A better healthcare solution?

I'm looking at an investment in a West-coast company with an interesting new healthcare services model. Here is the description. Reactions welcome!

Thanks,
Tim

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Their plan is to reinvent primary health care via a network of medical practices employed by and directly accountable to their patients.

Observations/assertions they make about the healthcare system that highlight the potential for this opportunity:
* >40% of all hc costs are consumed in insurance reimbursement-related work
* >50% reduction in cost of care for common illnesses is possible if initially treated via primary care (vs. emergency room or specialists)
* 90% of medical issues can be addressed by primary care

The thesis goes: if you could eliminate the insurance reimbursement-related costs, and make good, plentiful primary care more available, you could significantly reduce healthcare costs.

Their offering:
* Monthly flat charge for unlimited primary care
* 500-800 patients per doc vs. average 2500-3500 per doc traditionally in pc
* Docs have 10-12 appointments/day vs. 25-30 traditionally in primary care
* They claim a 30 minute typical patient visit vs. 7 minutes traditionally
* Charge is $54-$128/month (average $87), based on age
* Includes hospital rounds.
* They take anyone, regardless of medical history
* No submission for insurance reimbursement; much cost/time-drag eliminated
* Longer (60-90 minute) appointments for annual checkups
* Available 24x7. Includes phone/email consultations.
* On-site imaging, labs and drug dispensary
* Has the right incentives to promote wellness care, disease mgt, etc.

Note that under this model, the provider generates $680K/yr of revenue per doc at 650 patients per doc.

In order to provide comprehensive coverage:
* They can be combined with a high-deductible health plan (HDHP)
* Their service + HDHP + expected deductible cost is 30-50% cheaper than traditional comprehensive health insurance, while providing better care
* The pool of these people covered by this better primary care might enable an even cheaper HDHP offering (assume good pc care promotes health)
* For those without HDHP, there are pre-negotiated cash discounts for patients who wish to pay cash to outside specialists for care beyond pc

Compared with plans from employers who self-insure:
* Primary care is better (more extensive) for the above reasons
* Its still cheaper (though not as much cheaper).

Good reading: "What I believe is true, but cannot prove"

Guys,

I’m reading a fascinating series of short pieces on www.edge.org called “What I believe is true but cannot prove”. They are written by thought leaders in various fields.

Here is one that resonated with me about raising children in today's world:

DANIEL GOLEMAN Psychologist; Author, Emotional Intelligence

I believe, but cannot prove, that today's children are unintended victims of economic and technological progress.To be sure, greater wealth and advanced technology offers all of us better lives in many ways. Yet these unstoppable forces seem to have had some disastrous results in how they have been transforming childhood. Even as children's IQs are on a steady march upward over the last century, the last three decades have seen a major drop in children's most basic social and emotional skills—the very abilities that would make them effective workers and leaders, parents and spouses, and members of the community.

Of course there are always individual exceptions—children who grow up to be outstanding human beings. But the Bell Curve for social and emotional abilities seems to be sliding in the wrong direction. The most compelling data comes from a random national sample of more than 3,000 American children ages seven to sixteen—chosen to represent the entire nation—rated by their parents and teachers, adults who know them well. First done in the early 1970s, and then roughly fifteen years later, in the mid-80s, and again in the late 1990s, the results showed a startling decline.

The most precipitous drop occurred between the first and second cohorts: American children were more withdrawn, sulky and unhappy, anxious and depressed, impulsive and unable to concentrate, delinquent and aggressive. Between the early 1970s and the mid-80s, they did more poorly on 42 indicators, better on none. In the late 1990s, scores crept back up a bit, but were nowhere near as high as they had been on the first round, in the early 70s.

That's the data. What I believe, but can't prove, is that this decline is due in large part to economic and technological forces. For one, the ratcheting upward of global competition means that over the last two decades or so each generation of parents has had to work longer to maintain the same standard of living that their own parents had—virtually every family has two working parents today, while 50 years ago the norm was only one. It's not that today's parents love their children any less, but that they have less free time to spend with them than was true in their parents' day.

Increasing mobility means that fewer children live in the same neighborhood as their extended families—and so no longer have surrogate parenting from close relatives. Day care can be excellent, particularly for children of privileged families, but too often means less well-to-do children get too little caring attention in their day.

For the middle class, childhood has become overly organized, a tight schedule of dance or piano lessons and soccer games, children shuttled from one adult-run activity to another. This has eroded the free time in which children can play together on their own, in their own way.
When it comes to learning social and emotional skills, I suspect the lessoning of open time with family, relatives and other children translates into a loss of the very activities that have traditionally allowed the natural transmission of these skills.

