Why Is the Healthcare Industry Ripe for Disruption? - 7investing
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Why Is the Healthcare Industry Ripe for Disruption?

August 18, 2021

Healthcare has been a forward-facing topic for the past year or so. The Coronavirus pandemic has shown us that there are clear problems in the current system but solutions aren’t to come by. An industry this large does not move quickly and there’s, of course, resistance to change from the parties which have been financially successful under the current system.

There are no easy answers but that has not stopped countless companies from trying. We have seen some success — telemedicine stands out as a major example — but we’ve also soon a lot of well-intentioned ideas fail. Dana Abramovitz and Simon Erickson joined the August 16 edition of “7investing Now” to explain why healthcare needs disruption and why it has been so difficult to make happen.

A full transcript follows the video.

 

Dan Kline: We’ll just hit the ground running here because we have a very busy show. We asked people online, what industry they expect, is going to be disrupted. And the vast majority of people said healthcare. Simon Erickson even weighed in on our Twitter, with health care if you want to bring that up Sam Bailey, we would appreciate it.

Also a little Thank you to @GhengisAhn we’re not going to get to those companies. But he seconded Simon’s vote. And there were like 70 or 80 votes for health care, it was really exciting. So let’s, uh, let’s get to this right off the top. I’d love for you to explain Simon why you picked healthcare. And then of course, we’ll get to Dana, who could start to spell all of this out. And as always, we would love your questions and comments.

Simon Erickson: Well, first of all, Dan, I’m really looking forward to this show, because I think it’s combining one of Dana’s favorite topics to talk about with one of my favorite topics to talk about in the same show altogether. But just to set the table a little bit, disruption is all over the financial media these days. But all innovation is not disruptive innovation. And so disruption is kind of this category where you have a very large percentage of consumers in an industry, perhaps even the majority of consumers that are underserved or underrepresented by the majority, or the incumbent products, right?

So when we think about this kind of computing started with NASA getting these giant IBM mainframes that were just available for large government-funded missions. Now, of course, we’ve got personal computers, laptops, and smartphones, as the computing industry disrupted itself. And healthcare is the textbook definition of an industry that’s ripe for disruption out there, we’ve got $4 trillion, we’re spending in America alone on health care. And for the most part, medical bills are paid for or reimbursed by insurance companies. And the burden of insurance premiums is paid by either private employers who are taking care of their full-time employees or government-sponsored programs like Medicare and Medicaid.

And by the way, each of those is now bringing up an almost $1 trillion annual tab. So they’re very, very expensive. And the entire system of reimbursement is also based upon the Physician Fee Schedule, right. We’re paying for procedures, we’re reimbursing based on volumes for tests, rather than necessarily the medical outcomes for the patients themselves. I know that Dana has a lot of opinions about that, we’ll get into it later on the show. But the whole the whole point is, this is an industry that as a whole is kind of rewarded. Expensive health care plans, people that can have access to the greatest doctors and the greatest health care out there. But we’ve got an underserved group of Americans, and I’m sure the rest of the world has this as well, too, that really need a disruptive opportunity, that will cater to their needs and make sure that we get good health care for everybody out there. So that’s why I voted for health care in this poll. Yeah.

Dan Kline:  And it’s worth pointing out that disruption is difficult. You’re taking on incumbents, you’re taking on a huge operating system. Dana, we’re going to talk about innovation. But first, I wanted you to comment a little bit on what Simon just said.

Dana Abramovitz: Yeah, I mean, the whole healthcare industry is adverse to risk right. It’s in their DNA, right, the Hippocratic oath, do no harm. Right. And they have a centuries long tradition of, if it’s not broken, don’t fix it. The stethoscope is the same thing that people have been using forever, right? Could it be improved, probably, but there’s no initiative, right, there’s none of that disruption. But then I think that the pandemic has really pointed out the opportunity and, and people who are not getting access to health care, and just where we can really create disruption, just so that people have more access to it.

Dan Kline: We’re only as healthy as the guy making our burrito. That’s something we’ve learned during the pandemic. Simon, before we get to data on sort of why innovation is difficult to healthcare. I wanted to get to the comment from Max Lucas, if you could read it because your vision is better than mine, as we pointed out.

Simon Erickson: Sure. Yeah. Okay, so Max says thanks again for watching Max. It says, I know people think technology can disrupt any industry. Because how well it disrupted consumer goods, but industries like healthcare and real estate are hard to disrupt due to regulatory hurdles. Dana, how convenient. You just wrote a report on can technology fix healthcare?

Dana Abramovitz: Yes, Yes, I did. And so technology can help healthcare, but it can’t be a bandaid. So if you have a technology company, we can see where the system’s broken, every time I go to the doctor, and the nurse measures my blood pressure, my temperature, writes it down on a post it note, and then turns to insert into the computer. Right. Those are opportunities to mess up. Right, and why can’t it conveniently go into an EHR? But it has to be within the system.

And then the regulatory hurdles, certainly, I mean that’s one of the biggest problems that the healthcare industry faces is that, there are all sorts of different government regulations, and it’s at the federal and state level, um, as well, as you a lot of the, Simon had talked about the insurance and who’s paying for things, that also comes from a government and, if there’s an opportunity for it to change every four years, then, we’re two to four years, it could. So it just makes it really hard for the industry to respond to all of these regular regulatory changes, which makes it difficult to make changes in the first place.

