Predicting the Next Wave of Healthcare-Full Transcript

Balancing the hope of moonshots with pragmatism

Investor Bob Kocher, MD, sits down with entrepreneur and author Thomas Goetz at the StartUp Health Festival to dig into the changing healthcare landscape and how to “make healthcare suck less.”

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

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[00:05] Intro Music

[00:43] Unity Stoakes: Welcome to the StartUp Health Festival. Here with two of my favorite people. Bob Kocher and Thomas Goetz. Bob Kocher’s a partner at Venrock. Also one of the most active venture capitalist’s today in health tech and used to be special adviser to President Obama and helped create health reform.

[01:03] Unity: So thank you very much for that. Thomas Goetz, another wonderful soul, now an entrepreneur which were very excited about, with a very cool new company called “Iodine.” Also former editor at ‘Wired’ magazine and author of a couple of books, loved ‘The Decision Tree.’

[01:21] Unity: Thank you guys both for being here, I know we got a great discussion about some of the 2016 predictions and also maybe how we balance moon shots with, with pragmatism. But before we jump into that, quick little story. You guys were both actually part of the genesis of StartUp Health. Thomas, you were there at, I think, our launch event.

[1:45] Thomas Goetz: Datapalooza 2.

[1:47] Unity: Datapalooza 2. And I guess you both were there. So you guys have really been a part of the entire movement from the beginning. So just wanted to thank you guys for being there with us along the journey. So, turn it over to you.

[1:58] Thomas: That’s awesome thank you. So, Bob, as Unity touched on, Bob has worn a lot of hats in healthcare and as, and his role as an investor, it’s only been 5 years? You’ve been doing it officially, so I think the best way to think about Bob, kind of holistically, is whenever there is a conversation.. I have been in many conversations where somebody’s trying to figure something out in healthcare, connect a entrepreneurial vision, to the realities of the marketplace as well as the kind of opportunities of the changing healthcare ecosystem driven by the ACA and and all of those new incentives.

[2:38] Thomas: Whenever those conversations come out, but I’m sure they’ve come up many times for all of you, it’s always, “well you got to talk to Bob Kocher.” As if there’s one guy. There’s a few of them, but you are probably top of the list of people who seem to understand and have a grasp of all those things at once.

[2:55] Thomas: So I think that’s one of the fun things about the time that we have here. This 27 minutes to talk about. And Unity mentioned this. One of the, you as a kind of a prolific investor, which is not a way you like to be described I’m sure, because when I, when we first met five years ago, you kept your powder dry for a long time and you were just saying it was eighteen months before you first made an investment.

[3:15] Thomas: So, I wanna maybe start there. What changed between that time, when you were just kind of getting a survey of the landscape and not doing anything, to now when you guys have made quite a few adroit investments of late.

[3:27] Bob Kocher: Well first, thank you for coming. And, what’s changed, is the fact that people will sit on the floor at J.P. Morgan to talk about healthcare and team services. None of you are like making new cancer drugs, that I know of. Or really expensive you know, orphan disease stuff.

[3:43] Bob: You actually want to make healthcare work better. By changing how we do it. And that’s what’s changed, is that the market has changed. I mean, we now have the imagination to bring really great healthcare to like 99% of people who get health care. Not just people like me who are doctors, who know that people who are in hospitals.

[3:59] Bob: And, we’ve changed incentives. And, we now all have phones that work. And so, we, we’re at a time where there is product market fit for a bunch of things that there might not have been I don’t think, earlier.

[4:10] Bob: Is the first answer to that question. The second thing is I think we’re beginning to see receptivity on the part of everybody who needs to have it to adopt. So, there’s no health insurance company in America today that says “Yeah, we’ve nailed the customer experience and member journey.”

[4:26] Bob: There is no provider that could possibly say that they have like reliable execution faithfully of high quality health care all the time. There’s no doctor who sort of happily is saying, “Well fee for service, that’s gonna be great for the next decade.”

[4:41] Bob: Employers are getting, are realizing that they’re getting screwed the most because they pay the highest prices and their workers get the same uneven healthcare that we all get. And so, they’re getting nothing. And then, there’s a whole bunch of engaged consumers who actually are like, are scared enough that they want to get engaged in their healthcare.

[4:57] Bob: And so, it’s a good time to do it. Is the first answer, and that time’s getting better. In the last 5 years there’s been 500 new startups by our count of series A companies. And 10 billion dollars of new money that’s flown in. And I can’t imagine that in the next 5 years there’s not 2,000 new companies and 20 billion. I mean it’s, it’s too big a sector to let it not change faster. So, that’s sort of why.

