Healthcare Musings September 2012

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Maybe the Elephants Really Can Dance! 

by David A. Jones, Jr.

David A. Jones, Jr.September 2012 - When the 900-page-plus Affordable Care Act (ACA) was enacted in March 2010, my first reaction was simple relief that the exhausting, incoherent, multi-year political spectacle had finally ended.  My second was that implementation of this committee-bred camel, representing the largest health system overhaul since the 1960s, would be a fiasco. 

As wave after wave of incomplete draft regulations came out, about ACOs, medical loss ratio provisions, state exchanges and so on, I concluded that reform – whatever its substantive merits or defects – would fall of its own weight and fail to prod the elephantine healthcare-industrial complex to change in meaningful ways.

I may have an extreme perspective on the importance of disrupting the status quo. I am a venture capitalist focused on funding innovative new providers of healthcare services, information and technology.  I spend a lot of my time in start-up land where fast execution is the norm and complacency with high error rates and poor customer service is anathema, so it’s reflexive for me to paint the established system as slow-moving. 

Over the last few months, however, I’ve surprised myself by musing on a new possibility:  Maybe “reform,” for all its defects, really has launched meaningful change.  My data points fall far outside the roaring political debate about whether Obamacare is “good” or “bad.”  What impresses me instead is how much time and money smart people and powerful organizations are putting into change: 

  • The biggest health insurers are moving away from their traditional business model, following diverse and not entirely predictable strategies.  Aetna, United and WellPoint have invested heavily in developing ways to help providers operate ACOs, including acquiring IT assets.    Humana (of which, full disclosure, I am a director), at one time the largest hospital operator in the nation, has acquired clinical care companies Concentra and SeniorBridge, as well as health care analytics firm Anvita.  Wellpoint bought 1-800-Contacts in June, followed by Medicaid insurer Amerigroup in July, and then in late August tossed out its CEO for not moving quickly enough.  Aetna’s CEO, Mark Bertolini, talks publicly about “the end of insurance companies” and describes his own as primarily an information enterprise.
  • Hospital systems are consolidating and investing in tools to help them manage population health risk.  According to Credit Suisse, some 60% of hospital executives surveyed last quarter plan to spend more on technology to better manage this risk, such as clinical decision support tools, patient databases, actuarial analytics, and disease management programs. And there are signs that the physician culture may be changing, as more and more doctors join larger groups that promise better care coordination by organizing information and activity.  While the jury is still out on whether concentrated hospital oligopolies will prove more efficient and whether "Physician Practice Management 2.0" will be more effective than its 1990s predecessor, change abounds.
  • Entrepreneurs see opportunity in this space, launching record numbers of new companies to create and install healthcare IT, to analyze the massive data troves that EMRs create, to apply mobile technology to care coordination, and much more.  Venture capital investment in healthcare IT has been growing substantially, with $293 million invested in the second quarter of 2012 – more than four times the amount invested in the second quarter of 2011, according to Mercom Capital Group, a firm which tracks healthcare IT finance.  If this pace continues, 2012 will be the biggest year for venture capital investment in HCIT since the dotcom years.  Health-focused accelerators such as Rock Health, Blueprint Health and HealthBox are stoking the fires by helping entrepreneurs refine their ideas and business plans, building a pipeline for future VC investment.

And what of that other big healthcare organization famous for bureaucracy and dysfunction -- government?  Even here, change is underway. Sixteen states have formally chosen to create insurance exchanges, and at least three have selected IT vendors to help build them.  Detailed regulations have been promulgated in many areas, now covering more than two-thirds of the provisions of the ACA -- but not yet putting the hardest issues (e.g. how government subsidies will be implemented) to bed.  It’s a field day for consultants, but buried in all those PowerPoints, there may be real change afoot.

Of course, as the industry reconfigures we’re starting to glimpse the next big thing:  The certain cost pressure that will accompany 30 million new insureds meeting the inexorable demographics of provider shortages and ordinary medical cost inflation, long before value-based purchasing has changed provider behavior.  Massachusetts’ recent attempt to slow healthcare cost increases through regulation is probably a hint of what lies ahead.  '

Remember, I’m only musing here – but I’m impressed by how much is happening so quickly.  A lot of smart people and powerful organizations are spending time and capital to implement ambitious, sweeping changes. 

Will they produce the idyllic world of universal coverage and slowing medical cost growth promised by the ACA's proponents and planners?  No way. 

But citizen efforts and investments could make things far better than critics fear.  Our economy is famously adaptive, perhaps even in the convoluted, highly regulated healthcare sector where government has long purchased half of the goods and services. 

Most important, the change has busted up complacency, creating space for entrepreneurs to bring new tools and try new things. 

Maybe the elephants really are starting to dance.

 

About the Author

David A. Jones, Jr. is chairman and managing director of Chrysalis Ventures, through which he has worked with exciting and innovative new healthcare companies since co-founding the firm in 1993. He currently serves on the boards of MyHealthDIRECT, Connecture, HCCA International, Sanovia and several other Chrysalis portfolio companies.

From 2005 – 2010 David chaired the board of Humana Inc., and still serves as a director and member of the board’s executive committee.  He previously served on the investment committee of Humana Ventures, which made strategic investments in young HCIT and disease management companies including Trizetto, Abaton.com (sold to McKesson) and CorSolutions (sold to Matria).

David speaks and writes frequently on healthcare policy and business.  He is a member of the invitation-only Healthcare Executive Network, which collectively examines strategies necessary to create and sustain a world-class healthcare delivery system, and recently completed a term as chair of the Greater Louisville Health Enterprises Network.

You can reach David Jones at djones@chrysalisventures.com.  Follow David on Twitter: @dajonesjr
   

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