Healthcare is Riddled With Throwing Tech on Top of Broken Processes

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Dave Chase

Co-founder of Healthfundr’s Quad Aim Fund Dave Chase talks about healthcare moving beyond the Triple Aim, and why it’s imperative health-tech developers and investors follow suit.

It’s time to let go of the status-quo. That may sound like a great slogan for a t-shirt, but it’s more like a resounding battle cry for U.S. healthcare at large. Patients, providers, health-tech developers and investors need to recognize the failings of today’s system to prompt and promote real change—and it’s going to take more than faith and flashy tech to do it, according to Dave Chase.

A seasoned serial entrepreneur and health-tech investor, Chase is quick to point out that many in healthcare are strategizing yet still struggling to create real change (the cost reducing, efficiency creating kind) because they are focusing on the wrong things—pulling lots of tech-filled carts before the operational horses— so to speak. Chase has spent the bulk of his career studying the processes and moving parts of healthcare that are in need of repair, so much so, it prompted him to create Health Rosetta: An open source project that has quickly become the investment thesis for a leading venture firm and a strategic framework health organizations are using to re-engineer how they serve consumers and other customers.

Health Rosetta has also inspired Chase to create a documentary, “The Big Heist” now in the works, about how the state of today’s broken healthcare system is affecting patients and providers. Delving deep into healthcare’s problems from multiple angles has helped him shape his present perception on what it truly takes to develop health-tech solutions for a system that is still deeply flawed and yet undertaking incredible transformation. Now, in his latest venture as managing partner of Healthfundr’s Quad Aim Fund, Chase is seeking out startups who are aligned with the objectives of the Quadruple Aim.

What Chase and others are quickly realizing is that the Triple Aim, which focuses on improving the patient experience through quality and cost-reducing measures, fails to address the element that is most critical to the function of good healthcare— the providers. Improving the provider experience is a critical piece of the puzzle that cannot be ignored.

In his interview with HIT Consultant, Chase talks about transformative shifts taking place in healthcare, how it’s prompting a deep desire for total change and how his VC firm is looking to be a part of it by supporting the startups that are Quadruple-Aim-focused and have great go-to market strategies right from the start:

Q

Dave, let’s kick off things with talking a little bit about yourself: Before talking about all that you’re doing now (with Healthfundr, the Quad Aim Fund, your documentary, etc.), you were the CEO & Co-founder of Avado, which was acquired by and integrated into WebMD. What can you tell us about those early experiences that helped you form some of the insights you have today about digital health and the investment environment?  Were there any mission-critical pieces of wisdom you learned from those experiences you can share with our readers?

I believe the most important decision a startup can make it what type of customer they pursue early in their existence. There is a lot of bad advice around pursuing whatever local high profile hospital. In my experience, 99 percent of the time, the worst place to start to gain early customer experience is with hospitals. You can get the critical early feedback on where you fall short much quicker with other organizations. Don’t be fooled by a particularly interested doctor at an established organization unless they have a clear track record of navigating their internal processes that are a precursor to a large scale rollout.

A related piece of advice goes back to virtually the first thing I learned as a new consultant. That is, don’t throw technology on top of a broken process. First fix the process and then turbocharge that with technology. Healthcare is riddled with throwing tech on top of broken processes. It’s very easy to fall into the trap of having your technology thrown on top of a broken process. That will lead to a failure and you’ll have guilt by association.

Q

Next in your career, you went on to be part of creating Health Rosetta, which is an important primary piece in what you’re doing now with Healthfundr’s Quad Aim Fund. Can you briefly tell about the inspiration behind Health Rosetta and how it has led to these other ventures, including a documentary on the need for greater transparency in the U.S. healthcare system in terms of quality and cost?

Every time I did a root cause analysis of some dysfunctional facet of healthcare, I found that the underlying issue was that we purchase healthcare incredibly poorly in this country – both in the public and private sector. At the same time, I have seen so many examples of healthcare realizing its full potential. As one of these high performers states, they “restore humanity to healthcare”. In other words, it’s entirely possible to spend 50 percent less on healthcare with better outcomes than the status quo and do it in a humane manner. I finally decided to put the Health Rosetta name to all of these successes. I saw a parallel with how the Rosetta Stone decoded the previously indecipherable Egyptian hieroglyphics. Similarly, the Health Rosetta decodes the seemingly indecipherable healthcare system. It collects the best thinking and results from the scores of organizations doing things right – not merely talking about doing the right thing.

