Cost to Zero Moonshot — Radically Reducing Healthcare Costs — Jonathan Bush, CEO, athenahealth — Full

(Key takeaways from this episode of StartUp Health NOW can be found here.)

[00:04] Andy Kessler: I got three pieces of good news. Number one, this is the last one of these of the day. Alright? So, for those that have been here for, or have put in a full day, congratulations. Good news number two. We have Jonathan Bush here from athenahealth, and those that know him know that he’s shy and demure and really doesn’t like to talk. But we’re plying him with over caffeinated beverages and he promises he’ll try his hardest to say a few pithy things. And then number three is,

[00:38] Jonathan Bush: Did you say pissy things? 
[00:39] Andy: Yes exactly. Number three is, the title of this panel is the cost to zero moonshot. And so, we’re sitting here in Silicon Valley. It’s Silicon Valley because the peninsula annexed San Francisco, a bunch of years ago, it used to just be a bedroom community for people commuting down, now the commute is terrible in every direction, but Silicon Valley exists if only to drive the cost to zero of everything. In 1970 Intel introduced a chip, 3101, it was a 64 bit memory chip and it cost $40. So about a buck a bit. Ok? Ten years ago this week, as you know, Apple came out with the iPhone. It wasn’t called the iPhone 1 or 0, it was just the iPhone. And, I don’t even remember how much memory was in it, it wasn’t very much and if you looked at it today, it’s kind of chintzy compared to what we have in our pockets today. But, even Steve Jobs in describing it on the introduction, if you go rewatch the introduction, he talks about it was like going to the moon. Like the development project was like going to the moon.

[01:47] Andy: So we drive the cost down, and so the big question is, is can that happen in healthcare like it’s happened in every other, not every other, but many other, businesses from phone calls, to photos, to search, to all these things that are basically free and healthcare should be free! Or heading towards free. So let’s start with this, a little word association. When I say moonshot, I think large amounts of government money and you get Velcro and Tang. How about you?

[02:20] Jonathan: Yes, that’s perfect right? It’s starts out with this childlike idea that we’ll just do it. I’m just going to do it. Lalalalala, I want it, I want it. As opposed to letting markets and processes emerge over time, it’s like no we need it now, we need it now. If it’s the Manhattan project, or maybe the moon in a scared world, maybe it’s worth an incredibly inefficient blast that creates all kinds of horrible and unintended consequences and all kinds of wonderful accidental positive consequences. Maybe just the stirring of the pot of a moonshot, a collective tribal chest thump occasionally by governments and societies are a good idea, but they certainly aren’t grown up, practical ways of building sustainable solutions to problems, right.

[03:07] So, yeah, Tang, Velcro. I mean, Obamacare, it’s similar, like, it’s sort of a moonshot that’s created this room! I mean, pretty much everything that Obamacare set out to do, it didn’t do, it did it completely in reverse. The last rate increase was an average of 22%, but before Obamacare, none of us were here. There were no digital health companies. In 2008 there was less than $800 million of venture capital that went into healthcare IT companies, because there was a food desert. You were either Epic or Cerner or at the time, McKesson, you know?

[03:40] And none of them could connect to you, so it’s sort of like, you need not apply. So, lots of marvelous, unintended consequences along with the, you know, childlike, top down, Keynesian crap.

[03:56] Andy: So, that begs the question, we’re going through all the bodily functions.

[04:02] Jonathan: Free association, let’s go. Keynesian crap, top down,

[04:05] Andy: It’s a healthcare conference, you’re allowed to go through bodily functions. So, how do you bend the cost curve? I mean, there’s so many industries where technology, whether it was Silicon or algorithms, or whatever have driven the cost closer and closer to zero until things completely change, how do we do that in healthcare? I mean, is it doctors? Is it medical devices? Is it pharma? Is it something else? I mean, as I look at those things, they don’t scale.

[04:34] Jonathan: Right. If brilliant Barak can’t bring the Harvard people down to moonshot the cost to zero, which we tried and obviously went the other way quite a lot. What does! I mean what does create that surprising disappear and why isn’t it in healthcare? Right? And what I love about healthcare among many things is the ironies, right? It’s the thing we care about the most, it’s got both visceral and financial elements to it that are marvelous and yet we suck at it more than anything else. Like, we do porn so much better than healthcare, and who cares about porn? It’s so endlessly pointless, that is wildly exciting and frustrating at the same time.

