Sunday, June 24, 2012

Analyzing Backgrounds of Top Female Investors

Forbes recently published a list of the "Top Women Angels and VCs," which was compiled from TechCocktail’s Femanomics. The list of women in alphabetical order can be found here.

I was curious about the typical background for the top female investors, so I went through their public bios to see if there were any trends or similarities between all of them. Here’s a snapshot of what I discovered:

Investing in Healthcare vs. Tech
Like the majority of VC’s, most of the women invest in technology, specifically focused on digital media, mobile, internet and SaaS. Most of the women investing in healthcare are focused on digital health apps and consumer health & wellness with only a few focused on life sciences and medical technology. The "Other" category includes mostly energy/greentech investing as well as consumer/retail.
Undergraduate Major & School
Not surprisingly, almost half of the top female investors had engineering or computer science majors and ~40% attended either Stanford or an Ivy League university.
Approximately 55% of the women on the list had an MBA degree with the majority of MBA's from Harvard or Stanford. Several of the other graduate degrees included either masters in engineering or law degrees.
Work Experience Prior to VC/Angel Investing
Close to 40% of the top female investors had some sort of finance background ranging from investment banking to prior investing roles. Operational experience such as product managers and business development positions at large Fortune 500 companies were also very common prior experience. Several of the women also had a combination of either finance/consulting early in their careers followed by startup/operational experience after getting their MBAs.
All of these women have very impressive backgrounds with degrees from top tier universities, grad schools and experience with successful startups and companies. It’s great to see that the next generation of female investors has very strong role models to look up to.

Sunday, June 17, 2012

Shift Away from Traditional Physician Payment Structures

For a lot of healthcare startups, a major issue is convincing doctors to pay for and use new healthcare technologies that can improve the quality of care for patients. While the most common way physicians are paid today is fee-for-service, there is starting to be a shift towards more value-based payment structures. 

Based on physician surveys, a majority of doctors seem to prefer the fee-for-service payment structure, since they get paid for “what they actually do.” However, since doctors get paid more when they provide more services, this method is costly and inefficient and doesn’t take into account how well the doctor improves the outcome for their patients. Below is a summary of the current payment models for physicians and some of the problems with them:

Pros/Cons of Standard Physician Payment Models
Salaried Model: Based on preset income levels
  • Doctors are not encouraged to manage costs
  • Simple and easy to administer
Equal Shares Model: Revenue less the expenses is distributed equally across all physicians in the group
  • Discourages overutilization of healthcare, since extra expenses reduce the overall revenue and how much the doctors get paid
  • More productive physicians often dissatisfied with the equally sharing allocations
  • Does not encourage high productivity, since there may be doctors that product less revenue within the group
Capitation: Prepayments to physicians based on pre-defined services for the number of enrolled patients
  • Physician takes on the role as a budgeter making decisions on how services and costs are allocated
  • Encourages under-utilization of services, since doctors pay for additional services provided to patients
  • Increased financial risk for treating sicker patients, so it discourages providers from accepting sicker patients
  • Cost-efficient
Fee-for-service: Payer negotiates charge for each type of service with the provider based on a listed fee schedule and then physicians are reimbursed for each procedure they perform
  • Fee schedule determined by payers so per service fees are often lower than what physicians feel is the appropriate cost
  • Incentive for over-utilization of healthcare
  • Low payments for basic primary care has discouraged many physicians from choosing primary care
New Models based on “Value”
None of the standard models effectively address how to reimburse physicians based on the value of the services they provide, where value is defined by higher quality with lower costs. And at the same time the newer models need to be both fair for physicians, while providing the best outcomes for patients. The ideal new model of physician payment would not encourage over/under-utilization of services, but ensure standardization of care while maintaining patient-centered care and utilizing the latest healthcare technologies without increasing costs.

These new value-based contracting models are starting to become much more common. These contract models align incentives across providers, members, employers, and payers to improve clinical outcomes and the patient experience along with improving cost efficiency.

