Bill Gurley on Healthcare

If you are into startups or VC, it’s likely you read and listen to anything Bill Gurley has to say (and if not, you should). Which is why I was especially excited to about his recent interview with Ezra Klein sharing some of his learnings about the messed up American healthcare system.

If you have the time it’s worth reading or listening to the whole thing. Otherwise here are my notes* on the parts I found especially interesting as someone who actively invests in digital health.

*Mostly copy/pasted from the transcript with some edits to make it flow

The issue with healthcare

Big hospitals and big insurance carriers and big employers are all feeding on one another to make the system worse and worse and worse. The way the system’s designed, it’s just instinctive for them to do this. Most large hospital systems are getting as big as they possibly can.

Why are providers getting bigger?

It gives them leverage with the carrier, but also if their footprint is that big, no employer around here is going to walk a narrow network plan that doesn’t have Stanford Hospital System in it

• If you are a startup that wants to sell to an individual general practitioner, you should know that they’re actually on the wane. There’s fewer and fewer individuals. They’re all getting sucked into these big systems, partially because they don’t want to go through the struggle of getting paid and if they can be a part of this big system, then they’re going to have a much easier time getting paid, because that system has more leverage with the carriers and the employers.

Why employers pay for healthcare

We’re one of the only countries in the G20 where the employer’s involved.

Coming out of World War II, the president was definitely afraid of inflation and so there was mandated wage restriction. You couldn’t increase wages, and that was mandated by the government. People started throwing in benefits. Low and behold, here we are 70 years later and we get our healthcare from our employer.

Why aren’t employers better than individuals at getting prices down?

Employers have these whole HR departments, so they have all this information and all this expertise and they even have more negotiating leverage than an individual does. You could really imagine a world in which employers were more efficient, not less efficient, at getting good costs on insurance, on negotiating better prices. They have the expertise and they have the incentive and they have the size. Yet, we don’t see this world.

If you talk to a benefits provider at a large company, you see:

• First of all, none of them want to be in this game. This is the most reluctant task that any company has to do.
• Second, their number one task as an employer is to not lose competitive situations for new employees because their benefits aren’t good enough.

So price differential is due to power of concentration in providers ie these systems are getting big enough that it is just easier for the third party payer to pay them off than to turn around and say to their employees, “Hey, I know you want to go to the dominant hospital system in your area, but we decided it was too expensive and now you can’t.”

This is in the HR department (they don’t have the most power internally) and the HR department does not want everybody screaming and yelling and then the CEO comes and says, “What the fuck? Why is everybody so mad at me?” This is why the number of companies who are maybe self-insured that are willing to push the edge in terms of trying to redefine cost I bet you is 10 or 20.

I think it’s a myth that most employers want to drive down costs. The easy thing for them to pick off is apparently premature births and heart attacks can account for like 40% of their bill for a self-insured employer, so they will do things to try and preempt those two events, because they’re so large. But generally driving down costs if it means sacrificing employee satisfaction, they will not do it.

Why carriers don’t care about driving down costs?

People think carriers want to drive down costs and I haven’t seen a ton of proof of that either because that involves ruffling feathers. It involves upsetting one of these large hospital care systems if you start pushing narrow networks that they’re not in. They make a percentage of the overall pie, so as long as the pie is growing as a percentage of GDP, it’s a pretty good place. So I don’t think they have much incentive either

High deductible plans make health work better…

Narrow networks and high deductibles, which I think actually is the first thing I’ve seen that leads towards competition. Obviously when someone has a high deductible plan, until they hit that deductible amount, they’re spending out of pocket. So for the first time, perhaps, and I state broadly, that person’s heading out into the market as a consumer, which is not something they’ve done before. They’re spending out of their own pocket and they’re making a decision as a consumer. I think that that is causing very carefully on the margin some really interesting things to happen.

• Ex. Texas has high deductible plans, so urgent care facilities are popping up left and right. These facilities have way more focus on the consumer and more entrepreneurialism than any general practitioner ever had. So there’s a pediatric care facility that’s open from 4:00 p.m. to midnight. someone wanted to differentiate themselves from the next guy and consumers are paying out of pocket and making a choice. They care about net promoter score, they measure the wait time in their facility, they ask for a review after the fact. And satisfaction levels are fantastic.

…but people don’t want high deductibles, they want security

Real challenge here for particularly folks who are looking to make this a more consumer-driven system is that if we have learned anything from Obamacare, it’s that what people seem to want is just peace of mind. They don’t want high deductibles. They don’t want to be out there shopping in this way. They want to know that if they get sick, somebody’s going to cover it the way they do in Medicare, which people like, the way they do in Medicaid, which people like.

46% of Americans say they do not have enough money to cover a $400 emergency expense, 400 bucks. So when you’ve got half the people in that position and health is so scary, that level of financial instability mixed with high deductible plans, that’s a very tough mix, the kind of thing that eventually is going to get people in the streets and say, “Hey, you’ve got to give me some relief from this. I need to not be so afraid all the time.”

On patient monitoring

There are early markers of things like heart attacks and possibly there are things people could wear that would help alert them very early. If you had a very at-risk population, maybe that would help.

Yeah, there’s a lot of stuff like that. Most of it’s targeted at acute care, so you’ll see startups like that targeted at cardiovascular issues or diabetes or things like that. They all struggle with how do you lean against the American healthcare system? Some of them end up trying to sell these solutions through the self-insured employer, which we already talked about is a kind of really non-optimal way to get out there. Some of them are trying to create the right to bill for a digital solution. It’s very new ground, so if I build an app and a wearable device that if I use, I’ll monitor my diet better and, therefore, I’ll reduce my carbohydrate intake and diabetes will improve, getting our insurance carriers to accept paying for that app or service as a billable thing is non-trivial. And there are startups trying to do that right now.

It’s not the type of bet we’ve made historically, because it’s dependent on your ability to get that acceptance, and I don’t know if that will happen or not. It may happen. We may see digital solutions become billable prescriptions.