[05:09] I think the thing that makes healthcare not drop to zero is that normally new technologies are drawing people on to new demand curves. There’s non-adoption, and then there’s the kooks, the crazy ones, to your Apple, and then over time the crazy ones are kind of liking it and then all the sudden, the mainstream of us climb on board. But, we are comfortable as a society with non-adoption of that crazy new thing, forever if necessary. None of us, very few of us, are comfortable with non-adoption of healthcare by someone who’s desperate for it, and who is dying. And so by virtue of our super-ego, and our caring, we raise the floor of acceptable non-adoption to where non-adoption is virtually illegal, and then there’s no demand curve and there’s no benefit to a new way of doing things cause your not bringing anybody new into the market, because everybody’s forced to be in the market already.

[06:06] So the game we are all trying to figure out is how can we create a sufficient safety net that we don’t hate ourselves in the morning, every night, wondering what might happen to our fellow Americans, but enough distance between that safety net and something else that there is an adoption incentive. That there’s, Hey, I’ll do that hip better and cheaper and I’ll actually get more. Today our clients raise their price and they don’t lose any market share, and if they lower their price, they don’t gain any market share. There are really big problems to that. If they do it better, they don’t gain any market share and if they do it worse, they don’t lose any. That’s f’ed up!

[06:47] So the big game is, how do we insert into, and, I think, in this next, sort of, class of our lives as healthcare entrepreneurs, I’m starting to see cracks in the armour. Opportunities, a lot of it created, just by the popularization of the concept of accountable care. And I gotta give Obama credit. I hate to do it. Breaks my heart. But, like, we all now speak a language. I saw a sitting president of the United States talk about electronic medical record adoption and interoperability. I’m like, you’re wrong about that. That wasn’t exactly right. But, anyway, there he was. He could say electronic medical records and he’s the freaking president. So, that is the beginning and now I think the game is how do you find it? And it’s, how do you teach doctors to shop and profit from shopping? How do you teach consumers to shop and profit from shopping? And then, how can we all enable that? How can we inject quickeners that make you see the morass as the choosable choice.

[07:49] Andy: So, you’re talking about competition to some respect.

[07:51] Jonathan: Yep.

[07:52] Andy: And a pricing model. I mean, actual real prices.

[07:56] Jonathan: Well, actually, most of the early adopters have chosen convenience over price. Because, you know, we were all forced into these all you can eat buffets, which will be paired back, you know, the salmon plate will be removed from the all-you-can-eat buffet here in the next four years, I think. We’ll still be able to get the boiled broccoli and the, you know, tuna casserole, but the other stuff we might have to pay for here. And that image made me so grossed out that I forgot the question. Something about tuna casserole.

[08:26] Andy: Something about salmon. No, competition and real prices.

[08:29] Jonathan: So what we did, what we’ve been doing, a lot of us, is actually choosing conveniences or quickener instead of price. Because, you can’t really compete on price, because if the consumer chooses the cheaper thing, they don’t keep any of the money, right? So, you either have to have a primary care doctor at risk who can keep some of the money by routing you, routing their patient to a cheaper place. That’s starting to happen.

[08:48] Jonathan: We’ve got on athenaNet now, 5 venture capital-backed primary care/women’s health groups. That wasn’t there a few years ago. That’s pretty cool!, And they’re growing at, you know, the average medical group on athenaNet growing 10% or 12%. These guys are growing at 30, 25, 30% a year sucking in doctors who want to actually have some personal power. Want to shop and make profit from shopping for expensive stuff for their patients. But, mostly it’s been retail clinics, telemed, you know, wellness decision support. A lot of the early digital health companies were basically grabbing convenience and personal power and not price because of the constraint of the all you can eat buffet.

[09:30] As the deductibles spread, that changes. And we’re seeing now, if you look in athenaNet, the average benefit plan of the, whatever there are, 20 million people in athenaNet, they’re a lot more than 20 million people because there are a hundred and forty-two million visits, I don’t know the number, but there’s a lot more deductibles, and the deductibles are a lot higher. Which means that the possibility for all of us to play in the price shopping as well as the convenience shopping or personal power or coolness spaces that we’re using today as proxies for price is going to emerge, I think.

