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Confidential+ , Do+not+copy+or+distribute+ without+permission ©+2013+Lemhi+Ventures

Disruptive*Changes*in*Health*CareThey*don’t*happen*to*us*……or*do*they?

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The$Sad$History$Of$Health$Care$Cost$Containment$As$Told$In$One$Chart$Health$Affairs,"January"23,"2002

“Systems”*Perfectly*Achieve*the*Outcomes*of*Their*Design

Based&on&design&we&should&call&it&the&“Illness&Burden&Treatment&System”

SOURCES:(Henry*J.*Kaiser*Family*Foundation*analysis.*Private*health*expenditures*per*capita,*1960L1999,*are*from*the*Centers*for*Medicare*and*Medicaid*Services*(CMS).*Change*in*private*spending*per*capita,*2000L2001,*is*estimated*based*on*average*premium*increases*for*employerLsponsored*coverage*from*the*Kaiser/HRET*Survey*of*EmployerLSponsored*Health*Benefits.

NOTES:(Real*change*in*spending*is*calculated*using*the*Consumer*Price*Index*(CPILU)*all*items,*average*annual*change*for*1961L2000*and*JulyLtoLJuly*change*for*2001.*This*analysis*was*inspired*by*an*analysis*done*by*Jeff*Merrill*and*Richard*Wassermann*more*than*fifteen*years*ago.*See*J.C.*Merrill*and*RJ.*Wassermann.*“Growth*in*National*Expenditures:*Additional*Analyses.”*Health'Affairs'(Winter*1985):*91L98.


What*ingredients*do*you*need*for*rapid*and*massive*amounts*of*investment*to*occur?The*same*dumb*things*all*VC’s*say

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A*Large*Market*…..

On*a(per(capita(basis,(health*spending(

has*grown*substantially.

Source: National Health Expenditure (NHE) data from Centers for Medicare and Medicaid Services, Office of the Actuary, National Health Statistics GroupPeterson1Kaiser" Health" System"Tracker

Total"national"health"expenditures,"US"$"per"capita,"197012013

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..that*is*growing*rapidly**(think*real*$)

For* employers,*the*latest*reports*indicate increases*of*6.6%*(HMO*plans)*to*9.9%*for*PPOs*for*2016.* The*primary*drivers*are*prescription*drug*and hospital*pricing;*both*are*up*substantially.*See*more*at:*http://www.joepaduda.com/2015/12/howsLtheLacaLdoingLpartLtwo/#sthash.99DINjRc.dpuf

Source: National Health Expenditure (NHE) data from Centers for Medicare and Medicaid Services, Office of the Actuary, National Health Statistics GroupPeterson1Kaiser" Health" System"Tracker

U.S.*health*care*spending*per*capita*has*risen*at*historically*low*rates*recently,*but*is*expected*to*pick*up

Average" annual" growth"rate"of"health" spending" per"capita" for"1970s" – 1990sAnnual" change" in"actual"health" spending" per"capita"2000" – 2013" and"projected" health" spending" per"capita" (2014"– 2024)

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..*And*where*Regulatory*markets*experience*abrupt*transitions

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…and*Legacy business models are susceptible to tech disruption

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A*framework*for*classifying*innovation(at*time*of*investment)

Change&process&model

(Operating&Expenses)

Low

Low

High

High

Change&in&Business&Model&(products)(Revenue)

Incremental(incumbents+win) Radical

Breakthroughs Disruptive

Because(value(is(

measured(in(economic(

change(– time(is(an(

important(element(

when(classifying(

innovations.

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And*Walla*it*exists*everywhere!

2015 environment:

• ridiculously*low*interest*rates

• massive*amounts*of*institutional*capital

• investorLfriendly*exit*preference*agreements

Result:

• Massive*new*funding*rounds*almost*more*like*loans*than*venture*capital

• All*of*this*contributed*to*skyLhigh*valuations*that,*in*some*cases,*are*simply*not*supportable


Venture*Investing*in*Health*CareNot*as*easy*as*it*looks

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Influx*of*money*is*mind*boggling

Digital(Health(

Funding(Snapshot

Year*Over*Year

Source: StartUp Health Insights | startuphealth.com/insights. Note: Report based on public data on seed, venture, corporate venture and private equity funding only. ©2015 StartUp Health LLC

2015"saw"a"significant"shift"towards"validated"innovation."Today's"capital"is"supporting"companies"with"proven"leadership"strategy,"business"models"and"demonstrated"outcomes."Although"total"funding"is"down"from"last"year,"there"is"more"market"impact"per"invested"dollar"than"ever.

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Big*rounds*are*still*driving*influx


Digital(Health(Funding(

Snapshot

Year*Over*Year

Despite"fluctuations"and"a"slow"first"quarter"of"2015."the"market"trend"is"still"positive."with"a"regression"analysis"on"amonth1over1month"basis"demonstrating"a"continued"upward"momentum

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And*a*lot*of*people*want*to*play

Number(of(Investors

Year*Over*Year

2015"showed"a"rising"number"of"deals"being"struck"by"Large"groups"of"investors."This"has"been"a"consistent"theme"the"last"few"years"as"the"total"number"of"unique"investors"has"grown"significantly"in"the"past"two"years."In"2015."the"number"of"investors"making"more"than"six"investments"in"digital"health"doubled.


