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October 1, 2014

Psilos Healthcare Outlook Fall 2014

Filed under: Healthcare,Venture Capital — Steve Krupa @ 4:26 pm
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At Psilos we have been predicting the oncoming wave of consumerism in the health insurance market for sometime, and for that matter we have invested behind our beliefs.  But over the last couple of years it occurred to us that it may not be exactly clear what this reality means for insurance companies. This is the subject of this year’s Outlook, titled: A Race to Embrace the Consumer Business Model: Insurance companies must change or face obsolescence.

In our 2011 Outlook we wrote the following:  “Psilos believes that the PPACA [a/k/a Obamacare] will accelerate sweeping changes to consumer-oriented business models and distribution channels, as well as increase the competition among insurance companies… These changes are already beginning to occur, but they will accelerate rapidly post- 2014 [emphasis added], when the number of Americans shopping for their own health insurance will increase exponentially at the expense of the current model, in which most people either have their health insurance provided to them by their employers or simply remain uninsured.”

Post-2014 is now upon us, and it would seem that we are in the midst of much of what we predicted three years ago.

To us the most interesting question for investors in the HCIT and services space is exactly how will insurers adapt to the new reality.  And so this is the focus of our 2014 Outlook.

The fact is that insurers are not set up as a business to service individual consumers, especially the version of the individual consumer that is born from our current information age, where almost any transaction and piece of relevant information is available to us at will, through the internet and on our mobile devices: except of course our health insurance and our healthcare information.  Why?  Because the infrastructure of the industry is not set up to service individual consumers, in large part because those consumers have not historically been a primary customer; however, they are now.

Our report takes a broad Michael Porter-esque view of the insurance company value-chain, which today is set up to service their employer customers, and argues it must be completely re-thought and re-engineered to service individual consumers.  Within these changes lie ripe opportunities for investors, and those insurance companies that successfully establish a value-chain built for the consumer business have the opportunity for material gains in market share and profitability.

You can read through the entirely of our report here.

If you find it interesting, which I think (hope) you will, I would love some feedback.

SK

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May 15, 2010

Psilos’ Annual Outlook on Healthcare Venture Capital Investing

Last week my firm Psilos Group released its collective annual outlook on the state of healthcare venture investing.  The Outlook serves as our public statement outlining areas of opportunity in IT-Enabled Healthcare Services, Healthcare Information Technology and Medical Devices, Diagnostics and Instrumentation.

 

Psilos Group Calls Health Reform Legislation
“An Opportunity for an Industrial Revolution in Healthcare”

Quality and Cost Innovations Critical to Addressing Healthcare Inflation;
Premier Healthcare VC Firm Outlines Six Opportunities to Drive Meaningful Change

NEW YORK, May 12, 2010 – It is time for an “industrial revolution” to change the underlying costs and structural inefficiencies in the healthcare industry, according to a new report issued today by healthcare venture capital firm Psilos Group (www.psilos.com), and the recently enacted Patient Protection and Affordable Care Act (PPACA) affords healthcare entrepreneurs and investors an unusual opportunity to respond with innovation.

The report addresses the challenge of adding 32 million newly insured Americans to the “bad economics” of U.S. healthcare, but suggests that reform can “catalyze healthcare innovation that improves quality and reduces cost, if only investors, policy-makers and companies rise to the challenge before us.” The report calls for accelerated development and adoption of innovative solutions and technologies that will deliver real value for each healthcare dollar spent by the federal and state governments, U.S. corporations and individual healthcare consumers.

“We cannot simply go on investing in incremental changes to approaches that have failed repeatedly,” said Dr. Albert Waxman, Psilos’ senior managing member and CEO. “If done well, new medical technologies and disruptive models of delivering healthcare services can be the foundation for new businesses based on 21st century information technology.

“A real healthcare industrial revolution would go a long way towards eliminating the 30 percent waste and error in our current system, improving national competitiveness and creating new products for global exportation.  The return for the U.S. will be a vibrant healthcare economy that enhances the public good and private enterprise at the same time.”