[10:04] Andy: So, how does new innovation that could potentially drive certain segments? Competition is great at having prices. Maybe even more. But how does new innovation, you know, I always think of Lasik.

[10:20] Jonathan: Lasik, it was in my book. Lasik is a great, go ahead. It’s a great example.

[10:24] Andy: It’s just, it’s a new technique and now for a large segment of the population they don’t buy glasses. So, glasses went to zero. So it drove the cost curve of glasses, or at least better vision, someone that needed certain types of glasses to zero. So, expand on that. But then, how does the next thing, the next red pill or the next.

[10:47] Jonathan: Glasses, Lasik is interesting because it was actually not included in almost any benefit plans up until Obamacare. So you actually had to buy it. So when we started athena in 1997 it was $2,400 an eye. And they messed it up from time to time. Oh yeah, I’m so sorry. You know. It’s my eye!

[11:04] Andy: Second one free.

[11:06] Jonathan: RIght! And by the time my book came out which is a few years ago I went and called the same place and made some calls and it was like 200 bucks an eye and it came with a free shuttle bus ride per Uber. Because your eyes were dilated back to your house. Or to and from your house. So it dropped tenfold, the same procedure, because they were trying to draw the eyeglasses people out of third-party reimbursed glasses into Lasik corrected eyes. Right? That’s a great example of the kind of thing we need tease into the healthcare system to the degree that we can stomach a lowering of the safety net.

[11:41] Andy: So is that the model, is a non-reimbursed, outside of the healthcare system procedure that then invades its way in?

[11:53] Jonathan: Yeah, no, I think it’s whether it’s outside or inside it’s a layer of consumer preference, consumer price that makes people, either on convenience, I mean access is a big driver for the people because there’s always going to be for a long time here a lot of people who are just fully covered. But, there’s going to be a growing number of people who actively want to be less covered and to make different choices about their health. They want to eat different, sleep different, just lump it and take aspirin. There are people, when you’re making $30,000 a year in someone’s making you pay $900 a month for your families, you don’t want that product.

[12:27] You actively want something else. You don’t mind the inconvenience of not getting your ACL repaired. No one in Europe gets their ACL repaired. No one. It’s like unheard of unless you’re a famous World Cup soccer player or something. Here, like 80 year olds who probably won’t make the World Cup team are getting their ACLs repaired. So, I think that consumer layer will help. But I think just doctors in risk contracts. Look at the change in the number of doctors in primary care groups and health systems that have some profit to be gained from shopping a little bit for what they do for their patients.

[13:00] That alone is a quickener. Hey, I’m going to try a virtual diagnostic tool instead, or you know, my next appointments in 3 weeks, but I really want to grab this patient, I want to offer them a virtual visit, or a bot to follow up with them instead. If there is that the deductible and you need to keep that consumer engaged with you, you’re willing to make a trade to keep them that you weren’t willing to make 4 years ago.

[13:25] Andy: So, what you’re talking about I think, is really a complete change on how payments are making their way into the system. If you’re talking about doctors actually thinking about prices and consumers thinking about prices, almost the word reimbursement has to disappear.

[13:44] Jonathan: Goes away. This could be the era for all of us. Think about what’s the hardest two people to hire in your company? Right? I’m assuming it’s a great architect and a great product manager. Like a technical product manager. Right? Those are the guys that we are like, those the ones when you got a great one? The thing blows along. If you got a good one, it limps along. Right? There is no, as my cousin used to say, “The problem with the French is there’s no such thing in that language as entrepreneur.” [laugh]. It’s a joke George.