[5:21] Thomas: How would you describe your investment strategy?

[5:24] Bob: By not having one, would be the answer to the question. People ask me all the time like, what themes are you interested in, like what’s your thesis? Like I don’t have a, like making healthcare suck less is like my thesis. And that’s actually it. It’s like I’m looking for people that are like mutated in ways to make them externally awesome at doing something who want to apply that awesomeness to health care in an area that we mutually could be interested. Like, that’s my..

[5:47] Thomas: So your investments are kind of all over the place? But they all have like a CEO that’s crazy in some hopeful delightful way.

[5:53] Bob: Well I also think it’s deeply pragmatic though. I mean it seems always like really, very thoroughly thought out. And like, somebody better have done their math before they go in and meet with Venrock. First do your math.

[6:06] Thomas: I think that was the first, I mean when we had conversations when I was, when we were pre seed, you were like, “do the math, do the math, do the math.” Which we did. To the extent that we could. I mean it’s a lot of hand waving but, there is math to be done.

[6:19] Thomas: But my question then is, so how do you balance that kind of pragmatic, quantitative approach that’s deeply rooted in the realities of the healthcare system that doesn’t assume there’s going to be, kind of better version of healthcare to come along. That the status quo will remain in many ways the status quo. How do you balance that with the demands of 10X returns on investment?

[6:38] Bob: Moonshots, if you will. So, before I took my job at Venrock I was having lunch with Todd Park at the American Indian Museum trying to figure out what I should do next when I was leaving government. And among the things he said was go do venture capital which seemed as possible as being an astronaut. I literally said back to Todd, I’m like, “I want to be an astronaut, think I could go to NASA?” He laughed, he’s like, “well, maybe.” But, they’d launch me somewhere.

[7:03] Bob: And he said, “No, go do venture capital.” And I’m like, “well, I don’t know what that is. I’ve never started a company, been an entrepreneur, like, I’m from government and McKinsey, like that’s kind of the opposite of creative destruction.

[7:15] Bob: He said, well, a lot of things and he waved his hands and jumped up and down like Todd can do. He said, “well, basically, you just need smarter people to think about a problem, because, in a company there’s like ten thousand decisions made a year. And maybe a hundred of them matter. You just have to pray to God that those people make those hundred decisions better than the other people competing against them. And if you just do that, it’s all going to be fine.

[7:36] Bob: And like everything Todd says it appears to be righter than you think. And so, I spend most my time trying to figure out is that team. Because, I, as the investor and board member, and as super engaged as I am, like probably in there for like five of the hundred decisions, I mean just, they happen without.

[7:51] Bob: And so, you want to make sure the people that are going to iterate faster and make those decisions just a little bit better. Is like, the main thing that I worry about. But there’s no where in healthcare where I wouldn’t make an investment that it’s all about the people doing the thinking, that makes you want to do it. Because, there’s nothing that works well, is my ingoing premise.

[8:08] Bob: My next ingoing premise is that everybody in healthcare wants to maintain their income and their jobs. So how do I, like, work around that constraint?

[8:16] Bob: Third problem I believe is that health care costs too much. We can’t possibly spend more at the rate we’ve been spending it. So, the central problem is cost, so how can I capture productivity and efficiency and then overcome the fact that that value creation is somebody’s income.

[8:31] Bob: So, how do I work around the fact that like, if I save money, it’s the hospital’s revenue or the payors, or somebody’s money. So, how do I not let that break it? And then if I can get through those, then like, we usually have a good idea. That’s the approach.

[8:41] Bob: But, I was told that I get to interview you too. So, I’m going to now flip it. Flip the tables for a second. Thomas Goetz is a bad ass. I met him, like, eight or nine years ago where he was like the world’s expert on personalized medicine, genomic things. And he’d written ‘The Decision Tree’ which is awesome. But then he wrote another book called ‘The Remedy’ which is better. You should read that one.

[9:02] Thomas: Which has nothing to do with… It’s like 19th century medicine.

[9:07] Bob: So, you learn a lot from the history. And he was, like, editor at “Wired” like, writing like, really good stuff. And smart. And doing really well, like, he’s successful. And he quit his like really respectable day job, that like, my parents wish I had. To go start a company. Why? Did you do that.

[9:21] Thomas: Well, ok, but I think, [crosstalk] ok one, I’ll answer this, because I think the answer is, because I saw the same opportunity you did. But I particularly saw it from the consumer point of view.

[9:37] Thomas: So I saw a profound absence of all these, all this change that was happening that we were, that we were seeing, and that has really become quite powerful.

