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Friday, January 15, 2016

#WinterTech 2016: Venture Capital in #HealthIT

My new issue of The New Yorker just arrived in the snailmail today. Couldn't resist. Snapped that with my iPhone and uploaded it.

A fun day. Long, but fun. Up at 5, down the 4 and on the BART by 6:30, back home by 7:30 pm (then back up at 6 to shlep my daughter to BART for her trip to Vegas this morning).

No rice milk this time. I guess that's progress (Matthew Holt and I share this complaint). I had some half & half containers from my Friday night stay at the SFO Doubletree with my outbound wife, but I didn't toss 'em in my briefcase. I just eschewed the coffee. Rice milk, soy milk, skim milk, I've tried them all. Fuggedaboudit.

Our hosts...

I awoke to the news, prior to heading for BART, that HHS is apparently killing the Meaningful Use initiative this year -- ironically, via a bitter and cynical post on THCB (no less) by Margalit Gur-Arie.
Meaningful Use Is Dead. Long Live Something Better!

At the J.P. Morgan Healthcare Conference in San Francisco, Mr. Andrew Slavitt, acting administrator at the Centers for Medicare & Medicaid Services (CMS),announced on January 11th that “The meaningful use program as it has existed will now effectively be over, and replaced with something better”, and later clarified onTwitter that “In 2016, MU as it has existed– with MACRA– will now be effectively over and replaced with something better”. Meaningful Use is dead. Just like that. No apologies. No nothing. As someone who’s been lamenting the havoc wreaked by the program on both doctors and patients, I should be elated nevertheless. Well, I am not.

Let’s start with appearances. The J.P. Morgan Healthcare Conference is the “largest and most informative healthcare investment symposium in the industry which brings together global industry leaders, emerging fast-growth companies, innovative technology creators, globally minded service providers, and members of the investment community”. In other words the event is all about money for the millionaire and billionaire class. J.P. Morgan Chase itself is the largest financial institution in the country. It is the embodiment of Wall Street and its death grip on our collective neck. Was this conference really the best place to make such momentous announcement?

Besides, why would these extractors of wealth be interested in the fate of something as obscure as Meaningful Use?...

Meaningful Use is dead. Long live something better! And what is that better something? It is paying physicians for outcomes. It is the use of evidence based medicine. It is interoperability and “user-centered” design. It is Accountable Care Organizations, value, patient centeredness, coordination and such. It is also the making of markets “by leveling the technology playing field for start-ups and new entrants”, because when Epic makes money, nobody on Wall Street or in Silicon Valley gets a piece of the action. It is about engagement and analytics and population health, calculations, penalties, incentives and lots of new technology things. It is “like the second generation iPhone”.

After collectively sinking billions of dollars in Certified EHR Technology over the last five years, hospitals and doctors will now be expected to foot the bill for new software and computer products to support the lifestyles of a new generation of Silicon Valley entrepreneurs and the insatiable greed of the old generation of Silicon Valley investors. Why? Because the next app is sure to fix health care in America. It’s always the next one. There is always “something better” you can buy. Planned obsolescence, which is fueling the obscene fortunes of Silicon Valley and destroying life everywhere else, has finally arrived to the $3 trillion health care sector. It took a bit longer than the folks at J.P. Morgan expected, I’m sure, but we’re in business now. Let the good times roll…
I've cited Margalit recently here and here. Notwithstanding my perplexity and qualms with respect to some of her recent positions, she deserves to be taken seriously. No one can rationally assail her humanity.

Moreover, no one can seriously question my Street Cred when it comes to "Meaningful Use" dubiety (irrespective of my belief in the inevitability of and net utility of digital IT). "Clinic Monkey," anyone? I was working at a REC when I posted that (the REC work was the impetus for this blog, and regarding which I took considerable crap from one of my senior superiors).