[14:20] Product management is not a thing in healthcare. All of the ingredients, did you ever like look at an owner’s manual and see all the parts, like, for your clutch and they have those blowout diagrams of all the different rings and discs. Can you imagine if someone showed up with like all the rings and dishes and said, here. But if you look at a claim, that’s what it is. It’s like, all right, here’s a clutch. You know, here’s the anesthetic. Here’s the anesthesiologist for 13 minutes. You actually buy that sh*t like that. As opposed to buying a hip or a knee, or whatever. And so, my thought is, as this emerges, as doctors start to shop, they themselves will demand, not blow out diagrams and parts kits, but experiences for themselves to understand. We’ve got a lot of primary care doctors who couldn’t explain, most couldn’t explain the details of a knee surgery. But they can start to demand that it get thought through and guaranteed by the orthopod that they choose. Right? Or by alternatives to the orthopod. Maybe I don’t need to send this image out to a radiology group that takes forever and has a 22% error rate. When someone took Watson and pushed it up where did a little AI project on plain films and they just skip it. You know? If you’re fully at risk you don’t even need to send the claim. It doesn’t matter whether you did a third-party reimbursed x-ray or not. It doesn’t matter whether you used a doctor if you could use a homeworker or a virtual homeworker. Once you have that risk, once you have that financial responsibility as the doctor, and you’re going to own the outcome, you can start to expect other people to do the same thing. And I imagine that product management demand moves all the way up the healthcare supply chain. In the early years it will be in primary, you know in the next few years it will be primary care related or frequent procedures, maybe mammograms and colonoscopies, things that lots of people get. And then as those get good you’ll expect that to move up to fancy things.

[16:09] Andy: So, Greg Simon was here earlier talking, or sort of lamenting, that he had 10 days left for the cancer moonshot in the White House. And it seems like there’s 10 days left for Obamacare as well. Or 10 weeks, 10 months, whatever the number is.

[16:24] Jonathan: Yeah, yeah. We may need to grow used to the difference between talk and action though. In the next few years.

[16:29] Andy: OK. And maybe it will take a little longer. But, there’s going to be action.

[16:37] Jonathan: I’m pretty sure, I don’t know, believe me, it doesn’t matter if you told me, it wouldn’t matter, I’m pretty sure what we’re going to see is a great huge chest thumping, you know, fire, aaaaaah! and what they’re going to do is relatively incremental things. There are three fundamentally, actively wrong by any measure, either side of the aisle things about Obamacare. One is the risk adjustment payment, right? If you actually succeed as a health plan, your first mandate is to pay all the health plans that didn’t succeed all of your revenue. Like, as much as 25% of your Revenue. That’s messed up. And I think everyone knows it’s messed up. And it’s going to be revisited in 2018. But you can blow that up right now. The other is, you don’t actually have to go get, you don’t get fined if you don’t buy Obamacare and you don’t, you are allowed to buy insurance after you’re sick. Can you imagine if the federal government came in and said in the car market, you are allowed to buy auto insurance after the car crash? Like, sure, here. Here’s my fine. Who cares? $12 fine and I just got a $50,000 car repair. Like those are ridiculous and impossible things that are driving the cost of insurance through the roof. And the last thing is the provider, you know, rebasing providers who generate savings, so that every time you generate savings that’s your new base line to generate profit from savings. Even if you are the cheapest guy in town, you could be the cheapest guy in town and actually making no profit from savings, that’s some sort of weird, Orwellian, you know, Ayn Rand bad dream come true. They could repeal those things pretty quickly, almost as a rule making through price. Pound their chest, maybe redefined the minimum coverage as, you know, back to some sort of you know, accident only type coverage. Declare victory and it doesn’t really change anything for us. Because we’re already, under Obamacare, watching deductibles for employer-based plans go right through the roof. We’re all going to be, if you’re an employer base and you’re not in Silicon Valley, you’re going to get a $5,000 deductible in 3 years I promise. Because it’s just too expensive not too. So the difference between repeal and not repeal practically I think is pretty small and it’s just about how much distance between the mean and the safety nets there is. Today there’s virtually no distance. there is certainly going to be some distance. I doubt they’re going to pull out the safety net all together.

[18:54] Andy: So, when the, to borrow the metaphor, when the 3 a.m. phone call comes in saying okay, we repealed it. Now. What do we do.

[19:05] Jonathan: What was that Robert Redford movie, He becomes president, oh sh*t. Now what?

[19:09] Andy: So, now what? I mean, what is replaced? You don’t have to get too wonky, but, just conceptually, and maybe with an eye towards things that will drive the cost curve to 0 or at least bend it in that direction.

