Health care and health insurance reforms are happening…at Walmart!?

Walmart logoHere’s an refreshing departure from all of the federal government gloom and doom news. Four hospitals around the U.S. including Virginia Mason Medical Center in Seattle have negotiated deals with large retailers Walmart and Lowe’s to provide comprehensive surgical care for knee and hip replacements to 1.4 million of the companies’ employees.

The kicker? Zero out-of-pocket costs, co-payments, deductibles, etc. But wait, there’s more. The arrangement, completely voluntary for employees by the way, provides travel, lodging, and living expenses for the patient and a caregiver.

The announcement expands a deal struck by the hospitals with Walmart in 2012 for heart and spinal surgeries along with organ transplants. The world-renowned Cleveland Clinic has been conducting a similar program, offering fixed-price cardiac procedures for a number of major corporations including Boeing.

The programs are attractive to the hospitals and corporations for a number of reasons. The corporations are self-insured. Reducing variability and uncertainty in healthcare costs is vitally important to the businesses. The corporations are large enough to be able to offer large volumes of patients for the high volume procedures.

The hospitals, already leading in terms of low complications and readmission rates, can use the guaranteed volumes to standardize procedures and improve quality even further. In exchange, I’m sure the partners agreed on large discounts to standard prices for the expensive procedures. And the patients, although not required to participate, get the sweeteners of no out of pocket cost and free travel. Sounds like a win for everyone.

In a separate development, Walmart announced that it was converting 35,000 part-time employees back to full-time status. Although that is a tiny fraction of Walmart’s 1.4 million employees, the latest action will result in those workers qualifying for employee-provided healthcare. Late in 2012, Walmart moved many full-time employees to part-time status in an action that was criticized as offloading their healthcare expenses on to taxpayers. Critics complained the workers earned so little that they would qualify for Medicaid health insurance through the new provisions of Obamacare.

Takeaways: While hardly novel, the agreements between the corporations and the hospitals are important because they have the potential to rein in out of control and spiraling healthcare costs. The hospitals will also be able to show exactly how they achieved their cost controls and quality improvements, giving them a competitive advantage and setting a great example for the rest of the country.

If you are developing a new device or technology, this should be a wake-up call. A key to cost control will be standardization. These hospitals will be highly resistant to adopt new technologies or purchase new medical devices unless you can show proof of positive effects on procedure costs, outcomes, and quality.

If you are in the healthcare insurance business, this disintermediation may not be a significant threat in the short term but be assured that other large corporations are watching or perhaps even conducting their own negotiations with high quality, high volume providers. The trend may prove to be a disruptive innovation in the long term.

Read more:

Walmart, Lowe’s strike deal with Virginia Mason on hip, knee surgeries | Local News | The Seattle Times.

Wal-Mart Returning To Full-Time Workers-Obamacare Not Such A Job Killer After All? – Forbes.

Digital health: what’s the business model?

image via svtechtalk.com

Connecting patients with each other, with clinicians and other providers, with insurers, and with healthcare companies via mobile apps on tablets and smartphones and on the web seems like a great idea. The unanswered question is can you make money doing it?

Articles have been written about how the Internet has enabled patients with chronic diseases and their families to connect with others with the same condition. The patients share stories about symptoms, treatment successes and failures, and try to support each other in what can be emotionally draining circumstances. That ability to connect with a vast community all over the country, perhaps even the world, was virtually impossible before the advent of the World Wide Web.

Other companies are trying to connect healthcare providers with their patients. Some are offering to connect patients with providers for online visits for a fee, effectively commoditizing the doctor-patient relationship.

Google famously shut its attempt at a personal health record site, Google Health, last year. Google Health required a lot of effort to use as it didn’t automatically connect with consumers’ Electronic Medical Records. That shortcoming left a small market of people who were OK with manually entering all of their health data. And that wasn’t a big enough user base for Google.

Healthcare companies, especially those with a B2C business model, are desperate to maintain relationships with consumers.

Providing apps and cloud storage can be costly. It’s not clear who will pay for the digital services.

Doctors and other providers have been incentivized into adopting EMR technology. It’s unlikely that they will invest in additional information technology for their patients.

It seems that consumers and patients love the free stuff. A few may be willing to pay for some services but many have grown to expect that someone else will foot the bill. And most non-healthcare smartphone and tablet apps are either free or at most a few dollars. That sets a low ceiling for any new health-related apps. It’s a tough way to grow a sizable healthcare or medical device company.

