I just finished reading Atul Gawande’s latest article in the New Yorker, Testing, Testing: The healthcare bill has no master plan for controlling costs. Is that a bad thing?
He draws parallels to the history of agriculture in America:
At the start of the twentieth century, another indispensable but unmanageably costly sector was strangling the country: agriculture. In 1900, more than forty per cent of a family’s income went to paying for food. At the same time, farming was hugely labor-intensive, tying up almost half the American workforce. We were, partly as a result, still a poor nation. Only by improving the productivity of farming could we raise our standard of living and emerge as an industrial power. We had to reduce food costs, so that families could spend money on other goods, and resources could flow to other economic sectors. And we had to make farming less labor-dependent, so that more of the population could enter non-farming occupations and support economic growth and development.
The economic similarities sure do make sense. Food was bankrupting us. And a hundred years later, after many pilot projects:
“What seemed like a hodgepodge eventually cohered into a whole. The government never took over agriculture, but the government didn’t leave it alone, either. It shaped a feedback loop of experiment and learning and encouragement for farmers across the country. The results were beyond what anyone could have imagined. Productivity went way up, outpacing that of other Western countries. Prices fell by half. By 1930, food absorbed just twenty-four per cent of family spending and twenty per cent of the workforce. Today, food accounts for just eight per cent of household income and two per cent of the labor force. It is produced on no more land than was devoted to it a century ago, and with far greater variety and abundance than ever before in history.”
The government acted as a 20th Century platform to enable our farmers to do their jobs better. This is a perfect example of Government 2.0 existing in the 1.0 world…the government as platform.
I’ve been saying for quite some time that this should be the age of experimentation with the government acting as VC fund for hundreds to thousands of these pilot projects that foster disruptive innovation.
One major difference between today and 1903 when the government started to move in the agriculture space, is that they had decades to solve the problem with successful results over 100 years later. I personally don’t believe we have this kind of time in healthcare. In the next 10 years, insurance premiums will rise over 160% and even more so the decade after that. It doesn’t take long to understand that very few people will be able to afford those costs in 10 years.
So how can we put these experiments in hyperspeed? How can we learn what we need to learn in just a few years? And how can we empower those doctors and hospitals who want to experiment with payment and delivery processes with the tools, the time, and the money to do so? Can we take lessons from agile development and apply them to healthcare delivery? Can we create a Gov 2.0 platform to analyze new payment and delivery methods to quickly understand if they’re working and whether or not they’ll be profitable in the near future? Can this platform quickly and fluidly organize doctors into virtual groups to provide new collaborative ways of delivering healthcare? Can this platform gather the requisite data to make sense of success or failure?
But then again, it’s been quite a challenge building Hello Health. One of the biggest challenges has been concurrently building new technology to power new ways of delivering healthcare. Building smart, high quality, robust, and secure software takes serious time. And learning through real life healthcare delivery that we need to redo something or rethink something that took months to develop has been frustrating. We’ve done our best and we’re going to shine, but it’s been very, very difficult. After being open for nearly a year and a half, things are getting better and better. But how long did it take Amazon to figure out their technology and their physical processes? How long did it take them to do the same thing we’re doing in healthcare? How many times was Bezos laughed out of VC pitches because he had what sounded like an impossible idea? How long did it take Amazon to be profitable?
Delivering healthcare to a large population of people in totally new ways paid for by totally different methods is uber complex, much harder than selling books online. Large scale pilot projects in healthcare have traditionally been much shorter than seven years. Why? Multiple reasons but mostly because pilot projects to rethink healthcare have been half-baked and small grant funded. Also, the amount of money people are potentially losing through experimentation is too large to risk a seven year investment and there’s little incentive to buck the system and create new ways of paying for or delivering healthcare. All of the healthcare success stories we have in America— like Kaiser, Geisinger, and Intermountain— evolved from thoughtful leaders that bucked the traditional system because they knew tradition didn’t make sense. How can we foster this kind of innovation in physicians all over the US who know things are broken and there’s got to be a better way?
Healthcare experiments and pilot projects need to be rethought. We need the government to foster new platforms that markedly reduce communication overhead, much like Hello Health and the NHIN are doing. We need the government to create innovative new ways to act like a VC fund, much like Rafe Furst is trying to rethink funding:
Inspired by Nassim Nicholas Taleb’s book The Black Swan, some friends and I have begun to rethink how to most effectively fund innovation, whether it be purely for profit, not-for-profit or social entrepreneurship.
As it stands today, the market for venture seed capital is broken. Most individual angel/seed investors will only do on average one deal per year. Their portfolios lose money 40% of the time due to insufficient diversification. Even premier angel groups like the Band of Angels say they only do about 8 deals per year. Our math and simulations say you need to do 125 to achieve good diversification. On the other side of the table, only 14% of innovators who want seed funding will find it. Those that do will spend about 6 months looking for money instead of building their businesses. All-in-all this is a sorry state of affairs for a market where the overall annual return is roughly 25%.
To address the gap we are working on four new models which complement one another:
- Black Swan Fund - Index-style equity investment for startups needing $250K - $1M, prior to a VC round or cash flow positivity.
- Equity Micro-Funds - Smaller versions of (1) for startups needing $25K - $100K.
- Nano-Investments - One-off, option-on-equity investment for pre-startup pilot projects lasting 1-3 months needing $5K-$25K.
- Personal Investment Contracts - One-off, lifetime equity investments in individual superstars at the beginning of their careers.
Feeding a population is a bit simpler than delivering healthcare. The strategy the government used 100 years ago in farming needs to be leveraged today, but updated with today’s potential. We don’t have another 100 years of financial solvency to deal with healthcare. Forty five thousand people are dying every year due to lack of insurance. One million people have been forced into bankruptcy. There is a healthcare famine in America today that needs to be solved quickly.