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But*Digital*Health*performance*is*lagging

Public(Performance:(2015

Source: The Digital Health Public Company Index by Rock Health (as of market close on December 8, 2015); Available from: https:www.motifinvesting.com/motifs/the-digital-health- index-by-roc-07xghiOF#/

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Mostly*because*we*thought*it*was*a*consumer*market

Digital(Health(Funding:(2011 – 2015

Source: Rock Health Funding DatabaseNote: Only includes U.S. deals >$2M; data through December 8, 2015

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And*we*have*big*misses*on*adoption

Rock(Health(

finds(consumers(

not(yet(adopting(

digital(health

Editorial. Rock Health surveys 4,000 consumers and finds relatively low adoption across the consumer digital health market. Seven in ten search online for specific health topics and half search for healthcare ratings. Less than two in ten are using a health app for tracking and around one in ten own a wearable or use genetic or telemedicine services. Hospitals measure patient portal use for meaningful use Medfusion is best at driving patient adoption (35%) With athenahealth, Epic and eCW driving over 20% of patients to engage, according to KLAS Research.

Source: Rock Health

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Would*you*spend*$500*a*night*on*Roach*Motel?

1(in(6(Patients(was(treated(in(a(oneOstar(hospital

Healthgrades.*which*tracks*the*quality*of*doctors*and*hospitals,*says*one*in*six*American*patients*was*treated*in*a*hospital*they*rated*as*oneLstar.

FiveLstar*hospitals*offer*a*71%*lower*risk*of*dying*and*a**65%*lower*risk*of*complications*during*their*stay.According*to*the*study,*when*patients*were*presented*with*objective*information,*including*physician*experience,*patient*satisfaction,*and*hospital*outcomes,*85%*of*the*time*they*choose*a*different*physician*than*they*did*initially.

Hospitals*within*close*proximity*of*each*other*can*have*significant*differences*in*complication*and*mortality**rates*for*the*same*condition*or*procedure.*Few*hospitals*have*superior*results*across*all*procedures.

More*choices*in*large*metropolitan*area*doesn’t*equal*better*care.*In*Chicago,*of*the*46*hospitals*that*perform*Coronary*Artery*Bypass*Graft,*only*two*have*a*fiveLstar*rating*for*this*procedure.*

Editorial: The research was contained in Healthgrades’ 2016 Report to the Nation, which analyzed approximately 45 million Medicare patient records for nearly 4,500 short-term, acute care hospitals nationwide.

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Big*miss*on*Patient*Engagement*too

Patient(engagement(remains(primitive(in(the(provider(market(

with(an(advanced(sector(willing(but(not(yet(able(to(execute.

It’s*taking*a*back*seat*to*other*priorities*like*clinician*networks,*analytics*and*risk*management*on*a*path*to* population*health*management.

MARKET(DRIVERS:(meaningful*use,*healthcare*reform,*healthcare*goes*retail,*technologyLdriven*consumerism.

ADOPTION(CHALLENGES:(behavior*chance*is*influential*and*elusive,*reimbursement*is*not*rewarding*value,*regulatory*restraints,*technology*not*keeping*up.

VENDOR(SEGMENTATION:

• EHRLtethered*portals*have*limited*value*to*patients• HIE*vendors*have*robust*backLend*capabilities• Untethered*portals*are*a*mixed*bag,*including*pointLofLcareLdriven* platforms*and*

mobileLfirst*vendors.

VENDORS(PROFILED:(Aetna*iTriage,*Allscripts,*Axial*Exchange,*Cerner,*Dossia,*Emmi*Solutions,*Get*Real*Health,*GetWellNetwork,*Influence*Health*(MedSeek),*McKesson/*RelayHealth,*MedFusion,*Microsoft* HealthVault,*NoMoreClipboard,* and*WebMD.

Editorial: Chilmark Research reports that the industry is lagging in using technology to engage patients. Many providers are simply focused elsewhere in other aspects of population health management, like analytics or risk. And the patient portal technologies from the EMR vendors are basic. With care management driving demand, Chilmark sees an opening for niche solutions to get traction as EHR vendors fall behind. Note: Epic's MyChart isn't covered in the vendor and product profiles. Other reports indicate it has the largest share of active patient portal users. (Disclosure: author uses the patient portal at Kaiser Permanente in San Francisco to make appointments, email physicians. get test results and physician notes, and refill prescriptions.

Source: Chilmark; Healthcare IT News

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Best*population*“health*engagement”*?


Applying*Disruption*to*Health*CareThink*Value*Chain

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Where*Does*Your*Health*Insurance*Dollar*Go?

Where&would&you&focus&your&reform&efforts?