So, yeah! The Onerous, Wicked Regulatory MU Witch is now apparently dead (don't pop The Bubbly just yet). Where does that leave us? I guess now we'll excoriate the fruits of the incentives of the "free market," as Margalit has argued.
"...the event is all about money for the millionaire and billionaire class. J.P. Morgan Chase itself is the largest financial institution in the country. It is the embodiment of Wall Street and its death grip on our collective neck."
Feeling the "Bern," much?

One prominent billionaire featured right off the bat at WinterTech:

Vinod Khosla. 1982 Sun Microsystems co-founder. Current Principal, Khosla Ventures. Estimated wealth ~$1.7 billion. From my notes during his interview with Indu: "We're bumbling around trying to figure out what works."

Well, that about sums up the entire space, no?

He also noted -- as have many others -- that "health happens between doctor visits, i.e., 99.9% of the time." Hence the utility of 24/7 quantified self monitoring apps.

Id'ing those that will have both clinical utility and market profitability is the problem.

Some random shots from the day.

Rebecca Lynn, founding partner, Canvas Ventures

Below, athenahealth CEO Jonathan Bush.

Far and away the most spirited talk of the day. No introvert here. No Siree. I got to meet him last year. Gained significant new respect for the guy.

He's pushing an interesting initiative these days.
Help Us Build a Hospital In the Cloud

...[A]s my company, athenahealth, expands beyond the ambulatory (outpatient) care space and builds out its cloud-based services for hospitals and health systems, we’ve quickly realized that this entrepreneurial spirit is badly needed. If we’re going to disrupt the status quo and truly wow the hospital market with a new way of doing things, we need that innovator’s passion, and we need it now.

Inpatient facilities – from tiny critical access hospitals to leading academic medical centers – are starved for innovation when it comes to IT. They’re running on clunky, monolithic systems that were never built for the internet. Many of them weren’t even designed for a clinical setting. Rather, they were built as general ledgers, tracking financials long before they were tracking diagnoses.

At athenahealth, we refuse to play this old-school enterprise software game of highly-customized solutions, massive upfront implementation fees, and multi-year installation timelines. Instead, we’re ushering in something entirely new. We’re replacing on-premise solutions with the nimbleness of the cloud, and closed systems with an open platform built for partnership. Now, we’re looking for cloud-based partners to join us on that journey.

The entrepreneurs that are tackling the inpatient space already are, for the most part, operating on its fringes. I don’t blame them. The pain of selling into a large health system can take years off your life. Hospital workflows are complex, inconsistent, and puzzling even to their own doctors. But if we want to extend athenahealth’s health information backbone across the continuum of care, we need help. Below are just a handful of the big, hairy problems we’ve observed in the inpatient space. Let this serve as an open call to entrepreneurs (from healthcare, or not!) to step up to the challenge of solving them...
He proffered some significant optimism that we will in fact soon see significant true "interoperability" (supplanting what he called the incumbent "intra-operability"), that what I have irascibly called "interoperababble" may soon wane.

I hope Health 2.0 will openly publish the video of his keynote. It was excellent.


I've never had any personal need to be well-versed in venture capital processes and terminology. I started and ran two for-profit corporations -- one Sub-S (really just a glorified sole proprietorship) and one C-Corp (my A/V studio business) -- both of them bootstraps that ran on their own with no outside money (albeit chronically cash flow strapped).  I also founded one 501(c)(3) and one 501(c)(6), both of them bootstrapped as well.

WinterTech comprised a blizzard of VC jargon to get familiar with.

"Seed Rounds," "Angel Investors," Series A Rounds," Up Rounds," "Down Rounds," "Term Sheets," "Valuations," "EBITDA," "The Verticals," "Mark to Market"...

At least no one said "the Spend." And, there were only two passing references to "Uber" -- both of them dismissive.

Some of this jargon stuff goes to the financial sector more broadly, and I did do a 5-year stint in subprime risk modeling and management, so I have a bit of surface familiarity with some of the FIRE-speak in general. See, e.g., my old posts "Tranche Warfare" and "The Dukes of Moral Hazard." Nonetheless, the VC world is a specific domain. With a roughly $5 billion investment churn going on this year in the health care space, it is worth our attention.

