespread reform. There are both economic and political reasons why it makes sense to tack the IT spend onto the current stimulus package under consideration.

From an economic perspective, a big push into HC IT will result in jobs being added to the only sector of the economy that has demonstrated job growth over the last two quarters. Heading into 2009, job growth is going to slow in the HC sector as federal and state Medicaid funding is severely cut during the next round of budget cuts. (Consider: In New York State, Governor Patterson’s staff already has informed hospitals to plan for their worst nightmare.)

Combined with the tightening of the credits markets, hospitals are going to be hard pressed to offer services to the poor, uninsured and under-insured. “No margin, no service” will become the rule of the hospital landscape in 2009. Both the credit markets and financial issues will most certainly impact the ability of hospitals to pursue large capital intensive IT initiatives.

The AMA news recently reported that “Despite changes to federal rules that allow hospitals to donate health IT to physicians, studies show neither hospitals nor physicians are jumping at the opportunity.” No doubt, the cuts in state funding, the increase in the uninsured, and thus the increased financial stress on hospitals that offer services to the uninsured, will make it impossible for hospitals to spend money on IT without government assistance.

Therefore, *if* the incoming administration *believes* that a HC IT initiative is necessary as a stimulus for job creation and broader HC reform, the timing for tacking on a HC IT initiative as part of the current stimulus package is perfect.

From a political perspective, tacking on a HC IT spend to the current economic stimulus package will virtually assure its passage. The Democrats are working very hard to get a *comprehensive* stimulus package ready for President-elect Obama’s signature within a few weeks of entering office. All indications point to the fact that the monetary figure will be enormous — but many economists believe that deficit (Depressionary) spending and contemporary New Deal programs are *necessary* if we are to avoid a significant deepening of the current recession. That theory will give proponents of a HC IT initiative the ammunition necessary to obtain the necessary support for a 5-year, $50-billion IT package.

Perhaps most important: After the passage of an enormous stimulus package, it will be difficult for the new administration to obtain support of an exceptionally expensive comprehensive healthcare reform package — strictly based upon the cost of such an effort. By taking the $50 billion IT spend (and SCHIP spending) out of the HC Reform package, the overall cost of healthcare reform will *appear* lower … and perhaps more palatable to fiscally conservative members of Congress.

Bottom line? Healthcare IT is estimated to be at least a $50 billion industry in the United States. Anybody who chooses not to participate could be giving up a potentially large amount of revenue.

Submitted by Howard J Luks, MD



Obama Watch: Update on Daschle’s Team (from David Kreiss) by Rob Coppedge
December 11, 2008, 11:46 am
Filed under: health policy | Tags: , ,

Here’s the first of Senator Daschle’s crew to be named – From today’s NYT:

“Jeanne Lambrew, who helped Daschle write a book about health care reform, will serve as deputy director of the new White House office. She also worked on health policy at the White House during the Clinton administration and currently serves as a senior fellow at the Center for American Progress, a liberal think tank… Leaders of health advocacy groups have described Lambrew as one of Daschle’s most trusted advisers on health issues. She will oversee planning efforts.”

(For the full text of Obama’s nomination click here.)

Posted by David Kreiss – among many  things, former Special Assistant to the Administrator of CMS



A Cold Winter for Start Ups by Rob Coppedge

Our methods are not scientific and I don’t know what you can reliably extrapolate from our results, but you heard it here first: It is already a very cold winter for health care start ups.

In the past week, I have received numerous calls from companies either (1) suspending their fundraising activities and cutting back to bare bones operations or (2) flat out closing up shop.  After nearly 15 years in and around venture capital, I have never seen so many interesting, well positioned companies go through this existential crisis at the same time (not counting the decimation of waves of nonsensical business models in the early 2000’s).

Perhaps it is an effort to clean things up before the end of the year, but I am not so sure that what we are experiencing now isn’t a harbinger of much worse things to come. A few trends worth considering:

1. Waiting it Out. Many early stage companies pulled (or never launched) their fundraising efforts during mid-2008, hoping to relaunch in early 2009.

2. A Dustbowl. By all reports, venture capitalists with “dry powder”  have pulled back and are sitting on their hands waiting to get a handle on the cash needs and time to exit for their current portfolio companies. Not that there has been much venture for early stage health care companies recently anyway, but this is creating a veritable Dustbowl.