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CONDITIONCARECOVERAGE

The*Three*C’s*of*Health*Care

EMPLOYERS HEALTH&PLANS PROVIDERS PATIENTS

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CONDITIONCARECOVERAGE

What*are*the*disruptive*moves?

CARE(

MANAGMENTNETWORKBENEFITS


DEFINED&CONTRIBUTION

CHANGE&THE&FINANCIAL&SERVICES&PRODUCT

PROFIT&FROM&HEALTHY&PATIENTS

BECOME&A&CONSUMER

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Investment*everywhere*but*will*it*lead*to*affordability?


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NETWORKS

CONSUMER&ENGAGEMENT

SALES&DISTRIBUTION

PLAN&DESIGN

HEALTH&PLAN&OPERATIONS

CARE/DISEASE&MANAGEMENT

The*unbundling*of*a*health*plan


Health*Plan*DisruptionServices,*Networks,*or*Product*which*would*you*choose?

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Fixing*the*three*design*flaws

Third*party*insurance

First*party*financing(cost*shifting*→ financing*=*ownership)*

Price*controls

Tax*Realities

MarketLbased*pricing(pay*for*health)*

Epidemiology*for*Life

Old New

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Time&(in"years)

How*Would*You*Finance*this*Cost*Curve?

$$

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CostLshifting*or*Epidemiological*Financing?

! Managed*care*has*funded*first*dollar*coverage*

! First*dollar*coverage*works*poorly*inside*an*insurance*economic*model

! Create*a*taxLeffective*way*to*offer*a*new*financial* services*product*for*healthcare

! Unbundled*and*repackaged*the*“good*stuff”*of*managed*care

! Created*healthcare*consumersPremium"Cost

Deductible$1,000 $10,000

Episodes of Care

First Dollar Coverage

75% 15%Americans

10%


Provider*DisruptionWhere*all*the*dollars*are*anyway

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The*Ugly*Truth

Expecting'our'massive,'very'well:financed,'high'revenue,'high'margin,'high'growth,'healthcare'infrastructure'to'voluntarily'reduce'costs'and'prices'and'expecting them'to'voluntarily and'spontaneously'improve'either'outcomes'or'care'quality'is'unfortunately'naive.'It'is'almost'entirely'funded'by'a'steady'and'massive'stream'of'fees'and'cash'payments'that'have'no'linkage'to'either'care'quality,'efficiency'or'results.'It'is'magical'thinking'to'believe'that'health'care'delivery'can, or'even'could,'reform'itself'in'any'significant'way.'There'is'no'economic'reward'for'improving'care.'

George*Halvorson,*CEO*of*KaiserLPermanente

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RBRVS:*It’s*Not*What*You*Think

ResourceLbased*Relative*Value*Scale

Otherwise*known*as:*Really*Bad*Reward*and*Value*

System

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$0.00+

$1,000.00+

$2,000.00+

$3,000.00+

$4,000.00+

$5,000.00+

$6,000.00+

1 5 9 13 17 21 25 29 33 37 41 45 49 53 57 61 65 69 73 77 81 85 89 93 97

Improved+Management+of+Migraine+Patients

Average+Allowed+Cost+per+E

pisode

Individual+ Physicians+ (each+managing+multiple+Migraine+episodes+ in+SAME medical+group)Notes:++Claims+period+5/1/07,4/30/09+with+90+day+claims+run,out;+no+minimum+count+of+episodes+per+physician;+outliers+were+excluded+on+both+the+high+and+low+end+based+on+cost/episode;+risk,adjustment+,, episodes+where+patients+had+health+risk+> 2.0+were+excluded

Current(Migraine(cost(

pattern

Migraine(cost(pattern(

projection(after(improved(

efficiency

Why*price*transparency*won’t*workLIt’s*not*about*unit*price,*its*about*practice*pattern*variation

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Quintiles2of2Provider2Cost2Efficiency(Lowest(Quintile(reflects(greatest(cost(efficiency(relative(to( this(group(of(physicians)

Average2Allowed2Costs2per2Episode

Best2Practice2Compliance:++Consistent+ system,wide+compliance+with+best+practice+guidelines+ for+migraine+management+will+reduce+unwarranted+variance+in+use+of+head+scans+(MRI,+CT),++encourage+more+effective+use+of+medication,+and+avoid+the+ER+visits+prompted+by+poorly+controlled+headache+crises+

0

200

400

600

800

1000

1200

1400

1600

1800

Highest(Cost( 2nd(Highest(

Cost

Middle 2nd(Lowest(

Cost

Lowest(Cost(

ER(Visits

Pharmacy

Head(Scans( (MRI,(CT)

Episode*reimbursement*saves*20L63%*of*medical*spend

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…….Ummmmnot*so*much

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The*future*is*here…..*it*is*just*not*normally*distributed


Patient*DisruptionAre*we*ready…..

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What’s*in*your*wallet

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Designing*the*New*Health*System

How*much*health would*you*want*to*buy?

How*much*care would*you*want*to*buy?

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