People have grown accustomed to paying almost nothing for their healthcare. Sure, there are co-pays and deductibles that have increased significantly in recent years but those are a small fraction of the cost of care. It will be a challenge to change this expectation for health-related apps and services.

In-app ads are probably not the way to go. If the ads are for healthcare-related items like prescription drugs, the patients will lose trust in the service. If the ads are specifically targeted to the patient’s medical condition, the service will be accused of spying on the patient.

Perhaps healthcare companies will regard the cost of developing and providing apps as a marketing expense.

It’s an interesting dilemma. Free apps and services will draw large numbers of users. But monetizing the app via ads turns off many people. Charging for the services drastically reduces the potential market. Absorbing the expense internally places the app/service on the list of things to be cut when the company’s overall business stagnates or declines.

Takeaways: There is enormous interest in apps and services for mobile health. If you are developing products or services in this space, be sure you know how you are going to make money. It’s not a market if you can’t monetize it.

The traditional medical device business model doesn’t seem to apply here. If you procure funding, develop a product, then show economic or health benefits, who do you sell to?

Perhaps partnering with noncompeting companies interested in the same population is a creative way around the problem. If you can deliver large numbers of consumers/patients via a sponsored app to a partner like a big pharmaceutical company, you may be able to avoid some of the pitfalls and objections.

It’s prudent to put a lot of effort now into developing a viable business model. After all, when you start pitching to investors, one of the first questions asked will be, “how do you plan to make money?”

Read more:

Will Any Health App Ever Really Succeed? | MIT Technology Review

Patients share tips online for managing diseases | SFGate.

Improving Patient Engagement Equal Parts Technology, Empathy | Computerworld

Patients Eager To Access Data Including Medical Imaging Through Online Portals (infographic) | MDDI Medical Device and Diagnostic Industry News Products and Suppliers.

A Cautionary Tale: Biotech firm Atossa recalls its only product | The Seattle Times

Atossa Genetics is an early stage biotechnology company in Seattle developing breast cancer diagnostic tests and medical devices using molecular diagnostic technology. The publicly traded company ran afoul of FDA regulations earlier this year and last week announced a voluntary recall of its products, causing its stock to tank.

The company bills itself as “the breast health company (TM).” Atossa is small, with only ten full-time employees (at least five of whom are senior management executives) according to Yahoo Finance.

Here’s a timeline of company events:

  • November 8, 2012 Atossa Genetics, Inc. Announces Initial Public Offering (NASDAQ exchange, IPO value $4 million). That’s not a typo. It really was $4 million, 800,000 shares at $5 per share.
  • February 21, 2013 Atossa Genetics, Inc. received a Warning Letter from the FDA regarding its Mammary Aspirate Specimen Cytology Test (MASCT) System and MASCT System Collection Test. From the company’s press release:

“The FDA alleges in the Letter that following 510(k) clearance the Company changed the System in a manner that requires submission of an additional 510(k) notification to the FDA.”

  • March – September 2013 Atossa Genetics Inc. continues marketing its products, announcing numerous distribution and partnering agreements as well as supporting women’s health events.
  • September 18, 2013 The company’s stock closes up almost 21% in one day at $6.00 on volume of more than 8.4 million shares traded when it announces a distribution agreement with medical distributor McKesson.
  • October 4, 2013 Atossa Genetics Inc. initiated a voluntary recall to remove the ForeCYTE Breast Health Test and the Mammary Aspiration Specimen Cytology Test (MASCT) device from the market. This voluntary recall includes the MASCT System Kit and Patient Sample Kit.
  • October 7, 2013 Atossa Genetics Inc. stock opens at $5.32 and quickly drops to $2.66 (down 50%) on the news of the voluntary recall. The stock closed today at $2.45, an all-time low.
  • October 7-8, 2013 At least six law firms have announced initiation of shareholder lawsuits in the aftermath of the recall.

Apparently, the company and the FDA disagreed on whether a new 510(k) was required after the company changed the Instructions for Use (IFU) on its product. The company seems to have decided to continue marketing without submitting a new 510(k). What happened next is unclear but the “voluntary” recall ensued.

The company told The Seattle Times that it currently has “sufficient cash for the next 8-12 months of operations without raising additional capital,” though it cautioned that the cost of the recall and other associated expenses is not yet known. Sales revenues were about half a million dollars for the first half of 2013. Atossa reported a $2.2 million loss for the same period.

