Under the title, “Health Care Tech Trends: Addressing the Value Equation,” John Doerr, chairman of Kleiner Perkins Caufield Byers, a venture capital firm based in Menlo Park, Calif., a Silicon Valley suburb of San Francisco, and Tom Owens, M.D., president of Duke University Hospital, and senior vice president of the Duke University Health System (both Durham, N.C.), discussed the dramatic changes taking place in the U.S. healthcare industry right now, and the important role that technology, including information technology, will be playing in the transformation of the healthcare industry in the coming months and years.
Doerr, the author of Measure What Matters: How Google, Bono, and the Gates Foundation Rock the World with OKRs, speaks regularly about the goal-setting system of objectives and key results (OKRs), and broad business strategy.
After initial introductions, Doerr asked Dr. Owens about the pace of change, and the challenges that Owens and his colleagues at Duke Health are facing right now, as they look into the near future in U.S. healthcare.
“People in healthcare work hard,” Owens said, “and their readiness for change depends on how well they’re feeling, how resilient. A lot of providers are feeling burned out right now, and that’s a challenge every day. In addition, we have challenges we’re facing with regard to reimbursement change.” Asked about the pace of healthcare system transformation in North Carolina, he said, “Our state has been slow to change to value. We’re now moving towards managed Medicaid. I think the big change will come from commercial payers, who will drive providers into risk-based contracts into risk faster than expected.”
“And managed Medicaid will be good?” Doerr asked.
“We feel responsible for the care of our community, and that’s what Medicaid represents for us,” Owens said. “I think that managed Medicaid, done well, could be very good for us; done poorly, it would be [challenging]. We’ve launched an ACO [accountable care organization], and have about a quarter-million lives under some form of management. How we can leverage some of the technology, manage the massive amounts of data involved,” will be an important element in success, Owens said. “And the [historically] siloed approach of community, providers, and payers, isn’t going to work.”
Turning the conversation back to Doerr, Owens said, “You’ve such a big part of changing a number of industries. I’m wondering what advice you have for us in healthcare? How we might think about technology, and disruption, in a healthy way?”
“I would say that I’ve had the privilege of working with some of the country’s most amazing entrepreneurs and disruptors, from Jeff Bezos at Amazon, to the folks at Google, or the folks at Uber, to even Twitter, who wanted to change the way we did texting and exchanging information,” Doerr said. “And what I’d say is true about all those innovators is that they possessed vision for a world that no one else imagined.” For example, he said, “Google was the eighteenth search engine to arrive on the scene; but all their predecessors had produced searches that were kind of crummy. Before Google came along, the ads were banner ads, sold by advertising executives on Madison Avenue, over three-cocktail lunches. And Google said, screw that, we’re going to auction ads, in a way that you could create a sustainable, not an overpriced, marketplace. And the challenge for healthcare, writ large, is that we don’t have a functional market. And consumers have a hard time discerning quality.”
Doerr went on to say, “Duke’s a high-quality organization; I’m sure you have a hard time getting that message out there. There’s little price competition. Many of the elements that make capitalism and the economy go, are not present yet in healthcare. But risk adjustment, flexibility in payments, and providers being responsible for care end-to-end—all elements present in Medicare Advantage—those things allow for innovation. And where is Duke in the journey from fee for service to fee for value?” he asked.
“I’d say we’re in the middle of the pack at best,” Owens said, noting that “The larger transformation” of the healthcare system from fee for service to fee for value “may be even more challenging in academic medical centers. We have great talent and depth, and great success in the current academic model. And we have three missions—clinical care, education and research, and in the U.S., clinical care helps subsidize the other two, so when we think about change, we think about the risk to those missions. We realize we need partners. We can’t get there fast enough developing algorithms for risk adjustment and disease prevention. And so we’re thinking about all kinds of relationships” in terms of moving into the world of risk-based contracting. In that regard, he added, “We laid out a five-year plan three years ago, to think about the way we manage risk and manage patients.”
Owens went on to detail some of the challenges facing physicians in the current practice environment, noting that “Most physicians went into healthcare for the right reasons: they want to take care of patients. And they want to invest in the healthcare of the future. And when we engage them, and we create a path to risk, a path to change, that they can buy into, that’s worked really well for us. And when we’ve been able to shine a light on unnecessary care and variation, it’s been really helpful.”