I'd like to find a good layperson's book on the topic, now that I'm a relative chump-change "Crowdfunding Investor" in a startup being launched by my niece's husband Dr. Jeff Nyquist.

Jeff holds a PhD in Neuropsychology from Vanderbilt. A principal initial focus of his technology is brain injury mitigation within the collision sports (e.g., football, hockey, soccer) via virtual reality-based neural training, specifically occipital lobe visual cortex enhancement -- technology historically rooted in part in the naval combat air "Top Gun School" peripheral vision acuity methods.

(No, it's not a "Lumosity")

Writer Gregg Easterbrook ("The Game's Not Over") recently noted that, while NFL brain injuries are getting all of the media attention of late (~200 concussions a year), there are approximately 200,000 concussions a year in high school football alone, and the first wave of liability litigation judgments is starting to roll in. High school football -- which feeds the NCAA to NFL pipelines -- may well become uninsurable. Any technology that can be scientifically shown to reduce concussion risk (in addition to other cognitive benefits) may be quite valuable.

Hence my new interest in the VC world. I hope Jeff and April will be successful with all of this. Adroitly navigating the VC minefields will no doubt become a factor at some point.

Pretty good VC overview on the Wiki

BTW: See the documentary "Something Ventured."



"The processing of information is not the highest aim to which the human spirit can aspire, and neither is competitiveness in a global economy."

From Leon Weiseltier, "Among the Disrupted," a year ago in The NY Times.
...Aside from issues of life and death, there is no more urgent task for American intellectuals and writers than to think critically about the salience, even the tyranny, of technology in individual and collective life. All revolutions exaggerate, and the digital revolution is no different. We are still in the middle of the great transformation, but it is not too early to begin to expose the exaggerations, and to sort out the continuities from the discontinuities. The burden of proof falls on the revolutionaries, and their success in the marketplace is not sufficient proof. Presumptions of obsolescence, which are often nothing more than the marketing techniques of corporate behemoths, need to be scrupulously examined. By now we are familiar enough with the magnitude of the changes in all the spheres of our existence to move beyond the futuristic rhapsodies that characterize much of the literature on the subject. We can no longer roll over and celebrate and shop. Every phone in every pocket contains a “picture of ourselves,” and we must ascertain what that picture is and whether we should wish to resist it. Here is a humanist proposition for the age of Google: The processing of information is not the highest aim to which the human spirit can aspire, and neither is competitiveness in a global economy. The character of our society cannot be determined by engineers.

“Our very mastery seems to escape our mastery,” Michel Serres has anxiously remarked. “How can we dominate our domination; how can we master our own mastery?” Every technology is used before it is completely understood. There is always a lag between an innovation and the apprehension of its consequences. We are living in that lag, and it is a right time to keep our heads and reflect. We have much to gain and much to lose. In the media, for example, the general inebriation about the multiplicity of platforms has distracted many people from the scruple that questions of quality on the new platforms should be no different from questions of quality on the old platforms. Otherwise a quantitative expansion will result in a qualitative contraction. The new devices do not in themselves authorize a revision of the standards of evidence and argument and style that we championed in the old devices. (What a voluptuous device paper is!) Such revisions may be made on other grounds — out of commercial ambition, for example; but there is nothing innovative about pandering for the sake of a profit. The decision to prefer the requirements of commerce to the requirements of culture cannot be exonerated by the thrills of the digital revolution.