[9:48] Thomas: Very little of it has been focused on the consumer experience. Sometimes it’s focus on the patient experience which is a different thing. But like, people who experienced health care in the real lives. I think I read some place it’s 99% of people’s decisions are made in the absence of healthcare infrastructure.

[10:06] Thomas: So, so thinking about those decisions and building the tools and resources that help optimize them was what to me was a huge opportunity in something that wasn’t happening fast enough.

[10:15] Thomas: So, that was, that was the end of 2013. So that was what we did and then I was luckily to have a co- founder in Matt Mohebbi who actually has built stuff including Flu Trends at Google so we’re actually building this kind of data platform for better decision-making.

[10:32] Thomas: But, that is very much of consumer forced orientation. And the idea then is to monetize it with people who recognize what we’ve built. Now, this violates one of your commandments. One of your commandments for the realities of healthcare. So, our whole approach, the whole catalyst for me to forsake that wonderful, glorious career according to you is willfully misguided.

[10:58] Thomas: What am I violating. I’m violating commandment two.

[11:00] Bob: Yeah, that’s a big commandment.

[11:02] Thomas: Yeah. Sickness does not equal engagement.

[11:04] Bob: Yeah, so, I’m sorry you’re [crosstalk]

[11:06] Thomas: I don’t want a critique, I’m not asking for a critique of my company. What I’m asking for, not publically at least, what I’m asking for more is like, how do we get, let me turn this into a question for you. How do we get to the end user which is people if the whole gambit of healthcare entrepreneurship is all about the payors. Focusing on the payors, focusing on the people who are, maybe, delivering care. But probably on the people who are paying for it.

[11:35] Thomas: So, if that’s the, if that pragmatism drives you there, the bank shots until you get to the actual patient, is a horrible..almost guarantees a horrible consumer experience as we have.

[11:45] Thomas: So, riddle me that.

[11:48] Bob: First, I’m glad that you read the commandments. If you understand them you can live better. At the end of the day, like, if you’re going to make healthcare better there’s somebody who has a healthcare need who will have to do something different than they would have been without you. I mean it’s not that complicated. Like, if you smoke you should stop. How do I motivate you to do that. If you have cancer you could do a, the right treatment plan with the right provider in a system that’s not going to suck.

[12:09] Bob: But it’s fundamentally changing some action or behavior choice that was made to make value. And everything else is kind of like around the edges. But it’s like, each of you need to do something different if you’re going to change your health care outcome. And most people attacking it are doing it either in a way that’s too narrow or not useful enough to get you to get over the inertia of doing words with friends and candy crush and watching Netflix, and using the Starbucks app to buy more latte’s. Healthcare competes for your mindshare with everything else. And the rest of the world has done a great job at engaging you.

[12:40] Bob: And so, if you’re a healthcare company you’re competing at that. And so you have to be just as good. And just as useful. And I feel like most of the healthcare things I see, I need, are too episodic so you’ll never remember to use it even if they’re awesome. Or they’re not useful enough. Like, it’s not a problem that’s like, the most important, like, above number 22 on your list. And so, that’s the hard part, is how do you create something useful enough. Better than Netflix, so that you’ll like, want to spend time with it.

[13:08] Bob: And, that’s sort of been the challenge. Engagement for all healthcare companies that I’ve ever seen, including the ones I invest in, is a never ending problem of how do you get people to remember, like you can have a great application but if you’re not sick you don’t use it very much.

[13:21] Bob: And, when you do get sick, you’re like, oh crap, I’ll just go to the minute clinic. I’ll do it the old way. That’s what I struggle with a lot.

[13:27] Thomas: And so you think that’s an entrenched part of the system.

[13:29] Bob: No, I think we haven’t been imaginative enough. Like, I completely believe we’ll have, like, great, big, awesome consumer companies. But they’re gonna be more useful than the ones we’ve so far imagined. They have to be.

[13:40] Thomas: So, you’re very big on telehealth and telemedicine. So, explain that, proposition.

[13:45] Bob: Cuz it sucks to go to the doctor. Like, I’m a doctor. Shoot, I don’t wait as long as you do. Believe me, when I show up, like, they’re nicer to me than they are to you and it’s still horrible.

[13:55] Bob: Like, you go, and it takes you half a day. You park, like, there’s no good place to get a latte, they are always late, they know they’re late but they don’t tell you before you show up. And then you get there, and the nurse asks you, and they ask you all the same questions again. Then they type the whole time with their back to you. And then you have to go wait in line at CVS, it’s horrible. Like, it’s horrible.