Then there's the technological factor. Today's children spend more time than ever in human history alone, staring at a video monitor. That amounts to a natural experiment in childrearing on an unprecedented scale. While this may mean children as adults will be more at ease with their computers, I doubt it does anything but de-skill them when it comes to relating to each other person-to-person.

We know that the prefrontal-limbic neural circuitry crucial for social and emotional abilities is the last part of the human brain to become anatomically mature, not finishing this developmental task until the mid-20s. During that window, children's life abilities become set as neurons come online and are interconnected for better or for worse. A child's experiences dictate how those connections are made.A smart strategy for helping every child get the right social and emotional skill-building would be to bring such lessons into the classroom rather than leaving it to chance. My hunch, which I can't prove, is that this offers the best way to keep children from paying of modern life for us all.

Why my son is really unhappy with the radio

Driving home today with my son from visiting my sister's house, we found ourselves listening to Emerson College Radio's "The Playground". One song after another would come up that Sam really liked... especially "18 Wheels on a Big Rig" by the band Trout Fishing in America. Understandably he said "Go back... Lets hear that one again."

Now we are one of those households that boxed up all of our CDs months ago and converted over wholesale to iTunes. Judy, my mother-in-law and former school-teacher, who lives with us, got the fever and painstakingly ripped every one of our 673 CD collection. Sam's experience of listening to music that any song is instantly accessible, repeatable, pausable, etc.

I found myself trying hard to explain radio.

Me: "Well, there are some people sitting in a room somewhere a long way from here, and they are deciding what we are going to hear"

Sam: "OK... I want to hear that one again"

Me: "Well, I suppose we could call them, and ask them to play it again, but they don't usually like to play the same song twice"

Sam: "Well, its really important to me, so please make it play again"

Me: "I'd really like to Sam, but we don't have a computer in the car" [not true, technically]

Later, another particularly good song came along. Sam asked me suspiciously as it ended "Are we still listening to radio?" "Yes", I said. "I want it to play again", he said dejectedly.

It is interesting how a technology can come along and suddenly change completely our perception of a perfectly wonderful older technology that we have loved for years.

A Meaningful Life

I find myself this morning the NKOTB at the big annual Boston real estate "leadership" gathering thrown for the United Way. I came to be social, and did not expect to be inspired. So I was pleasantly surprised when I was--by keynote speaker Bill Cummings.



Bill Cummings is a guy who made hundreds of millions of dollars buying older buildings and land on the North Shore of Boston, fixing them up, and attracting business to them. Bill's organization has a reputation for fanatical efficiency and cost-control, making possible projects that others would not touch.

So it was interesting to hear him talk of how he has just given $50M to Tufts University for their vetrinary school, and, more dramatically, the fact that he is systematically transferring nearly all of the rest of his assets --something close to $1B, I think--to a foundation, which has a mission focusing largely on providing affordable housing for the elderly. What is going on here? What is the underlying economic process at work?

I would say that Bill Cummings is not just another rich guy giving some money to a cause.

Bill's coordination of the efforts of so many others -- and his ability to motivate them -- created jobs where there was none, converted scarey, blighted places to safe, productive ones, and, as should be the case, created excess economic value, what we call profit. This is all how it is supposed to work. But the fact that he plowed the majority of that excess economic value back in to the community to create more jobs and more needed services begins to feel like socialism--except that, when you think about it, it is really hypercapitalism, because it is Bill Cummings, not society, that is the one calling the shots about how is money is used.

This is how economic systems should work. Capitalism is a wonderful system. It is the best system we know. The reward for the winners is that they get to be Bill Cummings.

There are many people who lead meaningful lives, but for those of us in business, it is sometimes hard to see how what we do is "meaingful". Bill Cummings helped me see one way a businessman can lead a meaningful life. It was nice to see his wife and daughter there, clearly cheering him on. It seems he did not forget them along the way, either.

Why we should not race competitors to market

Business school teaches us that it is important to be 'first to market' and to get 'first mover advantage'. I believe this is good advice for many businesses, but in the world of launching new, innovative products or services, it is often wrong.

I will use the business that Plaxo is pursuing now (self-updating address books) to explore this topic.

The first player in that space to my knoweldge was Contact.com. Mitch Kapor (founder of Lotus) was on the Board, and, I believe, led the investment for Accel partners (a top VC). The VCs put at least $10M into it. At the time they launched, they basically had no competitors. What they did was to create a dedicated piece of software you would run on your PC that would manage your address book. It handled all the synching in the background for you so that the details for everyone in your address book were always up-to-date.