[19:24] Jonathan: Yeah. I mean, you know, I think, replace is, most of the stuff he talks about is not new affirmative sort of mandates on people, but it’s removal of weird mandates that exist. So one element of replace could be the relaxation of the start any kickback laws so that if I give you data, you’re allowed to reimburse me for that. That’s illegal now, that’s considered a kickback which is why there’s no inter-operation because there’s no market for inter-operation. That’s like duh, you know? Another example is inter-state medicine certification, licensing and credentialing. You’re not allowed, there are no markets that are big enough to actually do subspecialty medicine with only people who can drive to your hospital.

[20:04] Like, we’ve gotten too sub-specialized. You actually need to virtualize and apply to a larger market but you can’t due to credentialing and licensing. That’s just a dumb-*ss thing that’s easy, I don’t know if it’s easy but, those are things that they could call replace that would quickly create market movement much greater than what we’ve seen so far in terms of actual adoption. I mean, the digital health movement has been great so far, but it’s largely not adopted. You know? We’re all getting going and we are raising money and we are demoing and we’ve got an alpha customer, we’ve got a meeting with partners, but then it’s not actually in everyone’s hands yet, so what we need to do is create that liquidity that pushes these good ideas through the adoption curve faster than say, penicillin which took 38 years after confirming his utility till it was in regular use.

[20:52] Andy: Ok, gonna come to the audience in a second for questions, but um he is talking a little slow right? Should I ask him to speed up?

[20:59] Jonathan: Is it too fast? Is it too much?

[21:00] Andy: Um, One way to bend the cost curve to zero is to keep patients healthy in the first place, right? To avoid heart attacks, to avoid cancer, at least detect them at early stages. Vinod was talking a lot about,

[21:15] Jonathan: Or just avoid being a fatty. I mean, this country, like this room could change the world with walking around the block and eating a little more plant based. But, not you guys obviously, but making that cool and sexy, I don’t know, I see a lot of companies doing that. Sorry, you didn’t ask your question.

[21:34] Andy: I think that’s an important part of this, but in all of our medical records are lots of information that can perhaps unlock our own future healthcare needs, whether it’s family or some patterns, and Vinod was here and he was talking about AI and machine learning, and machine learning is about looking for patterns and patterns of patterns and it’s how translation is done and how Alexa does voice recognition, so the question is, Is that possible to do in healthcare, in records? And secondly, what the he** is going on with the healthcare records? They seem like they are in a write only database, so how do you open that up? How do you make that accessible to the machines that Vinod and others are going to fund?

[22:24] Jonathan: That’s as close to an athena layout, thank you. Well, one thing is if there was a national network where all the medical records were curated the same way on the same architecture, on the same platform that was sitting on an open API that any company with a cool machine learning idea could connect to that would go a lot faster than guys who have AI machine learning capabilities like Watson, and they have to go customer by customer and reset up shop and recharge consulting fees and recharge licensing fees to learn on a little tiny stack because the big thing about medicine that we always forget, and that’s the most important thing to remember is that medicine is not a 3 trillion dollar market, it’s like a billion $2 markets. Right? It’s a lot a lot a lot a lot of small markets, it’s a long tail problem and every time we sub-specialize a little further and get a little closer to the root cause of a disease it gets even more small scale.

[23:13] So, some way of pulling the baseline, getting some platform, and we aspire to be one of those platforms where anybody can come in and attach and learn at an enormous scale, and then deploy that knowledge back in at an enormous scale, but we need that and forcing everybody to inter-operate according to some think tanks idea of somebody who is a lady in waiting for the secretary of HHS is not ever going to work for either side of the aisle, both sides of the aisle have tried various HIE, I don’t remember them all now, there was CHINS in the ’80s, the Community Healthy Information Networks, trying to create integrated dataset, but athena somehow bumped into something that’s tracking now 12% of all ambulatory medicine on one platform and I am here to plug the $hit out of that and invite you to come look at the More Disruption Please API and demand what’s missing, if it’s missing, and connect to it. You know? And even, there’s a company, MIMO in the room, they’re doing $hit that we do, better than us. And I hate that! And they’re doing it with one of our customers! It’s awful! It’s better that they do that and we think big and imagine that there will be some other avenue, try not to pour Drano in their coffee when they come to the office, and let that happen, and that is our intent. To let anybody come in and do our $hit better than us to get that platform, because that’s where the machine learning will take off. Bezos is my hero, that idea of just saying I’ll let anybody, direct competitors, come onto this thing and use it to kill me, I’ve got to do that. All of us at athena, there’s only 6,000 of us, we all want to be relevant and we’re not going to make up enough little home brewed products inside of athena to be relevant.