3. A Dustbowl, Inside a Chasm? Not only is the industry segment traditionally (and especially now) underventured, but there is little capital for the size of deals needed by early stage health care companies. These companies need $500,000 to $5 million, but few if any are placing this kind of capital in health care start ups (much easier to raise $10-25 million, even in this market). This “Capital Gap” is a big problem, and will be hard to address with the capital and investors in the market now. Larger fund sizes mean larger deals – and most firms with long term health care specialty have been raising much larger fnds. And for funds that have been dabbling in the early stage,  opportunities to move up the risk curve to positive EBITDA deals is very attractive in this market.

4. The Limitations of Angels. The only good news for companies raising capital this fall has come from regional angel networks – but these pools of capital are limited and often regional in their focus.

So, as we move into 2009, we expect to see the companies that have been trying to wait out the market finally launch fundraising efforts out of necessity – and the demand for capital will significantly outstrip the supply. Angel networks won’t be able to keep up and the traditional venture community will remain focused on less risky deals and reserving capital for their existing portfolio companies (which may not see an exit for much longer than originally expected).

While I hope to be proved wrong, we are predicting that these trends will lead to the continued loss of jobs in early stage businesses and potentially the lack of introduction of new innovation into the health care market over the next 12 months. The good news is that well capitalized businesses will have a hey day in this sector, as there is considerable opportunity to build and grow health care services companies in this market (even industry novices can pick up on the increasing clamor for efficiency,  quality and cost effective access – all require new, technology driven solutions). But without the proper capital, there is certain to be a chilling effect on innovation and growth.

Sadly, I expect to be getting more phone calls from entrepreneurs scaling back and shuttering operations during this cold Winter… which might last well into next Fall…

Posted by RobC



Value-Based Purchasing: Coming to a Hospital Near You (From Hal Andrews) by charlottegee
December 2, 2008, 11:15 am
Filed under: health policy, quality, value-based purchasing | Tags: , ,

Remember the halcyon days of 2007, when the stock markets reached their peak? In the midst of the (seeming) boom, Congress instructed CMS to submit recommendations for an initiative called Value-Based Purchasing (VBP). In November 2007, CMS submitted its outline of a VBP initiative to Congress. The lynchpin of VBP is “to transform Medicare from a passive payer of claims to an active purchaser of care”.

Since that day, CMS, particularly Thomas Valuck, MD, MHSA, JD, the Medical Officer and Senior Advisor to CMS, has spoken widely about its plans to implement VBP.

In a nutshell, VBP proposes to link payments to results, including quality, efficiency, patient satisfaction, and other measures. CMS’s November 2007 proposal suggests that hospitals should be rewarded for sustained excellence and improvements from a baseline. On November 26, 2008 CMS issued a release regarding the development of VBP for physicians.

Back to the fall of 2007 – if Congress was contemplating VBP when times were good, then today’s economic woes seem likely to accelerate the concept. Senator Baucus’ plan advocates the implementation of VBP, though a bit more slowly than CMS has proposed. The Baucus plan, which incorporates many of the tenets of President-elect Obama’s plans and received the initial blessing of Senator Kennedy, is a possible launchpad for reform in the Obama administration.

If you ask a hospital executive what VBP is, you get various answers, and occasionally a blank stare. If you ask the Federation of American Hospitals, you get a lecture on how CMS adopts regulations (sort of like the old Saturday morning “Schoolhouse Rock” episode on how a bill becomes a law).

On the other hand, every hospital executive knows about POA and RAC and P4P and HCAHPS and Never Events and Core Measures. Many hospital executives have approached these initiatives as discrete (and unrelated) initiatives. Connecting the dots of these seemingly unrelated initiatives reveals the outline of VBP.

Ask a hospital CFO to estimate the amount of revenue at risk under POA and RAC and Never Events and P4P – most of them can get to 5-10% of revenue pretty quickly. Couple that with declining investment income, and hospitals should have a new urgency to understand where they are in a VBP environment.

VBP, in some form, is headed to a hospital near you. Hospitals have always ultimately adapted to changes in the financing of healthcare, but usually reluctantly and slowly.

Value can, and will, be defined for healthcare, and CMS is leading the charge. History suggests that private payers will not be far behind. If you don’t know your value proposition today in comparison to your peers, time is not on your side. If you don’t join the discussion of how value should be defined, others will fill that void.

Submitted by Hal Andrews