According to The Seattle Times, Atossa is continuing to develop other diagnostic tests but “will be reassessing the regulatory status of these products … in light of our recent experience,” said CEO Quay. Seems like a prudent action given their recent history…

Takeaways: Do not disregard the FDA. They have the power to shut down your company. If you have a fundamental disagreement with FDA, hire a regulatory consultant and attorney and take their advice.

Make sure you have people with experience in commercializing medical devices, especially regulatory affairs, on your executive team and board of directors.

Think carefully before deciding that an IPO is your best financing option. There are very large fees to be paid and the reporting requirements (Sarbanes-Oxley, etc.) are much more revealing – and onerous – than anything required if you remain private and use VCs or angel investors as your sources of capital.

As the article points out, there are plenty of attorneys waiting to represent disgruntled shareholders. Perhaps you can prevail against all of this adversity but think of the opportunity costs in lost time and cash spent on lawyers and regulatory revisions instead of product development or marketing.

Read more: Biotech firm Atossa recalls its only product | Business & Technology | The Seattle Times.

Robotic surgery and Intuitive Surgical – justifiable targets or targets of envy?

http://mobile.bloomberg.com/image/index/pKISbwVuPwu-CpydsHPB-_ZzUeF8YNn3pSP_hdYcB-jmbFsMemtmA2YRxe7mpv9Ysm4SPHQUfdFCOkPclMKfZ9CUybeuQ86QqPvbWMC5B-eh3lqkPqkgukhgoIa-eGsGCD4Qr_KDqIxEgIvT52jCFi-wMjcy7J1OELQFhliwvoYa7eu81HQi3QHgaQ**Media attention on Intuitive Surgical is increasing. The Sunnyvale, California company is attracting much attention for its aggressive marketing and sales tactics. It’s also being scrutinized for what some critics say is an increased incidence of patient injuries during surgical use of the da Vinci System.

I’ve written about Intuitive Surgical in a previous blog post. Their products are very good and their marketing is stellar, perhaps too good if that’s possible. The ongoing controversies are whether the healthcare market needs as much robotic surgery as it is getting right now and whether inexperienced users and inappropriate use of the technology are responsible for increasing patient injuries or even death.

Intuitive has played the market situation perfectly as noted in the Bloomberg article. Their sales reps use da Vinci Systems to instill greed in hospital administrators by asserting that the hospital can increase market share by offering robotic surgery. Worse, they create fear by saying that other hospitals will increase their market share at the expense of the robot-deficient medical center.

Intuitive even heightens competition among surgeons in an effort to justify demand for additional installations. The surgeons are powerless to stop the marketing machine. One surgeon admitted that if he does not offer robotic surgery, his colleagues will, and he will lose patients to them.

One interesting, even frightening, item from the Bloomberg article is that many consumers, i.e. prospective patients, believe that the system is controlled by robots. In their minds, that’s what gives da Vinci a competitive advantage. So…low information consumers are heavily influencing  a market situation that affects everyone.

The MassDevice article highlights an ongoing dispute between Intuitive Surgical and analysts at hedge fund Citron Research. Citron alleges that adverse surgical events associated with the da Vinci System and reported through the FDA adverse event reporting system indicate a growing problem with injuries caused by the da Vinci System. Intuitive counters with its own analysis, saying that FDA reporting is unreliable and not suitable for time-based analysis. It further states that surgeons should rely on peer-based reviews before making decisions about the technology. From the article:

“”In the 1st 8 months of 2013, 2332 Adverse Event records were posted – compare to 4603 records posted in the entire 12 year period since the 1st Adverse Event tracking for da Vinci  appeared in MAUDE in 2000,” Citron wrote. “It is the opinion of Citron that the only reason there is not a national outcry is because the da Vinci robot has yet to kill or injure ‘the right person’ – like the next of kin of a congress member or a celebrity.”

Intuitive stock closed at $389.16 today, off 33.5% from its 52 week high.

Takeaways: If you plan to be a disruptive or hyper-aggressive medical device company, you need to have thick skin. There will always be plenty of critics and competitors taking potshots at you.

The extra risk with healthcare companies, of course, is that patients can get hurt and die as a result of action or inaction by the company.

You need to decide just how aggressive to be, and whether to define an ethical line over which the company and its employees will not cross. Of course shareholders and Board members may react negatively at any effort to put a damper on the money-making machine. Being responsible for installing that damper could cost a CEO, marketing, or sales executive his/her job.