Dan Kline: It’s also worth noting that this is a very large industry, and an enormous amount of training goes into obviously, being a doctor, a nurse, a health care provider, and that tends to make you set in your ways. Like, I know, Simon, if there was a new way to look at stocks, we might be resistant to some of that logic, but I want to share a comment from Jason Bixler that that just sort of made us all laugh and let Dana talk a little bit about why innovation is slow. And here Jason Bixler, I apologize. He says healthcare, they still use fax machines for crying out loud. Even I don’t have a fax machine anymore. Dana, I know, you want to tell a story.

Dana Abramovitz: I know. So I had a story. So I’ve been working in that healthcare industry my entire career. And it’s like, 30 years now. I was talking to a head of oncology at a community hospital in Silicon Valley. So a fairly innovative hospital. And she said if you want to change healthcare spend the day in the clinic. And so I did with her, and I followed her and I watched her sign out a patient.

So a patient’s in the hospital, the doctor has to sign that person out. Saying that they are okay to leave. And she had a pen and a piece of paper, and she signed, like, literally signed out, it wasn’t using an EHR, right? An electronic health record, it wasn’t using any digital means she actually had a pen and just seeing that here is this innovative organization that’s still doing things like paper charts. We have a ways to go.

Dan Kline: We’re going to take Luciano’s comment in a second. But Simon, this is actually like, they built this industry to make it not disruptable, but slowly disruptable.

Simon Erickson: That’s absolutely right. Healthcare as a whole has purposely put hurdles in place to slow the pace of innovation, right. Think fundamentally about what healthcare is think about how many years it takes to become a doctor, you are an expert in your craft. And if all of a sudden the industry starts changing at a whim, and everything that you’ve learned goes out the window would be impossible, right? You’ve got standard of care that is meant to be in place so that doctors can know what to do and how to diagnose and how to treat patients.

If that’s changing all the time, really quickly, it’s going to be very difficult for doctors to keep up. Think about medicine, as you think about it. You know how long it takes to get a new drug approved and go through FDA trials? No, it costs a billion dollars and 10 years to get anything commercialized. That’s on purpose, because you want to reward the companies that have spent the time and done the rigorous research to actually have two years of exclusive patent protection so that they can actually recognize the fruits of their labor from all the work they did out there.

And just I mean, healthcare as a whole. I think that the regulations are very good. I mean, there’s health for for good reasons, is people’s lives that are at stake here. You don’t want this to be moving as quickly as cloud computing or the internet happens. But again, we see a lot of fundamental problems. And I think that there are definitely some some big corrections that need to play take place. Again, when you’re talking about a sixth of our GDP and $4 trillion a year. There’s a lot of efficiencies we can realize out there.

Dan Kline: Yeah, it’s also steering a cruise ship, these are not easy changes to make. And I’ll give an example from our lifetime. It wasn’t that long ago that the vast majority of prescriptions were written on a piece of paper, and you brought them to your pharmacist to fill it. Now, much more common have that be done electronically. It’s not 100%, there’s still a lot of paper prescriptions and pharmacies that aren’t hooked on electronically.

Or I go to one CVS, and they sent my prescription to another CVS. And it’s there’s no interoperability there. So this can be really, really tricky. We would love your questions and comments. We’re going to talk a little bit later in the show about some of the other areas you thought were ripe for disruption. But I want to start with Simon on this one. How do you sort of separate what’s industry stubbornness, and people protecting their own piece of the pie, and what’s actually something where we should go really slowly to not sort of upset the applecart of a system that sort of works? We’re not all dead?

Simon Erickson: It’s a good question of, of what needs to be innovated the most, right. And if you look at these pockets of healthcare, which by the way, we say healthcare, it’s like 1000, different sub-segments, right, or whatever we’re talking about within this giant industry out there. But two that are, I think necessary are oncology and prescription drugs, oncologists, were spending more than 100 and $10 billion a year on the fight against cancer. And it’s very expensive.

And a lot of the times we’re just reactively responding to patients that are in later stages of cancer by stage two, stage three is maybe in stage four cancer. But what if we can proactively detect that earlier on? What if we can solve these problems that are hardwired into us as human beings whose blueprint we have called DNA to stop those problems from happening rather than reactively? responding to them? I mean, that’s one huge area that could be could be fixed.

And the other one is prescription drugs. I mean, Medicare Part D, right? I mean, how much are we spending on treating chronic conditions with drugs over decades, rather than correcting the fundamental problems, and we have opportunities to correct both of those. Now, both of these big things, I’ve got technological innovations, whether it be gene editing, whether it be gene therapy, whether it be RNA interference, a lot of the work that even Dana did in her PhD work, the technology is out there and can be applied.

But to your point about the narrative, Dan, this is a controversial field. When you say gene editing, there’s a lot of kind of controversy that people whether it’s ethical, whether it’s resistance to this for different reasons, whether it’s privacy debates, people don’t want to share their DNA, or their healthcare records out there. When we talk about the pace of innovation, you’ve got to have buy in from the consumers that are underserved. And a lot of those questions still remain to be answered.