[25:00] Andy: So there are network effects is what you’re saying?

[25:03] Jonathan: I do think so and I think we’ve finally, remember what was it, Gladwell with the tipping point? Like, I’m feeling for the first time legit tipping point, where actually I could run into a doctor and they’ve heard of athenahealth. That never happened. 20 years, oh is that the insurance company? No, no it’s athenahealth, and you know I do my pitch, I mean they’re starting to know and entrepreneurs are starting to know, and starting to show up. And the coolest thing happened last month for the first time, a More Disruption Please marketplace company that had an unhappy customer actually fixed the customer’s problem without us. They went back into our API, they found access to a data field that the doctor used to have to go into athenaNet to get, to go back to their little app, and they basically just figured out how to pull it 90% of the time themselves and the problem went away. And we didn’t even know it happened until someone anecdotally told me on an airplane trip. That’s the first time that’s ever happened, where it starts to feel like it can go faster than our ability to even know what the opportunity is.

[25:55] Andy: Ok, audience questions, is there a chatbot on Twitter that wants to ask one, or you want me to ask more questions? Someone? There we go.

[26:19] Sebastian Roberts: So, Thank you very much for your talk, my name’s Sebastian from the UK.

[26:23] Jonathan: Louder and with feeling.

[26:24] Sebastian Sorry, representing Clinishare from the UK. What’s, your passion is very palpable, what has taken you to that place? And related question, what is the role of the kind of passion you show across the healthcare system?

[26:41] Jonathan: Well, I think it started with nothing to lose. Like f*ck it, let’s just you know, lets try it, there’s nothing to lose. And now it’s fear of failure, like you know whatever it is, a billion three in revenue and there’s still no healthcare internet I’m getting nervous. And so part of what you hear in that high pitched whine is like come on you guys, build those freaking products. Put them on the marketplace and get the old systems to die. I think now one of the, you know we did get a major setback, one of the things that Obamacare, Obama beautiful as he is and wonderful as a head of state as he was, the HITECH Act did commoditize all healthcare IT. If you could somehow show that you could get the meaningful use data, you could get paid this money from the federal government and I think it helped keep pre-internet companies alive which are very hard to connect to, you know, if you guys connect, you get a customer that’s on Epic or Cerner, it’s great but if you want the next customer, you’ve got to do the entire connection all over again, which just fundamentally is too big a coefficient of drag, even if you successfully do it, the cost of the sales and marketing and customer service division in your company, exceeds the value of the little app you built in the first place. And it kills the idea.

[27:48] So, as those things start to die off, which I do now think, I think there’s very little likelihood that Trump will fork over another $40 billion to keep pre-internet technologies alive and well, and I think as those just die out of their own weight, this stuff ,we’ll get more companies pop and get exits and IPOs and that will draw in more energy. And the other thing is that I think that they will force consumers to pay more which will make consumers more aggressive about, they will fire hospitals and doctors that don’t connect to their app or don’t give them digital information to shop with, and I think that will cause that Malcolm Gladwell tipping point, I really do in the next few years. It’s weird, I’ll hate giving people, Donald Trump will claim credit, and I’ll be so mad but I do actually think it’s going to happen in the next 4 to 8 years and it’s going to be partly because of his douchey self cutting back on all these programs.

[28:48] Andy: I gotta digest that for a second. [laughter]

[28:52] Jonathan: There’s a question right there.

[28:53] Andy: Question!

[28:54] Audience: It might be a little charged, but what do you actually see as those role of government in the healthcare industry? Just get out of the way?