[14:12] Bob: And then they charge you 185.00 for that. Which is more than I will pay for dinner this month for sure, anywhere with my family. And when I go out to dinner, like, they thank me. I mean, like, it’s the worst it’s the worst 185.00 I’ll spend this month. I mean I could buy a pair of jeans. I mean, it’d be awesome. Maybe more than one. And so, like that’s just horrendous.

[14:33] Bob: With a phone and a camera, you can actually do a doctor visit for like ⅓ of the doctor visit you can do that way. And I as a doctor, can look at your eyes, and your rashes, and I can see your throat, and I can have you push on your knee. Like, you can do most everything by phone and even more if we connected the devices, and all that stuff.

[14:49] Bob: And it’s 40 bucks. So, 40, it’s not, this is math that like, you all can do. 185.00, 40 bucks. 30 minute waiting time, 3 hrs of your day, plus 2.00 parking, like, it’s easy, of course you’re going to do it that way.

[15:01] Bob: And, employers are beginning to realize that that’s cheaper and better, and I think that will be how most of us in 5 years, everyone of you in this room will multiple times a year, access your health care system via video on your phone. Like, that’s a prediction I’ll make. And, I’m going to bet you, like, that’s going to be true. And that will be way better.

[15:20] Bob: The problem with that is that you’re all healthy. So, none of you right now probably need to talk to your doctor on video this second. So, the hard parts going to be habituating you to remember to do it when you feel sick and have a fever, and just want help. And that’s the hard part.

[15:32] Thomas: So, I don’t think we’re, I don’t think we’re at that much disagreement. We, at Iodine, hopefully. But at Iodine we have this phrase, what we specifically do is try to capture people’s experience around medications, because with drugs, there is something that we call “suck-a-tude”. There is an intrinsic experience of taking drugs, it’s going to suck. I mean, it’s built into the mechanism of taking these chemicals in your body. So, what we’ve tried to do is actually, to get people to volunteer the volume of “suck-a-tude” in various drugs. And, out of that we’ve created our data set.

[16:05] Thomas: So, so that’s kind of a way of using the, like, leveraging how horrible the experience is to create something valuable. That’s the proposition of what we’re doing.

[16:13] Bob: And I, it’s funny. I always talk and say well, how can we just suck less today?

[16:18] Thomas: Yeah.

[16:19] Bob: Like, cuz I mean, I don’t really spend much time imaging like, the magical health system on the hill. And like the end to end perfection. I try to figure out, how do we make it, like, back to pragmatism, like, how can I suck less than the current system? A little bit more every day.

[16:34] Bob: Because that actually allows you to iterate much faster I think to something good than over thinking it. Because there’s a lot of over thinking in health care like everything. Like, whenever doctors problem solve. Like, we think too much, as opposed to try.

[16:45] Thomas: So, what about, let me ask you about the, cuz this helps me touch on another thing that was one of your commandments, which is population and big data are just buzzwords. And, I think, one of the problems for entrepreneurs is we see these trends and opportunities happen in other industries. And kind of, good model is to extrapolate and say, okay, how can we bring those to health care? Cuz healthcare is the last to do anything. So, when something like population health or, or big data comes to all these other industries and helps make more efficient choices and more efficient management, it is natural to assume that the same techniques will apply in their own way in healthcare.

[17:24] Thomas: And yet, your premise is that the particular vagaries of healthcare will make that gum up and not be effective. Something like that, right?

[17:32] Bob: Yeah, basically. So, I’m like not as excited, maybe, as many of you on the notion of big data and AI, and machine learning and pop health, because to me, those are all buzzwords that mean not much. Applying, like when Walmart applies to their procurement system, like, predictive analytics know how much toothpaste to buy, they’re doing it in a, we can debate if it’s 5 or 6 Sigma system. So, they’re like, tiny, 10 basis points improvements can be really, really valuable.

[17:57] Bob: And it works pretty well. Amazon when they’re trying it, since they can do it at such scale with systems that are so reliable. You know, 10 minutes of robot time in the factory can make sense of scale. So, for more mature sectors which have highly reliable processes with good standardized data these things can help.

[18:17] Bob: Healthcare operates at somewhere around 1 Sigma. So 20% of patients are admitted to the hospital that’s like 1 Sigma. We kill perhaps 400,000 patients a year, give or take, from medical errors. Every patient that’s treated by any health system has done differently each time. No matter how similar the conditions are.

[18:32] Bob: We do not standardize to the point where I believe that big data, AI, second generation analytics like, get you much value, because we can get it all in the first or we’re in the 1 Sigma part. Where we’re trying to get basic labor productivity, basic reliability and fidelity across processes, the right medication let alone dose optimization schedules to the patient. So, I just don’t think that the supply sides are ready for the tools. And so I think product market fit will be tougher to achieve than perhaps others might in these areas.