As we move further into the era of outcomes-based decision-making, opportunities like robotic surgery for anything other than clinically justified reasons will diminish. Robotic surgery could be one of the few remaining “land grab” chances to make a lot of money with little competition. Let’s hope that patients and the rest of the healthcare system aren’t stuck with the bill.

Read more:

http://mobile.bloomberg.com/news/2013-10-08/robot-surgery-damaging-patients-rises-with-marketing.html

Citron puts Intuitive Surgical on blast over adverse events | MassDevice.

For Med Students, Love From the Drug Rep | NYTimes.com

No drug reps signDrug companies and medical device companies focus sales efforts on residents for one reason: because it works. The career-long profit from an eventual loyal physician could be tens or even hundreds of thousands of dollars for a medical device company. It’s also a “bottom-up” way to capture and defend market share.

Often done under the guide of education, healthcare companies’ marketing efforts are creative and relentless.  As the article indicates, many successful sales reps position themselves more as friends than as company representatives.

Inevitably, there have been abuses to the practice. In reaction, many hospitals have severely restricted or even banned contacts with medical students and residents. Some hospitals and medical practices no longer allow sales reps free access to facilities and staff. Some prohibit employees from accepting anything free from industry representatives.

A number of influential and outspoken physicians have written and spoken publicly about the issue, stating that they do not accept any freebies from industry, not even a pen. Their position is that any relationship with industry creates an uncomfortable conflict of interest, actual or perceived.

Of course, attempts to influence physicians and others under the guise of educational programs have been ongoing for many years. There are seminars, dinner meetings and conferences where doctors can earn continuing education credits. I know several physicians who significantly supplemented their professional practice income by speaking about specific drugs at dinner meetings.

Takeaways: Billions of dollars are spent annually on efforts to influence medical professionals. That’s a reasonable (but not necessarily ethical) business decision because many billions more are at stake in drug and medical device revenues and profits. If you are a pharma or medical device sales rep or marketing executive, your job and career are always on the line. Banning these practices just seems to drive them underground.

Perhaps a more rational approach would be to require full disclosure of any transactions (including lunchtime pizzas and the like) with a draconian penalty for concealment.

Read more: For Med Students, Love From the Drug Rep – NYTimes.com.

Disruptive Innovation Opportunities Created By Obamacare

Rather than debate endlessly about whether the Affordable Care Act is good or bad, staff at the Clayton Christensen Institute for Disruptive Innovation has analyzed Obamacare for entrepreneurial opportunities created by disruptive innovations in the law.

Clayton Christensen is a Harvard Business School Professor and author of The Innovator’s Dilemma (and a few more books about innovation since that business best-seller).

According to the authors, these new provisions of Obamacare are disruptive innovations:

  • Individual Mandate – adds tens of millions of new individuals to the primary care healthcare system.
  • Employer Mandate – will drive demand for new, less costly models of health insurance.
  • Accountable Care Organizations (ACOs) – provides incentives to providers to keep patients healthy rather than just paying for treatment of illnesses.
  • Wellness Programs – requires health plans to offer new preventive and self-directed care options.
  • CMS Innovation Center – an entity created outside of Medicare and Medicaid with responsibility for developing novel payment and healthcare delivery models.

 The ACA is not perfect by any means. It is also not perfect in the estimation of the Christensen Institute. Here are a few provisions of the Affordable Care Act that are likely to inhibit disruptive innovation:

  • Essential Health Benefits – mandated levels of coverage that may exceed user needs and will make it difficult to introduce low-end disruptive plans.
  • Insurance Exchanges – online marketplaces that will enable comparison shopping, but only among qualified plans, excluding some new and potentially innovative options.
  • Cost-Sharing – government subsidies will drive consumers into Silver-level plans, limiting demand once again for Bronze-level or even lower (and less costly) plans.
  • Medical Loss Ratio – requiring insurers to justify all rate increases and to spend a minimum of 80% of premiums on healthcare creates barriers to entry for new and disruptive market entrants with low or no subscriber populations.
  • Medicaid Expansion – enrolling patients with minimal or zero previous healthcare coverage into Bronze or even Silver-level plans eliminates a market that could be served by disruptive new entrants with innovative healthcare models. Instead, these patients will be driven to traditional insurers.

As noted by many people, including President Obama, the ACA does not have the ability to transform healthcare on its own. Rather, it is intended to provide incentives and opportunities for innovation in order to make healthcare more efficient, more affordable, and more accessible. In the words of the President, “We want to bend the cost curve.” The opportunities to help in and profit from the bending are present for existing players and for new market entrants.