And therein lies a consoling irony of our situation. The machines may be more neutral about their uses than the propagandists and the advertisers want us to believe. We can leave aside the ideology of digitality and its aggressions, and regard the devices as simply new means for old ends. Tradition “travels” in many ways. It has already flourished in many technologies — but only when its flourishing has been the objective. I will give an example from the humanities. The day is approaching when the dream of the democratization of knowledge — Borges’s fantasy of “the total library” — will be realized. Soon all the collections in all the libraries and all the archives in the world will be available to everyone with a screen. Who would not welcome such a vast enfranchisement? But universal accessibility is not the end of the story, it is the beginning. The humanistic methods that were practiced before digitalization will be even more urgent after digitalization, because we will need help in navigating the unprecedented welter. Searches for keywords will not provide contexts for keywords. Patterns that are revealed by searches will not identify their own causes and reasons. The new order will not relieve us of the old burdens, and the old pleasures, of erudition and interpretation...
Wafts of Morozov, absent the sharp elbows. Well, sharp enough:
...the discussion of culture is being steadily absorbed into the discussion of business. There are “metrics” for phenomena that cannot be metrically measured. Numerical values are assigned to things that cannot be captured by numbers. Economic concepts go rampaging through noneconomic realms: Economists are our experts on happiness! Where wisdom once was, quantification will now be. Quantification is the most overwhelming influence upon the contemporary American understanding of, well, everything. It is enabled by the idolatry of data, which has itself been enabled by the almost unimaginable data-generating capabilities of the new technology. The distinction between knowledge and information is a thing of the past, and there is no greater disgrace than to be a thing of the past. Beyond its impact upon culture, the new technology penetrates even deeper levels of identity and experience, to cognition and to consciousness. Such transformations embolden certain high priests in the church of tech to espouse the doctrine of “transhumanism” and to suggest, without any recollection of the bankruptcy of utopia, without any consideration of the cost to human dignity, that our computational ability will carry us magnificently beyond our humanity and “allow us to transcend these limitations of our biological bodies and brains. . . . There will be no distinction, post-Singularity, between human and machine.” (The author of that updated mechanistic nonsense is a director of engineering at Google.)
Recall Morozov's take-no-prisoners beef with digital "Solutionism"?

  • Good presentations by "The Validation Institute," "Digital Reasoning," and "SoftServe."
  • "Cutting costs in health care invariably means cutting someone's income." (My old mentor Dr. Brent James made that point to us more than 20 years ago during our IHC QI training.) Another allusion along this somewhat paradoxical line went to "keeping patients out of the hospital through closer attention to lifestyle metrics."
  • "New API's will relegate EHRs to 'middleware'."
  • "Early childhood factors are critical." (Yeah, you don't have to tell it to the parents of kids in Flint, Michigan these days. apropos of "The Upstream.")
  • "It take 10 years to build a (VC fueled) company." If that's even the goal for a lot of startups (rather than the vestigial "built-to-flip" ethos)
  • Irony: openly avowed "Marxist" Health 2.0 co-founder Matthew Holt schmoozing amiably and knowingly with the VC Big Dogs...
One presenter demo'ed an app purporting to generate a general personal "health score" once seeded with some basic info, after which the score would get "refined" by the addition of various social media metrics (the creepy phrase "digital exhaust" comes into play in this regard). Someone used the "FICO score for health" analogy in response.

That gave me the groans. See Morozov's "Your Social Networking Credit Score."

Another VC panelist spoke glowingly of potential "opportunities" devolving from the inexorable rise in patients' "OOP" (out-of-pocket expenditures, something I came to know acutely in 2015). With OOP rising to perhaps as much as 35% of health care billings, perhaps "financial services" were a potential investment growth area.

Yeah, what could possibly go wrong there?

Back during my subprime banking days, I launched the Photoshop and mused similarly, back around 2004...

...These days, like so many of my 76 million-strong Boomer cohort (~28% of the U.S. population, defined more or less as those born during the period from 1946 through 1964), I keep one suitcase mentally packed at all times. My Dad is now 88 and lingering in a nursing home in central Florida, enfeebled by dementia. My Mom is 82 and still independent, though only marginally mobile. The enervating encroachments of age similarly impinge increasingly on my wife’s parents back in rural northern Alabama.

Consequently, we minimally expect four distressing phone calls at random intervals in the coming years, imploring us to get back home quickly. For us this means at least three short-notice round-trip cross-country airline reservations (along with car rentals)—four times. Twelve last-minute seats (my wife, our son, and me), just to pay respects and help tend to the affairs of the parents when the times come. And, our daughter and her son just moved here to Vegas from Florida, so make that perhaps five round-trip seats each time. I just checked online prices: five immediate family last-minute "lowest fare" round-trip seats, Vegas to/from Orlando, and Vegas to/from Huntsville, Alabama, roughly $13,000 retail covering all four parents. So much for all of my DiscoverCard available credit (and part of another card, or a chunk of my savings).