[29:00] Andy: Well obviously we are, we are we are, we’ve gone way past the normal sort of prototypical original constitutional role of government, which as a regulator, right? So governments, in they’re a player, they’re the biggest customer, they’re a major provider,and so I think what we really need despite the hyperbole that I sometimes leak into in my excitement and caffeination is, you know a thoughtful careful step back to allow a little more, you know if you shock the system in any direction, you know all that research on mental health that traumatic stress can be from good news or bad news, people that, you know there’s a high suicide rate among people who win lotteries, so we’re not, I don’t believe in shocking the system, blow up Obamacare, if they wanna say that, great but if they just hold back the deductible, allowed more kind of limited coverage, stemmed this weird risk adjustment mistake, a few things to create a little more space, I believe the role of the government is to tip, either in or out, based gently based on the state of the market. And, if ,you know, if we’ve got the courage and the stamina and the sort of resiliency, tip out a little more to create a little more resilient, a little more antifragile energy in the market. But if it’s weak, and we are struggling, you have to tip in and so right now I think we are in a tip out phase, but not a blow it up kind of thing.

[30:25] Andy: But we were headed towards single payer. I mean Obamacare was single payer in sheep’s clothing.

[30:32] Jonathan: There were those who were like, the reason this absurdly badly designed risk adjustment was intentional to make the payors fail so that the,you know, it could make the cost so high that single payors looked cheap, I do not attribute that level of Dr Evil brilliance to anybody involved with that. I hear that and I think.

[30:50] Andy: But as the pendulum swung the other way?

[30:53] Jonathan: Oh yeah, for sure. We got all the way up the pendulum this way. You’re not going to see as much vertical monopoly pricing, tracking with providers, you’re not going to see as much, you’re going to see rates come down, you’re going to see, you know, lots of emotional stories about people who by virtue of the coverage that they lost in the last four years you know, have suffered, um but in general you’re going see I’m almost certain, an explosion of technology, an explosion of market energy, and a decline in minimum cost.

[31:29] Andy: So any suggestions for entrepreneurs in healthcare business? Because Vinod didn’t say this outloud but for a lot of Silicon Valley, as soon as you say the world healthcare, the next word is no and then you hear the words reimbursements and the answer is no and then you hear medical device,

[31:49] Jonathon: Don’t sell the big systems, don’t sell to payors, don’t sell anything that’s bigger than you. And that’s one rule. Second rule is, so first rule is try to stay outside of the third party reimbursement system. If you can develop a program that deals with sex appeal, wellness, you know health and beauty spend out of the pocket, even if your goal is to smoke the whole established healthcare system, if you can stay outside of the third party reimbursed place and get a monthly retainer, an Amazon Prime of mental health, you know what’s that, wellness warrior or whatever Recovery Warrior, all these kind of blog with group services to stay just outside of the wall.

[33:26] If you have to go inside the wall, go in, I know this sounds self serving of me, go into athenaNet and go get all the small groups. Like start with small practices, open the $hit up on the marketplace and get tracking with things that directly affect doctor’s lives, you know let doctors be doctors kind of energy. If your business model requires that. And then move up, then move up to the groups and clinics and IPAs and then you can take on these freaking multi-billion dollar health systems who mean well and are populated by great people but they can accidentally crush whole zip codes by accident at lunch when they sit in the wrong chair. It’s just, I’ve seen so many great companies and businesses get crushed while being loved by the big inside the system third party reimburse you know, megaliths, monoliths, big guys.

[33:20] Jonathan: So, so as this pendulum swings back and perhaps there’s more innovation, because if you look in healthcare today, my sense is that care is better. Maybe it’s more expensive and the reimbursement system is screwed up, but you get a stent where you’re overnight in the hospital two weeks, it’s laparoscopic surgery for gallbladder overnight rather than a few weeks. As perhaps AI and other things are diagnosing things early, my question is, why do you think that the same thing that happened with self driving cars which, as soon as you saw one, everyone started worrying about 1.75 million truck drivers losing their jobs so is the same.

[34:09] Jonathan: For better or worse that’s not one of the, moving too fast is not one of the things, I’ve come to fear in healthcare. Like seriously come to feel like hanging myself in frustration, but not the idea of whew Oh my gosh, where did that go, you know? AI I just had an AI heart valve remodeling, it was laser printed into my chest cavity, nope. Not afraid of that, you know maybe they will be some Israeli guy who’s shown up and he’s actually done it and it works and 40 years later there’ll be the first one on a monkey. You know? So, no. I don’t fear that, I think it’s going to be a much more gradual thing. Partly, it’s because, we’re cautious, partly it’s because we over regulate what we care about, for all the best reasons, and partly it’s because it’s a very powerful guild and you have to disrupt it from the outside in.