Overall it was a well-done app. It was free. It failed to get significant user adoption. The reason was that everyone wanted to have their contacts app be the same as their email app, and that Microsoft (and Notes, to some degree) owned that space. When Contact.com shut down, they still had no competitors. Mitch's comment to me later about why they may have failed was "What we were doing really was a 'feature', not a 'product'. What we were doing needed to be part of a complete product to work." What was needed was more insight into how users would respond to the product. Competition wasn't a factor.

A company called Peoplestreet, that I invested $2M of my fund's money in, launched the year after Contact.com shut down. It had the same basic idea as contact.com, but instead of a separate client, it worked inside all the major email/contact-management programs, like Outlook, Act, and Notes. It was also free. It did get user adoption--we had about 30,000 individual users--but more importantly, real organizations like Bank of America, Russell Reynolds, and others said "this will be important to my business". Bank of America invested $2M in the company, by way of underscoring that they believed this.

This company failed too. The underlying reason was that we couldn't find a way to get users to PAY for the service. In summary, we solved a problem that Contact.com had not, and encountered a second problem: a business-model issue. Although Peoplestreet nominally did have competitors (GoodContacts, Ants), I don't believe we ever 'lost' business to a competitor. The issues were, fundamentally, internal. Had Peoplestreet found a way to cast the product in a form that people were willing to pay for, it would be here today. If you believe that such a path existed for Peoplestreet, you can put the company's failure down to a lack of insight on the part of management and the Board (including yours truly). Like the example of Contact.com, one could argue that we should have been able to forsee this problem, before spending $6M to have it hit us in the face.

Today Plaxo is pursuing this SAME business, a few years later. It has a similar approach to Peoplestreet. They had the benefit of learning from Peoplestreet, I suppose, and their product is smoother and more refined than Peoplestreet. But to my knowledge they have not solved the basic problem of finding a way to get paid. They are now offering a paid version with 'premium customer support' and are trying to 'get into the enterprise'. I hope they succeed, but the bottom line, I think, is that they will have to take a significantly different approach than Peoplestreet, or they will fail. The challenge they are having is one that a bit of careful thought, or perhaps research into Peoplestreet's experience, would might have revealed early on. I think they have spent about $19M on this. I don't think competition has ever been a factor for Plaxo.

What is the moral of these stories?

It is critically important for us to work out the underlying usability and business model challenges that face a new, innovative product, prior to making major investments in it. Usually, the #1 reason companies don't do enough of this is rushing. They feel they must race competitors into 'the market', as though they knew that a market existed. Despite that fact that competition in the self-updating address book 'market' has never been a factor for any of the players seeking to create a product in that space, successive companies, each 2-3 years after the last, have rushed to bring their products to market, in each case spending their limited resources too quickly, and ultimately running out of cash.

The good news is that the enemy is within, so we know where to find him or her. The power to succeed or the responsibility for failure, at the end of the day, resides within the team, and its ability to evolve and shape its new, innovative concept.

Report from Oman

I'm in Oman at the invitation of the US Department of State to give a talk on innovation and entrepreneurship at a conference sponsored by the national incubator here.

I thought I'd drop you all a quick note of hello on the topic of US involvement over here in the Middle East.

In Oman, which is a quiet, ultra-safe US-allied piece of desert run by an enlightened monarchic Sultan (promotes women's rights, some freedom of speech, etc.), there is little activity of note. There is little US presence here. Rumsfeld was supposedly just here, but there was almost no mention of it in the press.

I have found no 'anti-American sentiment' expressed toward me. Sir Alan Munro, former British Ambassador to Saudi Arabia, who is a fellow speaker at this conference, and a wonderful guy who sounds like Alec Guiness and I think is of the same generation, told me a couple of interesting things:

- Dissatisfaction with "westernization" is growing in the more progressive areas in the Gulf (e.g. Dubai). He says he hears biting words, cast in anti-American language, in the sermons in the more rural Mosques even in Dubai (which, I'm told, is beginning to look like an Arab Singapore).

- He has met a number of middle ranking US officers on airplanes as he has flown around the region, and he characterized them as being "very loyal" but "very frustrated" at what the US is doing here. "What's the point?" they would ask. They are "not happy bunnies" in his words.

- A young westerner here who were recently in nearby Qatar said she ran into many US soldiers there. She relayed to me seeing a group of soldiers in Starbucks looking very sad. She spoke to them and was overwhelmed by the things they said "We came over here hoping to do something good", they said, "to strike a blow for freedom". "What we found was nothing like what we expected". "Its horrible". One of the men broke down crying on her shoulder, there in Starbucks.

Its a very sad situation.