These “top of the class” providers and payers represent a microcosm of how healthcare will be in the future. It’s natural that when you study these organizations, one gets a much clearer picture of the future. Being a VC is making a series of bets on how the future is going to unfold. We fund the organizations who enable the next generation of healthcare that is embodied in the Health Rosetta.

Q

What’s the end goal with the documentary? What are you hoping to achieve with that project?

The objective of the film is quite simple, yet massive – it’s to spark a grassroots movement that is a partnership between clinicians and citizens. I joke that if it was a reality show, it would be “Extreme Makeover: Healthcare Edition.” That is, The Big Heist will point out the stark difference between the status quo and a dramatically improved health ecosystem that we will all benefit from – assuming one cares about achieving the Quadruple Aim. I think the only way one can overcome the 3 trillion reasons ($$) to protect the status quo is this kind of partnership. Major societal changes such as civil rights and overhauls of energy and food always start with the grassroots. The “good news” is that clinicians feel the pain of an under-performing system every day and want to see examples of success they can emulate.

In contrast, regular citizens need to have some dots connected that haven’t been connected for them. For example, it’s clear to me that there is one primary reason populist presidential candidates have gotten so much traction in this campaign cycle – it’s healthcare. Why? The middle class has been mired in an economic depression for well over a decade. One definition of a depression is income decline for two years or more. The middle class has seen their income decline in the last 20 years. It’s for one, and only one, reason – healthcare’s hyperinflation. The fact is employers are spending far more on employees than they did 20 years ago – the problem is every dollar and then some has been eaten up by healthcare with very little health benefit to show for it. All of us who have been in the industry need to wake up to that reality.

Once we understand this along with our fellow citizens, it’s easy to understand how great of a threat an under-performing healthcare system is to the future. We pour far too much brainpower, passion and money into our healthcare system to get such dismal results. The great news is there is a better and proven model that we need to share with everyone so it’s broadly demanded and adopted – it’s within our power.

Q

Moving on to the topic at hand, let’s talk about the Quadruple Aim Fund: The idea of the Quadruple Aim has been emerging recently, which emphasizes the importance of improving the experience for the providers as a key component that is missing from the Triple Aim of improving the patient experience of care (including quality and satisfaction), improving the health of populations, and reducing the per capita cost of care. Why was the provider satisfaction component missing from the original Triple Aim concept? Was it just oversight, as it seems common sense would dictate you need to consider the well-being of those also carrying out the work?

I’m not sure why but I have a guess based on what I’ve observed. Since the Triple Aim was created by clinicians, they feel that it can sound self-serving to talk about the care team (they also tend to think of only the professionals as the ‘care team’). I’m not a clinician. I’m simply an observer. It couldn’t be clearer to me that the highest performers pay great attention to the care team experience. It’s worth noting that it doesn’t stop with the professional members of the care team. The non-professional members of the care team (e.g., family and friends) can play every bit as important of a role as the professional members in tackling tough health situations. The top performers understand this and work closely with family and friends to address the totality of what drives the best outcomes.

Q

You say in the seven years that you’ve been studying high-performing healthcare that a huge dictating factor has been the focus on the care team, thus the Quad Aim Fund is the first VC fund focused on that. Again, why has it taken other health systems so long to see this as essential to success, especially when we talk about value-based care? And why does it matter from a VC perspective to narrow in on that element?

The short answer is that the incentive system is entirely about volume and doing stuff to people. One of the sage guiding principles from a Quad Aim over-achiever was the expression “Don’t Just Do Something, Stand There!” The point is that standing, observing and listening sometimes produces the greatest insights and outcomes. Old habits die hard and we’re in a transition so some are stuck in those old patterns while the next generation winners are all-in. I saw the same dynamic in my detour away from healthcare in digital media. It was easy for another local oligopoly/monopoly (newspapers) to ignore small, exponentially growing players. Once incumbents take them seriously as they reach scale, it’s usually too late.

The reason the Quad Aim matters from a VC perspective is that our portfolio’s success will largely be dictated by how well they choose their customers. The way I look at it is if you want to profit from the future of retailing or logistics, do you want Sears and Yellow Cab as your early customers or do you want Amazon and Uber? The only way the country and businesses don’t get bankrupted is if the shift to value continues. Then, it’s a question of who will win in that shift. We spend time with those that are crushing the Quad Aim objectives as it sheds light on which companies to invest in and hopefully some of those organizations will become customers of our portfolio companies. Naturally, if our portfolio companies are partnering with the winners, their business grows with them. Conversely, it’s the death knell for a startup to be mired in an organization in decline.

