Finally, A Cure For Shoddy Healthcare

I'm not a health expert. Then again, you don’t have to be one to know our healthcare system is a mess.

I found out the same way you did. The same way everybody finds out… from experiencing it firsthand.

We relive it as we hear similar stories told by friends and family.A colleague of mine – CP – told me one last week.Her last job was at a startup. Now, typically startups don’t have much money. So the health coverage isn’t generous to begin with. That was certainly the case for her.

It got worse when her boss was diagnosed with cancer. His escalating health bills soon meant that the whole company was paying much higher fees. Keep in mind that CP’s health profile didn’t change one iota.

Another friend told me how recent dental work cost him $4,000 when his insurance policy indicated it would only cost $1,500. The problem? His insurance company denied the claim. He chose to listen to his dentist and swallow the costs.

I’ve had some bad experiences myself. The latest is when I took my wife Cecily to the emergency room. It happened a couple of months ago.She was experiencing awful pain. The nurse we called said it might be a hernia. That we should go to the hospital right away. You don’t mess with hernias. So I rushed her to the ER. She had a blood test and X-rays taken. They found no hernia, nothing.

The bill? I knew it wasn’t going to be cheap. But it was still much, much more than I expected.

Healthcare Needs to Get Better in Everything

The health insurance industry is a fertile area for startups. Is there anyone who believes that it doesn’t need fixing?

Many of these businesses have gone on to do highly successful IPOs. Others have been bought out.

Just today, Intarcia Therapeutics announced that it bought out Phoundry Pharmaceuticals. Phoundry makes “optimized peptides” that treat metabolic disease.Intarcia makes an implantable mini-pump that continuously delivers (stable in-body) medication (mainly for diabetes patients) for upward of a year. It has a valuation of $1.8 billion.

So the march toward better meds and treatments continues. But I gravitate toward another source of big ideas in the med/healthcare sector. And that is… what else…

The Affordable Care Act – aka Obamacare.

Insurance Is the Next Frontier

Obamacare is trying to rationalize and cut back on medical expenses. Bitter medicine. Doctors and healthcare practitioners… hospitals… and insurance companies are all feeling the squeeze. Startups are all over this; offering solutions that incorporate the tools of the startup trade: accessing big data… creating unique data sets… and letting advanced algorithms do the heavy lifting.

Of course, you need to know where the pain points are.

The government has spawned a complex and convoluted payment system. A system whose myriad rules capriciously determine the size of healthcare providers’ profits.

The “Niche” $220 Billion Market

Medicare Advantage is a good example. Heard of it? It’s a $220 billion market aimed at people 65 and older. This massive market is government-controlled. And it operates in virtual anonymity. Yikes. What a recipe for disaster!

The government subsidizes the premium paid to the insurance companies. And it pays for the claims too.

Of course, some claims garner more profit than other claims. Because hospital stays are so expensive and the government’s reimbursement under Obamacare is not enough to cover costs in most cases, the insurance companies would rather process fewer – not more – of these claims.

That’s where Clover Health comes in.

Founded in 2014, it operates in New Jersey only. So, yes, the sample is limited.

But it says its members record nearly 50% fewer hospital admissions and 34% fewer hospital readmissions than the average group of Medicare patients in the New Jersey areas it serves. Helping patients avoid hospitalization saves the company an average of $10,000 per patient, per year. Every unintentional hospitalization it prevents flows right to the company’s bottom line.

Every time somebody is shuttled to the hospital, the “payer” loses about $220 on average, says Dr. Andrey Ostrovsky, the founder of Care at Hand (another healthcare insurance disruptor that I’ll get to in a second).

Humanizing Healthcare

Another company transforming the cost curve through technology is Oscar. The company raised $145 million this April from Peter Thiel (a PayPal cofounder), Li Ka-shing (the 11th richest person in the world), and Goldman Sachs.

Oscar offers a free service that connects patients with a physician over the phone in 10 minutes. The head of Google Capital sees great promise in Oscar being able to help lower hospital bills and other costs for consumers. The company has a valuation of $1.5 billion, just a year and a half after its launch.

My favorite company among the health insurance disruptors is Care at Hand. It uses the latest “predictive analytics” technology to reduce hospital readmissions by nearly 40%. By the third prevented admission, Care at Hand’s technology pays for itself. Its monthly revenues – excluding one-time fees – are taking off. No surprise there…

 

 

In the interest of full disclosure, Care at Hand was added to our Startup Investor portfolio this past March. Our members got in at a valuation of only $6 million.Healthcare is an undervalued sector in the startup space. That’s what I like about it.

But it won’t last much longer. Too many startups in this sector are enjoying success, led by Theranos ($9 billion valuation) and Stem CentRx ($5 billion).

Healthcare needs all the help it can get to make it more responsive to patients’ needs.

Startups are doing their part.

And investors are paying increasing attention.