As part of its second “Annual Outlook” on healthcare economics and innovation, Psilos notes that failure to establish a culture of innovation in healthcare delivery will lead an existing $2.5 trillion industry to continue to inflate to over $4.5 trillion by 2019, as projected by the Center for Medicaid and Medicare Services (CMS). Psilos highlighted six specific areas where innovation can bring about near-term, high-impact and high-return changes to improve the U.S. healthcare system. These include:

  1. An efficient system to prevent and manage chronic illness, which accounts for 78 percent of all our healthcare expenses. Technology can help improve care management to prevent costly procedures and to incentivize consumers to live healthier life styles.
  2. Error reduction in inpatient, ambulatory, and post-acute care. These errors are most often the result of poor information flow and imperfect human behavior. Innovative solutions to help care administrators avoid costly and tragic mistakes have begun to emerge and have demonstrated positive clinical outcomes.
  3. New technology and benefit plans to deal with the diabetes epidemic, which costs an estimated $170 billion annually in the U.S. Improved diagnostic solutions and healthcare management programs will go a long way in controlling the spiraling costs.
  4. New medical technology to enable earlier, better diagnosis and thus earlier intervention with high-cost, high-morbidity diseases. Continued innovation around technologies that help identify diseases earlier will have a vital financial and clinical impact.
  5. Medical devices to foster less invasive and more effective surgical interventions. New minimally invasive surgical technologies will enable care givers and hospitals to provide treatment options that reduce inpatient use and result in fewer negative side effects and better clinical outcome.
  6. Expanded adoption and investment activity in healthcare information technology. This includes venture investments to recognize and sponsor entrepreneurs committed to developing modern solutions that bring about the much-needed innovations to put the U.S. healthcare economy on track for a successful future.

For more details, please review the Psilos Annual Outlook at: www.psilos.com/outlook.

March 4, 2010

Investing in Patient Safety

Query:  provide an example of a venture investment with a product that addresses patient safety.

One of our (Psilos‘) more interesting investments is a company called PatientSafe Solutions, f/k/a IntelliDot (for those interested in investing, unfortunately we just completed a round of venture financing with TPG  and Camden Partners).  PatientSafe’s medication bar-coding technology is installed in well over 80 hospitals.  To date, estimates have the technology avoiding over 11 million hospital-based medication errors.  There are 5800+ US-based hospitals, which creates a huge market for us, but the company clearly has a long way to go.

This investment demonstrates that uncovering sound investment opportunities requires digging deeply into the economics of the healthcare system.  Sometimes at first blush investments seem so obvious, until, upon a deeper dive, perverse economic incentives in the HC system thwart success.

First some background on the company’s initial go-to-market product.  

Essentially, PatientSafe’s technology uses bar coding and confirmation software to verify what the company calls the “5 rights” at the moment of drug administration, namely: right drug, right patient, right time, right mode of administration and right dose.  It does this by having the nurse use a handheld bar code scanner, slightly larger than an android-type cell phone, to scan the patient (through an ID wristband), the nurse’s name tag, and the drug prior to administration.  If any of these data points are off, e.g., the drug is an adult dose of Heparin instead of an infant dose, as was the case in the now famous hospital-based medication error involving the the near death of actor Dennis Quaid’s new-born twins, the nurse receives an alarm at the handheld device beginning the process of correcting the error.  If no alarm occurs, then it’s clear that the technology has safely confirmed the “5 rights”.

So what is the value of this system?  Well, here’s some interesting data:

  • 19% of all medications administered to hospitalized patients are given in error
  • 1.3% of all doses given in error are potentially harmful which results, on average, in a length of stay increase of 1.88 hospital days
  • A typical 200 bed hospital will have approximately 29,000 Medicare patient days per year, with each Medicare patient receiving on average 20 medicines per day, or for the hospital, 580,000 meds per year. 
  • Of the 580,000 meds per year, 110,200 will be in error and 1,465 will be in critical error resulting in 2,755 unnecessary hospital stays (1,465 error x 1.88 days).
  • The average cost of a hospital day under Medicare is about $600, so medication errors in this sample 200 bed hospital cost the healthcare system $1.65 million per year, or $8,265 per bed per year.
  • One last calculation:  taking $8,265 per bed per year across all of the 950,000 hospital beds in the US results in a cost of $7.8 billion per year.  Note that these numbers only include Medicare costs (the reason why will be apparent in a minute).  An estimate of total cost of medication error including all patients would exceed $10-12 billion per year.

Just as a reality check:  let me assure you that the annual cost of the PatientSafe system is much, much lower than the $8,265 per bed per year computed above.