Q

With the Quad Aim Fund, you focus on investing in companies that enable these high performing, next generation health care models. So how do you know from those early steps of investment if a company has a potential to do just that?

It’s table stakes that the startup has to add value to these next-generation health care models. While those “table stakes” eliminate most startups from our serious consideration, it’s the ones who have the highly insightful business model and go-to-market approach that separates the ones we invest in from the others.

I need to be respectful of not giving away company secrets but the nature of Hint’s business is out in the open and it is a good example. There’s a megatrend across all industries of cutting out non-value-add middlemen from supply chains that is just now coming to healthcare. In healthcare, we call it “direct contracting” and one of the early areas it has taken place is in primary care. When it comes to primary care, not only have health plans not added value, they have been a value destroyer – doing virtually everything imaginable to undermine primary care which is the foundation of any high-performing health ecosystem.

Thus, forward-looking healthcare purchasers are directly contracting through onsite clinics and primary care. While the process is dramatically simplified, there is still need for eligibility and money to be exchanged. Hint addresses that and has a business model that aligns with the primary care providers’ interests. Their customers only pay a small transaction fee when payment is made. It’s similar to how a merchant only pays Visa when business is transacted. That’s the kind of business model that dramatically shortens sales cycles. Direct contracting in primary care is an important problem to solve but what makes it even more interesting is the beachhead they establish. Stay tuned for great things from Hint. They are just getting started.

Q

You say that many digital health companies can generate revenue much faster than traditional HIT companies. How so? So much potential and yet many will fail, wont’ they?

The main reason is that traditional HIT companies have to go through excruciating sales cycles. Of course, many digital health startups follow that game plan and suffer the consequences. Going back to my earlier statement, if one has a clever business model and go-to-market strategy, they can completely change that dynamic. Sadly, most startups have very little innovation or creativity on the business model and go-to-market side and won’t survive as a result. Steve Case’s book (The Third Wave) speaks to how we’re transitioning to the third wave of the Internet. Industries such as healthcare have barely been impacted by the second wave type companies such as SnapChat, Uber et al where the go-to-market is pretty simple. Case outlines that there is a greater challenge with third wave industries. The health-tech winners step up to this challenge.

Q

What is the Quad Aim Fund providing that other VC players are not? Does it really come down to expertise in the industry? What the other essential components?

There are some great VCs out there. Their strengths vary but things that tend to differentiate us most commonly are the following:

The 3,500-member expert network that we’ve built is invaluable for deal flow, due diligence and post deal support. Even if we had a $1 billion fund, many of the experts are not hirable. They include former heads of state Medicaid programs, reimbursement at major payors, large retail clinic leaders and former CEOs of major healthcare organizations. Experts’ insights have already caused major business model shifts for companies we haven’t even invested in yet. In one case, a managed care expert shed light on an opportunity that increased the potential revenue per customer at least 50x.

To my knowledge, we’re the only health- tech-focused venture fund that is led by a founder/CEO of a health-tech startup that has had a successful exit in this era of healthcare. There’s a big difference between having been in the stands versus having been bloodied on the field of play. Entrepreneurs appreciate that.

Stage: most get involved later than us. As far as we’re aware of, we are one of just three with a dedicated health-tech seed fund.

Geography: The other health-tech-focused seed funds are in the Bay Area. While we won’t discriminate against a Silicon Valley company (Hint is based in San Francisco, for example), there are so many great companies outside of Silicon Valley that it provides us a great opportunity.

I don’t know of a VC that has spent more time chronicling and spending time inside of the next generation healthcare models. For example, $1.2 billion has been invested just in next generation primary care providers recently. They are the tip of the iceberg in terms of next generation healthcare delivery enterprises. We have close working relationships with those organizations and understand their requirements. They appreciate we’re focused on investing in companies geared towards building their success versus making relatively minor tweaks to the last generation of healthcare leaders. This helps shape our portfolio’s direction.

Q

We’ve seen so much investment in digital health ventures over the last few years. Given the flaws that exist in the current VC market, what’s your thought on the fate of a majority of those startups?

I’d put the startups in two buckets. I’m more concerned about the pre-VC startups. There has been a fair amount of angel funding but the problems I outlined earlier will prevent 98% of them from having any meaningful success. I don’t worry about the post-VC startups. They will succeed or fail on their merits and won’t have lack of resources as an impediment.