May 1, 2017 –
For Whom the Bill Tolls: What the End of Obamacare Means for Healthcare Entrepreneurism
While repeal of Obamacare has now almost become a certainty, there are still questions out there on what will replace it. But uncertainty doesn’t mean wait and see. Uncertainly requires foresight, experience, imagination, perseverance — and financial support. To unpack the implications, we gathered some of the brightest minds in healthcare innovation in one room. Joining us at the podium was Sam Glick, a partner in the Health and Life Sciences practice at Oliver Wyman, whose San Francisco office he leads. We peppered Sam with questions, engaged him in conversation based on our own experience with healthcare startups, and invited our guests to do the same.
What follows are key takeaways from the evening, much of it drawn from Sam’s expert insights. In hindsight, these takeaways from the event that happened before the release of the House plan are quite prescient.
343 Words = 343 Tea Leaves
That’s all we knew when the new administration took office. While running for president, the Republican candidate committed to only 343 words regarding what he thought about Obamacare. Anyone who thinks they know about what’s about to happen next is getting more out of those 343 words than any of us are. It’s best to focus on what we know: The former administration had a paternalistic, “value-based” approach. We’re going into at least four years of people with more of a “consumer-choice” view.
Is It a Repeal, or a Rebrand?
In the months since the election ended, we’ve gone from “repeal” to “repeal and replace” to “repeal and delay” to “repeal and repair” to “repair” — it may just be a “rebrand” in the end, with Trump exchanges before we know it. We’ll likely see cost shifting to consumers: from defined benefit to defined contribution. Elected officials are beginning to feel the heat from constituents who don’t want certain things to go away, in particular: (1) the overall expansion of coverage, (2) protection for those with pre-existing conditions, (3) remaining on one’s parents’ healthcare plan until age 26. And that’s just the top of the list. Beyond that, though, is significant uncertainty.
Better Cheese > Better Mousetrap
We’re certainly going to see the current government get away from micromanaging the delivery of care and get into supporting a lot more consumer empowerment and incentives. This creates opportunities for companies that appeal to and engage consumers towards their goals and better outcomes. We do know that a lot of scientifically successful ventures have failed in the marketplace. Consumers haven’t gravitated toward them. What this means is that we don’t necessarily need a better mousetrap. What we do need is better cheese. We’re going to continue to invest a lot in big data and analytics and all that, which is good, but we already know who needs healthcare. Now we need innovation around the cheese: how to get the people motivated on a sustained basis to take actions that lead to better health outcomes. We know we’re going to have an administration that is going to have cost-sharing and defined contribution. We also know that if consumers have a high deductible, they stop going to the doctor. How do we get people to recognize and act on the benefits of preventative care? That’s the big question.
Good for the Masses, but What of the Needy?
Jason Langheier, CEO and founder of Zipongo, raised an ironic point: this new government will probably help digital health startups in the short-run, but it also needs a sustainable plan to support families living in or near poverty to change their life course. Supporting consumerism in healthcare, simplifying the ability of health plans and employers to incentivize preventive health, and the streamlining of regulatory hurdles — especially for newer technologies — could all stand to improve the health of the population, if executed well. But, large cuts in Medicaid will simply shift burden back to state and local governments and charitable organizations, which have traditionally had more challenges consistently making use of cost-effective technologies to improve health at scale. One potential glimmer of hope for low-income families is what the state of Indiana did when the new Vice President was governor there, which was to put $2,500 into the account of anyone on Medicaid — as long as people given those credits are also given clear and helpful guidance on guardrails regarding how to spend those incentives to support their and their families’ health. We’ll also likely see a lot more physician incentives, some in line with pay-for-performance, but others that may echo traditional fee-for-service that will likely lead to the health plans pushing to use digital health solutions in a step therapy fashion, similar to how pharmacy benefits management drives use of generic drugs before more expensive patented drugs.
Too Big to (Not) Fail?
Some businesses are going to lose out as the new administration shapes healthcare. The question isn’t just which businesses — the question is whether this might be a good thing. In the U.S., we spend 20% of the GDP on healthcare. That’s double what is spent in Canada and other countries. The World Health Organization has said that an optimal healthcare system looks like about 1.5 beds per 1000 people, and yet here in the U.S. we have 3 beds per 1000. One in nine people are employed in healthcare in this country. It’s often the largest employer in most towns. The sort of massively productive disruption that entrepreneurs explore hits hard when it hits. So, then what happens: Do we let those companies fail, or do we bail out health systems because we don’t want jobs to go away? I’m not sure we have in either party politicians who are really ready for that kind of 1 in 9 jobs to become 1 in 20.
A Branding Prescription
Dr. Atul Butte of UCSF asked about branding, and what role that will play as products and services compete in this brave new world. Brand is likely going to matter more than ever. Healthcare has an inherent and outsized branding problem. Every year Forrester asks consumers two questions: (1) who is your primary provider in a given industry, and (2) from zero to 100, how would you rate your experience? In 2015, healthcare came in next to last — just above cable. In 2016, it came in last, and cable beat it by two places. There’s nowhere but up for healthcare when it comes to branding. You know the saying, “Nobody got fired for buying IBM”? Well, no one got fired for going with UnitedHealthcare, either. Brand carries weight. If we are really going to have these shopping tools, then brand is going to continue to stand for something. A car brand can’t have safety problems for more than two years and sustain its business. The hope is that “brand plus transparency” provides a sustainable business — but if there’s no transparency, then it’s really who throws the most money at brand, and that’s a tough market. In the end, we think that creating trustworthy brands is a major opportunity for entrepreneurs.
Health and Wellness: Two Markets or One
We talk a lot about healthcare, and if half of that market becomes shop-able, then it’s a fertile territory for entrepreneurs. David Ewing Duncan, author and a Health Strategist in Residence for IDEO, asked about the apparent convergence of the healthcare market and the wellness market. It’s a good point. The nuance is that those markets are coming together for different reasons in different segments. On the one hand there is activist intervention by the government for people to make good decisions. There’s also the simple fact that people don’t like to be sick — and it’s not just about long-term health considerations. They want to look fit when summer comes around, for example. Companies that succeed know what their identity is and whom they’re going after: Are you making long-term goals achievable with short-term incentives, or in a supply-driven way, less of a traditional healthcare approach? In the end, it does make sense to consider healthcare and wellness as one single if diverse market. The self insured employers are great early adopters of this viewpoint.
Efficacy Versus Engagement
The subject of engagement came up frequently during the evening. Rosemary Ku, Chief Medical and Strategy Office at Restore Health, took issue with this, asking whether some products have emphasized engagement because they can’t show real health benefits. Ultimately, we agree this is a question of efficacy and we don’t see how efficacy is possible without sustained engagement. It’s especially important for public companies, which won’t have stellar share without an effective engagement strategy.
What Mixed Signals Mean for Pricing
We have an FDA now that is anti-regulation, and we have a new “populist” president who is also anti-regulation, and yet speaks positively about price control. This is hard to reconcile. It looks like we’re entering a situation that is more reactive than proactive. If you can fly under the radar, and be the second most expensive in class, you’ll probably have more room to experiment, but in our “populist” new realm we’re going to see a lot of test cases that the government goes after. It’s the same with safety issues. It’ll be more whack-a-mole than systematic. That’s good for innovation, but there’s a word of caution: If you’re unsafe or at the very top of the price range, you have now an administration that’ll come at you disproportionately.