So if you were the CEO of a hospital it would be a no-brainer right?  Install a system that improves my quality and saves Medicare a ton of money.  True, provided that you (the hospital) were paying for the extra hospital stays as a result of medication error.  If you were not (paying for the errors, that is), the economics of such an investment would be shaky (oh, comments and questions, please!).

In truth, up until very recently, additional hospital stays that resulted from in-patient medication administration error were reimbursed by both Medicare and private insurance.  And as a result, were these conditions to have held, PatientSafe would have had a tough environment to sell into.  Sure a few executives would purchase the system for its quality prospects, but that alone would not have created a large enough market for PatientSafe’s product to justify the investment necessary to build it.

It was not until September of 2008 when Medicare began to enforce broadly the concept of  “never events” (contained in a 2006 law),  that PatientSafe could begin to anticipate growth in its market and eventual traction with its hospital customers over the long run.  A “never event” is something that, as the term implies, should never happen in a hospital, and if it does, under Medicare, the hospital has to fit the bill for the resulting cost.  In-patient medication administration errors are considered never events.

So what is the medication administration error rate with the PatientSafe system?  Studies indicate that it’s zero.  That’s right, the system seems to completely eliminate drug administration errors, and as such, has the potential to eliminate billions of dollars of waste in the HC system.

Today, PatientSafe’s CEO, Jim Sweeny is leading a project to expand the purview of the PatientSafe system.  Using RF technology throughout a hospital, Jim believes the system can create a “cone of safety” around each patient that will significantly reduce most of the common and avoidable treatment mistakes.  More to come on Jim and his team’s work in the future.

One final point.

The implementation of the “never events” rule demonstrates one of the many ways in which simple, logical government regulation can lower cost and improve quality in the HC system.  Lots of incredible technology exists (and we’re going to talk about much of it here) that will reduce healthcare cost and vastly improve quality.  Alignment of incentives among the payers (mainly the government and corporations), providers and patients are necessary for such technology to be adopted in an economically rational manner.  The government can stimulate the adoption of that technology by modifying reimbursement mechanisms, as they have in the area of never events.  This is one very simple example of such a program and I expect private insurance will follow suit.

March 3, 2010

Lisa Suennen on PE Hub

Filed under: Healthcare,Venture Capital — Steve Krupa @ 4:13 pm
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My business partner Lisa Suennen is at it again, talking about cost savings through error reduction in hospitals.  Here’s her latest post on PE Hub, titled: Venture Capital Can Increase Patient Safety and Reduce Healthcare Waste and Error.  This is additive to the Psilos White Paper I discussed in yesterday’s post, expanding on the notion that billions of dollars can be saved in the healthcare system by reducing medical errors in hospitals.

The post also serves as a call to arms to venture capitalists to invest in healthcare IT, one of the more underserved areas of venture IT investing.  I think Lisa wishes we had more investment partners to choose from (I, on the other hand, wonder if we should not be keeping this great idea to ourselves!).

February 4, 2010

Hello world!

Filed under: General — Steve Krupa @ 11:13 pm
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“Hello world!” a default “wordpress” title which I accept as a welcoming to all first timers.  It is 5-Feb-2010 and I am staring directly into infinity, an empty blog. 

This is the new home base of my evolving digital existence, my second realm.  What I have to offer here are ideas and perspectives on subjects near and dear to me.  What I am in search of is comment and intrigue that will give those subjects added meaning to me and to all who choose to come here.  I hope to create a place for learning, teaching and deepening relationships.

My professional time is spent thinking about healthcare, helping entrepreneurs build businesses and managing a portfolio of venture-stage healthcare investments with my business partners (check on us at www.Psilos.com).  New ideas on all three of these subjects are constantly being tested.  I have many, which will eventually make there way onto these pages.  I also come across many new ideas which I intend to share, with full attribution of course.

 The process of building a great business changes constantly.  Ideas on how to finance, govern, market, hire, communicate, motivate, lead and evolve new enterprises interest me greatly, particularly in the context of our nascent digital age.  I also know that for every investor out there, there is an investment model.  As a professional investor I am always on the hunt for new perspectives on choosing and managing investments and building portfolios, and I hope to introduce these perspectives over time.

My life is definitely not all about work, but I do think it is all about digging deeper and pursuing aficionado status in as much as I can handle.  So while I have you here, I hope to explore some of the subjects that inform my free time, hopefully not just as an indulgence, but also as a way of going a little deeper and having a little more fun.

Thanks for joining me, and I look forward to the discussion.

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