And when Doerr asked him how he saw the future role of hospitals, Owens said, “That’s right, focusing on health means focusing on the earliest stage of disease, on health and wellness and prevention, and that’s not the hospital. We’re still in a growing market that allows us to make some changes,” he added. “This morning, I had 71 patients I didn’t have beds for at university hospital. But we do need to lower utilization. We also need to recognize that the next generation of patients has very different ideas about health and healthcare. When I talk to millennials or to my own teenagers, they have very different ideas of how to interact with caregivers.”
“What’s your view of the Aetna/CVS merger?” Doerr asked. “It certainly offers tremendous alignment around the pharmacy benefit management piece,” Owens said. “CVS obviously has a tremendous handle on that. And the CVS provider network is still focused on convenient care, so it’s not yet a big threat to providers, but it certainly is an interesting play—it certainly gives us thoughts about how we might react to such disruptors” entering the operational area historically dominated by hospitals and traditional physician practices.
And, Owens in turn asked Doerr, “What’s your perspective on the Amazon/Berkshire Hathaway/JP Morgan Chase announcement?”
“I’m a long-term friend of Jeff Bezos,” Doerr said. Meanwhile, he said, “I think larger employers are very frustrated” by the rising costs, lack of transparency, and lack of documented quality of healthcare services in the U.S. In that regard, he said, the Amazon/Berkshire Hathaway/JP Morgan Chase announcement was “largely driven by the benefits groups in those companies. One challenge” for employer-purchasers, when it comes to flexing clout with providers at the local and regional levels, “is getting enough geographic density in individual markets. The other is getting 40 of anything to agree on anything. I’d love for them to be successful,” he said, “because we all agree with Warren Buffett that having a third of a $3 trillion annual spending bill to be wasteful or duplicative, is not sustainable. Warren Buffett said recently, ‘You people focused on taxes are on the wrong island.’” Instead, Doerr opined, “The fact that healthcare is going to reach 20 percent of GDP” in the United States, “is a huge tapeworm” eating at the country’s business vitality over time. Given the size of all three corporations’ employee bases, he said, “I’d expect them to innovate on every front: the PBM front, the pharmacy front, and in terms of the consumer experience. I do think they’ll work with providers in the current marketplace, and I can’t wait to see how that turns out.”
A bit later in the conversation, Doerr asked Owens about the subject of providers becoming payers, and vice versa. “We tried being a payer, 18 years ago, and that experiment didn’t work well for Duke,” Owens said. “We had challenges with adverse risk, etc. What happened was that a lot of sick patients chose the Duke brand, but that’s not a good thing if you don’t get the actuarial model right. So the brightest future would be if we integrated the best capabilities of payers and providers, and could find some integration.. and find a path we can align on and engage with, and do that in three to five years. And the good news about being in market that hasn’t yet changed, is that we’re in a market that hasn’t changed. The bad news is that when it changes, it’ll change fast. And there will be winners and losers. And we’re committed to being one of the winners.”
Later in the discussion, Owens told Doerr, “I’m impressed by what you’ve taught about measuring what matters. How does that look in healthcare?
“Healthcare is hard, and for me, it’s humbling,” Doerr told him. “It’s complicated for others of us. I’m excited about what’s going on in the field. My theory of change for healthcare is, if we liberate the data, which we’ve all heard is siloed, I like to say it’s been incarcerated—and if we have flexible payment models—my favorite is Medicare Advantage, which gives the provider a great deal of discretion—if you liberate the data, the innovators will take care of the rest. Amazon and Google didn’t have those challenges. Not only did they have to liberate the data, they could crawl the web. And either the services were free, or you could charge the consumer before you sent the product. Amazon had about a 70-day float, and that fueled a lot of growth. I think this is a time when change is crashing onto the system that we didn’t anticipate. I like to say this is the year of the data quake in healthcare. A week ago, Verma said that in addition to the Medicare FFS data was being made available publicly, the Medicare Advantage data would be made available, and later, all the Medicaid data.”
And, he added, referring to the harnessing of data and information to improve healthcare delivery and operations, “I think things were overhyped earlier, but now, Google has about a thousand researchers researching AI in healthcare. You’ll see it applied in areas like radiology interpretation, but also in process improvement. Behind the scenes, we’ll see AI really improve the quality and efficiency of so many tasks. I think actually the potential of AI in healthcare has been under-hyped and under-appreciated. My advice? Run, do not walk to the web. Break open the jails, liberate this data in a respectful, privacy way, and keep an eye out for flexible payment models.”