In the framework established by Prof. Christensen, it is the new entrant that is usually disruptive because the established competitors have little incentive to innovate or to change their business models. It is also impossible for the new entrants to gain market share using the existing business models so they are forced to develop and deploy disruptive innovations.

I don’t expect the full effects of Obamacare to be evident for years, although we should see small improvements (and to be sure, some startup problems) almost immediately. There will no doubt be modifications and delays to the regulations and to implementation. It is to be hoped that some of those changes will be favorable to more, rather than less, disruptive innovation.

Takeaways: With change comes opportunity. The ACA may not be hugely popular (especially among medical device companies paying the 2.3% excise tax). Obamacare is, however, somewhat disruptive and creates new opportunities for healthcare companies.

Read more: Seize the ACA:The Innovator’s Guide to the Affordable Care Act | Christensen Institute.

Fundraising advice for medical device startups – 7 tips for angel funding, 3 more for VC funding

Not that this advice is any guarantee of success in fundraising but it’s fun to read what an angel investor and a VC fund manager have to say about how startups approach them, position themselves, and make their pitches.

Both articles are from MedCity News and were written at AdvaMed 2013. The angel investor article is a brief interview with Allan May, the founder and chairman of Life Science Angels who spoke at the Angel Investment Forum. The VC advice comes from Paul Grand, managing director at Research Corporation Technologies Ventures, a life sciences firm focused primarily on medical devices.

For startups fundraising from angel investors,

  • Your intellectual property (IP) may be the most important indicator of valuation and whether you will be successful in your funding quest. Investors need to plan an exit before they invest. Because the most likely exit is via acquisition by a larger medical device company, and medical device companies hoard patents like misers, it’s in everyone’s interest to have the strongest possible IP portfolio.
  • Unless you have a successful startup track record, a stellar team, and potential for a very large exit in 3-5 years, avoid VCs and focus on angel investors. They are willing to invest in smaller, less perfect deals than VCs.
  • Whether you want it or not and whether you like it or not, expect your investors to take a personal interest in your startup and the way you run it. That means lots of phone and face time giving updates and answering questions…and listening to advice.
  • Because angel investor consolidation has become the norm in raising Series A and beyond, investors will know each other. They won’t invest with others they don’t like, trust, or respect. Same holds for your board members – choose them carefully as they are a direct reflection on you.
  • Mr. May also said “This isn’t about picking technologies, it’s about picking people.” My experience suggests that for most early stage entrepreneurs, your technology qualifies you for consideration while your reputation, track record, and interpersonal skills can usually disqualify you.
  • As for how much money you should raise, “The amount of money you should raise is the smallest amount of money that can have the biggest impact on your valuation in the shortest period of time.” That’s a cute way of saying it’s easier to raise the next round at an increased valuation…because you executed your plan and achieved your goals.
  • This last bit of advice is my favorite and probably the most practical in the interview:  Get someone who knows the angel investor to take the business plan to them. . . “Getting into the pile [of business plans] is not a success.”

From the VC fundraising perspective,

  • Be sure to research the VC firm and the partner before the pitch and adjust appropriately. Every VC is different. Do your homework online and through your network. If you are at the level of pitching to VCs, there should be no surprises.
  • Make sure your startup team has the right experience and is correctly sized. These days, you can run a virtual or lean company a long way toward commercialization without expensive full-time executives. There are plenty of freelancers, contractors, and consultants ready and eager to help…”at the beginning, you just need the founder and the engineers…”
  • If all you have is an idea and technical/clinical skill you should wait a bit before approaching VCs. You are unlikely to get a signed nondisclosure agreement, much less early stage financing from VCs if you make your pitch too early. There are incubators and seed investors who can help you become ready for VC investment. As discussed above, consider angel investment as an alternative to VC funding.

Takeaways: Medical device fundraising is hard but there are steps you can take to improve your chances of success. Make sure you know the expectations and criteria of the people and firms to whom you are pitching. Make sure your startup is a good fit with your prospective investors. Just like Goldilocks and the three bears, you must position the opportunity you’re presenting as not too small, not too big…not too early, not too late. 

Read more:

Need angel funding for your early-stage healthcare startup? 7 smart tips from investor Allan May – MedCity News.

Three big mistakes medical device companies make when pitching VCs – MedCity News.