[34:57] And, when you put a licensure layer around the wall then the outside-in disrupters, remember Uber had to actually break the law to disrupt the TLC, right, I mean they broke the law. Flouted it. Flatout hired whatever. Obama’s campaign managers said let’s just do this. Lets just do a lot, really fast. With a lot of money, and they won’t be able to fight back in time, and they literally took on the freaking cities of America and very well established guilds, but if they had not done that, somebody’s not going to do a moonshot break all the laws of medicine breakthrough, I just am not seeing it.

[35:38] Andy: But even the gradual is enormously displaced.

[35:42] Jonathan: Yes. We’re in for serious displacement.

[35:46] Andy: Ulcers, no one has ulcers anymore, and so GI guys, hopefully there’s colonoscopies.

[35:50] Jonathan: Oh think of the change in certs, 38% of hospital beds tonight that are staffed will be empty, tonight. 38%, more than every one in every 3 hospital beds, and another one in every 3 are absolutely by no modern definition of medicine appropriately being used. They should be out, they should be in a nursing facility or including by the way the second and fourth day of either a vaginal or c-section. But, you know, you can’t do that. But clinically of course you can. It’s just that, we didn’t want to. So there’s millions of, billions of dollars of excess capacity that we are smoothing over with higher rates, that as doctor’s start to shop, these big systems that I don’t know if you’ve been watching, but at the top of the thing they do these presentations that big names that we’ve all come to know, and they are harting it out to get 1% margins 2% margins and if you look inside, it’s like based on 90% margins on radiology which by the way, we’ve all figured out you can do with AI half the time, today! So, it won’t take much to knock over a lot of these guys. Now they unbelievable access to capital, capital is largely free in our society today, you know underwritten by you know, whatever weirdness easing, so, but there’s real fragility particularly on the inpatient where there’s this enormous fixed cost, related to things that are no longer clinically, or just less and less clinically applicable, and if you look inside these things the number of things that are actually making enough bank to cross subsidize everything else, it’s fewer and fewer and fewer.

[37:31] So, the biodiversity of these guys profit stream is going down and down and down. So I absolutely agree that there’s a lot of fragility, but those hospitals can be flipped into nursing facilities and apartment complexes and other things and I doubt the current administration will bail them out, cause I do imagine like all these non-profit hospital executives going down and sitting in the very chairs that General Motors sat in and be like, So wait a minute, you gave $30million to General Motors and you won’t give it to our non-profit hospital? You know, so anyway I agree with your point and it doesn’t take a giant breakthrough of innovation, it takes one more twist of the screw on one more or two business lines in some of these systems to cause a real need for restructuring.

[38:19] Andy: So, last question, you predicted, please agree or disagree I don’t want to put words in your mouth, that the cost curve is going to start to bend in the next 4 to 8 years, maybe not this administration will take credit, maybe they don’t deserve it, who care. The cost curve is going to start to bend. So, can you predict peak hospital beds, or has that already happened?

[38:43] Jonathan: I think we’re past peak hospital beds, I actually think we’re past peak hospital beds today. I mean, 38% of them are empty so.

[38:51] Andy: In that case, then the moonshot to head toward zero cost, we’re well on our way.

[38:58] Jonathan: A lot of it is, now the problem is at the end of all these procedures comes death. And we haven’t been able to figure that one out, so we’ll always be able to spend a lot more money figuring out another thing to do right up against death. And by the way as long as that’s something we do with our imagination and our mojo as something that we, you know, we can’t take that money with us. If we want to spend it toying with death this way or that way, and it ends up being called healthcare expense, great. The biggest problem in healthcare is not how expensive it is, it’s that for all that money, we don’t get to trick it out. And meet people we love with it and define our humanity with it. So, to me it isn’t really about cheaper or more expensive, it’s about embracing the human condition or degrading of it. And I think the very fact of everyone in the room creating their own new bass beat to rock to, and to draw patients and doctors to, that is more important than making it cheaper, that expression of humanity is vastly more important and that’s why I love StartUp Health, it is the source of all mojo in healthcare today.

[40:06] Andy: Great, thank you. Thanks everyone

Like what you read? Give StartUp Health a round of applause.

From a quick cheer to a standing ovation, clap to show how much you enjoyed this story.