[19:06] Bob: The other issue is that business intelligence tools to people that don’t have people that use BI tools are hard to sell. So, most health systems are actually a doctor, a nurse, and then if they’re modern, like maybe a care coordinator and a pharmacist and an HR.

[19:22] Bob: But there’s no like, MBA manager person who has a bunch of performance management goals and a CFO hitting him over the head to hit some target. You give tools to people that don’t use tools.

[19:31] Bob: Like in medical school, we’re not taught how to use Excel, let alone business intelligence tools. And so, you don’t have a user, is a problem and in so, in other countries, I was talking on the way over here with some investors from Asia. Like, there’s a whole level of management engineers and their health systems are like doing process optimization. We don’t have that here.

[19:51] Bob: And so, I don’t know who’s going to use the tools, is the other issue. And then, the last problem is that we have changed reimbursement gradually, but that’s a gradual process. And 90% or so of the spending still is fee for service which sort of rewards inefficiency. And so, there’s not as, you know, in health systems are of mixed minds. Because trading off revenue today to be better positioned sometime in the future is a hard trade off.

[20:15] Bob: And so, I’ve been more circumspect on it.

[20:17] Thomas: So well then, how do we leverage, I mean it goes back to the question, if that is the reality, how do we leverage the creative destruction that is happening in all these industries? Not just having kind of, incrementalism and niche markets. I mean, that’s great, but we don’t want to be a bunch of vendors. Nobody wakes up in the morning and says, “I want to be the best vendor in the world today.”

[20:36] Bob: Most favorite vendor. Yeah. I think you need to build the solution. So, I don’t mind, like I love data. I mean data’s like in every company. But I think you need to be solution. So, you need to go them and say, “Hey, we do something you don’t have people who do it.” Like, let me take over a function for you. Let me, you know, like outsource it to me potentially, but build the full stack is my basic premise.

[20:59] Bob: And so, in the companies we’ve invested, that’s been the model. Is like, let us do it for you, and that thing will, here’s why the value prop would work, and here’s the economics in how it works. But the service layer is really important. And I think tech enabled service is sort of what I get excited about as opposed to the tech. Because tech without somebody to use it effectively to create value back means they won’t pay much for that. And they’ll pay a lot more for a service usually.

[21:25] Thomas: One more question. Ok, so, what is one thing you’ve been wrong about since you came here.

[21:34] Bob: So many. I get to ask you one more question though before we go. Because I have three and I only asked one.

[21:41] Bob: I think I’ve been wrong about, I mean, I’m wrong every day on things, and so, I’m constantly wrong and feel blessed to have a job where I get to do that.

[21:48] Bob: I’ve been surprised at how accepting everybody is of health systems, hospitals in particular, that don’t adopt modern approaches. And how accepting employers have been to let their employees keep going to places that continue to harm patients without plans to solve that.

[22:08] Bob: I’ve been surprised at how capable payors have been at continuing to not fix the member experience, I mean, like, I mean, they’ve consolidated instead of fixing themselves which is sort of confusing to me.

[22:21] Bob: I’ve been surprised that every doctor’s not sort of in risk, because they can do so much better in risk, like, there’s still a fair amount of testing the water, I think that their water’s sort of clear, you can do better in that.

[22:32] Bob: I’ve been surprised that consumer engagement has been slower, back to my commandment than I would have predicted 5 years ago, maybe. I don’t know, everything surprises me. Like, surprised by, I mean, today, like, there’s like, yet another company announce it’s going to this with cancer. I mean, it’s surprising. So.

[22:47] Bob: Alright my question to you. What surprises you most now that you’re a CEO. What’s weird about that.

[22:55] Thomas: I think, so this is the last question. So, I think, not to give me the last word, but I think the interesting thing for me has been how, how many assumptions that you have internal, even having done the math, you’re going to be wrong. So, so building in time as a startup and as a team to, not just build what you think is going to be the best solution, but building in time, anticipating that that is not going to work.

[23:24] Thomas: People aren’t going to respond the way you think they will. And so you will need to do something else. And you will hopefully be able to leverage what you’ve learned based on the failure to improve upon the process. But that as part of the cycle, like, there has been no launch, or feature, or strategy that we’ve tried that has just purely, well, maybe a couple, but that have been pure home runs.

[23:49] Thomas: And actually now building into our process the fixes along the way, has been essential.

[23:58] Bob: Thank you so much for listening to us and engaging. Thank you, Tom.

[24:02] Thomas: Thank you guys.

[24:03] Unity: Thank you. Thank you guys.

[24:04] [applause]

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