There are tens of millions of Boomers facing similar circumstances.

Airline bereavement fare policies

Four adjectives become evident after a bit of research: complicated, confusing, contentious, and air carrier-specific. Just what you don't need when you’ve just gotten "The Call." For someone living beyond driving distance from loved ones, what would be extremely beneficial at such a time would be the ability to make one call that gets you on the next available flight at advance reservation discount rates, complete with rental car and lodging at the destination as required.

The  rapidly growing "stored value" concept

The bank where I work is getting tepidly into the "stored value card" arena, an expanding area of retail financial services. During a recent weekend, as I pondered this nascent offering and our associated hand-wringing over issues such as the chump-change prospects of someone getting auth'ed to pump a buck too much gas at Quik-Mart, the NextFlightHome idea bubbled up in my mind. Essentially a stored value product, also not conceptually distant from "insurance." You know you're going to have to book these trips. Why not avail yourself of a service that will get you the lowest price at the least hassle when the time inevitably comes. Moreover, if your credit rating warrants, you can even spread the payments conveniently -- making it in effect a (competitively priced) credit offering should you choose not to store the value up front.

Mitigating the "I-gotta-get-there-now" hassle factor

What is that worth? Air-carrier bereavement rate policies typically require authentication documentation confirming that you are in fact "immediate family" and that a next-of-kin has indeed passed on. NextFlightHome perhaps doesn't even care. It's your account, your money; you can use it as you wish. You can always reload. The built-in activation waiting period precludes using the service as an end-run around regular retail airfare rates, and, should you have opted for and been approved for the revolving credit payment option, your account must be in good standing to book an itinerary. We've even provided for that, with our credit insurance cross-sell ancillary product, and the fact that we provide shamelessly copied positive incentives such as "payment points" and other non-punitive inducements (e.g., sweepstakes entries) for keeping accounts current...
Just an idea. We continued on with easier ways to fleece people. I left a year later anyway to return to health care. Subprime was just too jive.

The "financial services" idea proffered at WinterTech surely went to stuff like getting patients to apply for financing in advance of treatment. That's not exactly news. Think "Bosley Hair Transplants" or "Clear Choice Dental Implants," etc. "We'll even discuss financing options with you..."

Back about four years ago I had to have a periodontal cadaver/bovine jaw bone graft px. Had to pay for that sucker up front before they'd even book the chair (about 5 grand). At least my AMEX "points" got me a Kindle reader out of that encounter.

Yeah: subprime health care tx financing, right down to your deductibles and co-pays. Margalit will have an aneurism.

I Google-searched for news coverage of WinterTech. Next to nothing there. Interesting.

One nice find, though:
Digital health firms, say goodbye to easy venture capital
By Beth Kutscher  | January 13, 2016

Digital health startups have benefited from easy access to capital over the past few years, but the market is about to get a lot tighter.

Analysts and investors watching the space offered a sobering take Wednesday during one of the biggest industry meetings of the year, the J.P. Morgan Healthcare Conference, which is largely considered the event that sets the tone for the next 12 months...

Even digital health companies that are far from being candidates for stock market listings are likely to see a pullback in funds, and could find themselves raising less money from investors than they did in earlier financing rounds.

“There's going to a reset of expectations across the board,” Francis said.

Ruchita Sinha, director of healthcare for GE Ventures, had a similar prediction.

“There will be a correction,” she said. “There's a strong sense of realism coming back into the market.”

A common sentiment at the conference among health systems and their venture capital arms was that technology entrepreneurs don't really understand their business. Many of their new tools try to solve a patient problem but create more work for providers and don't necessarily fit the way they do business...
Good article. Nice summation of the day. I was surprised that it was really the only substantive piece out there. Beth wraps up:
“There's a growing debate [in the digital health world]: Do I want tech investors or do I want healthcare investors? And the answer is, you want both,” said Jeff Tangney, CEO of Doximity, a networking and recruitment site for physicians. Doximity raised $54 million in 2014 in a Series C round led by DFJ Growth, and through funds managed by T. Rowe Price Associates. “It's the rare breed that does both,” he said.
Given the market turmoil and contractions of late (I simply can't bring myself to open my latest IRA statements), I don't doubt that health care space VC dollars may well contract in 2016.


A great, concise resource. At $0.99 on Amazon (Kindle edition), a tremendous value.
Be Prepared For Callbacks 

Memorize your deal facts, know whom you’ve contacted, and be prepared to talk about your deal at a moment’s notice. These are some of the questions you should expect: 
  • What is the value proposition for the investor? 
  • What makes your deal different? 
  • Who are your competitors and why are you better? 
  • Why are you going to win? 
  • What is your revenue model and what is your current revenue run rate? 
  • What events will positively or negatively impact revenue? 
  • How does the current business/ political environment affect your business? 
  • Do you benefit, suffer, or is the impact negligible, and why? 
  • What is the average ROI for your customers? 
  • How do your customers measure the results of your product? 
  • What is your sales cycle? 
  • What is the length of time from identifying identifying customers to receiving a signed contact? 
  • What is the average cost per unit? 
  • Where does this funding round get you? 
  • Breakeven, cash flow positive, and so on? 
  • What were your sales last year? 
  • What are this year’s sales? 
  • How much money has been invested? 
  • Who are your investors? 
  • What is your burn rate? 
If you cannot provide direct and simple answers (that is, three sentences or less) to each of these simple questions, you still have some homework to do. Beyond rote memorization, you need make sure your answers sound natural, not “canned.”
Don’t Recreate History 

Do not waste time showing off your encyclopedic knowledge of the history of technology and communication. Investors have heard about this thing called “the Internet.” They know the history of communication. They know all about the telephone, telegraph, fax machine, electricity, and stirrup. Tell them what they don’t know. 

Venture Capitalists Don’t Know Anything About YOUR Deal! 

Focus on that fact. Your plan needs to educate the reader as to the how, what, where, why, and when of your company. This is basic college freshman year term paper stuff. On the following page I’ve listed some of the basic questions your plan needs to answer. 

Basic Questions Your Plan Needs To Answer 
  • What do you sell? 
  • How much have you sold? 
  • Whom do you sell to? 
  • How do you sell? 
  • Where do you sell it?
  • How do you price it? 
  • What market pain do you solve? 
  • What is the stage of your product development? 
  • What is the compelling reason the market will buy your widget? 
  • What is your revenue model? 
  • How do you make money? 
  • Why are you going to win? 
  • Who are your competitors and how are you different from them? 
  • What are your milestones? 
If the reader cannot divine the answers to these questions from a cursory look at your plan, the reader probably will not get these answers from a deeper study of your plan because your plan will not receive a deeper study. You must immediately and explicitly address each of these questions. Failure to do so will likely send your plan to the trash pile.
Highly recommended. Great jargon glossary at the end. I loved his advisory acronym GYHOOYA (Get Your Head Out Of Your Ass). Meaning, be realistic and honest when dealing with the VCs if you hope to stand the slimmest chance of success. Early on in the book:
Simply put, entrepreneurs need to be realistic; venture capital is not for everyone; they need to operate in an industry (with a product) that has the chance to become a “billion dollar baby;” they need to seek the right investors at the right time; they need to have a “hook,” that is, give investors and customers a compelling reason to act (invest and buy, respectively); they must have a business that builds real assets on the balance sheet (cash); they must close deals and book sales; they must offer a solution that solves a real pain point (and not offer a solution looking for a problem); they must compile a world-class management team; and they must be imbued with persistence, doggedness, resourcefulness, and creativity.
For a comprehensive deep dive, this book below looks excellent (if pricey at $47.19 Kindle), based on my read of the Amazon preview and the comments.


More to come...

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