Value-based contracts are determined using the following payment methodologies:
1. A portion of the provider’s total potential payment is tied to a provider’s performance on cost-efficiency and quality performance measures. While providers may still be paid fee-for-service for a portion of their payments, they may also be paid a bonus or have payments withheld. For value-based contracts, this bonus is not paid unless the provider meets cost efficiency and/or quality targets
2. Clinical integration fees paid to providers that are contingent on the provider engaging in practice transformation to adopt technology and processes that alter the manner in which they deliver care
3. Cost-efficiency performance measures such as risk-adjusted total cost of care, a percentage of inpatient readmissions, inpatient admissions, inpatient days, emergency room visits, and preventative care measures

The most common value-based new model is pay-for-performance.

Pay-for-Performance: Financial incentives for pre-defined performance goals often determined by patient outcomes
  • Often involves upfront additional administrative costs to track and document performance metrics
  • Performance incentives tend not to be very meaningful (i.e. offering a bonus of 1.5% when the right target needs to be closer to 10% in order to be an adequate incentive)
  • Payers are experimenting with several different performance metrics that it becomes difficult for providers to manage all the different programs (i.e. over 60 different indicators, with no single metric used by all programs)
  • Somewhat successful in achieving the goals of improving quality
Big healthcare plans like UnitedHealthcare are now participating in pilots based on the pay-for-performance model. They are implementing a significant ramp in their alternative payment models over the next three years, such that 50-70% of contracts will be value-based by 2015.

I do believe that the future of our healthcare services and reimbursements will be value-based, but the shift from one payment model to another will take years, not months. And while there are more and more systems that provide incentives for quality and patient satisfaction, the incentives need to be a larger portion of the total compensation doctors receive because otherwise they will be focused on increasing the number of patients to increase their compensation. The other difficulties of transitioning to new payment models include frustration that different payers use different metrics in pay-for-performance, high administrative overhead and complexity in adopting new models and concern that implementing new programs may take attention away from patient care and other activities. However, I am hopeful that the newer models will provide more cost-effective reimbursement for the quality of care we all know is needed in order to improve our healthcare system.

Monday, June 4, 2012

Rock Health’s Healthcare Boot Camp

Rock Health and Chicago Health/Tech 2.0 organized a fantastic event this past weekend with several informative speakers and healthcare industry experts.  Here were a few of my favorite highlights from the speakers:

Keynote speaker, Simmi Singh (Senior Advisor, Health Innovation): My favorite comment was the reference that the trait most associated with Millennials is connectivity. We value being connected 24/7 with our friends, families, co-workers, and even our health. Our generation creates change and momentum at an unfathomable pace and by focusing on healthcare, we can help change the healthcare industry at that same accelerated rate.

Orlando Saez (Director at IL Office of Entrepreneurship): The problem that the state of IL struggles with is that we are affected with “middleness” syndrome. Not only are we physically in the middle of the country, but in terms of healthcare, we are neither at the top or the bottom of the rankings when it comes to issues such as public health, obesity (67% of people in Chicago are obese), and smoking (20% of adults smoke in Chicago vs. 12% in CA and 15% in NY).
  • Some good IL health resources he also mentioned to check out included:, Illinois Hospital Report Card, and Biosense 2.0.
  • It was also exciting to hear that Chicago was selected for the International Biotechnology Conference coming up in June 2013
  • And if you weren’t already aware of this additional source of funding, the state of IL has $20mm set aside as a VC fund and the application can be found on their website here. They have already received 80+ applications and have 40 industry experts who have helped them complete 14 deals. 
VC/Angel Investor Panel: The most exciting part of investing in healthcare is focusing on quality of care to manage costs effectively, which is currently the largest problem the industry faces today
  • Investors typically look for entrepreneurs who understand regulatory factors very early on and the company hopefully already has the software, some customers (who may or may not be paying yet), and more than just a minimum viable product (MVP).  Also, they like to see the company selling into very big pain points, so that way you will know that people will want to adopt quickly or regulation will force them to adopt.
  • Investors are looking to invest in trends or lines, not dots (which I hear from every VC panel that I attend), so start relationships with angel and VC investors early on. The best way to go about this is to mention to them the accomplishments you hope to achieve in the next three months and tell them you would like to follow up with them then. When you go back to them, they would love to see that you accomplished everything you mentioned and more, which gives them that much more confidence in you and your product. It also never hurts to get a warm introduction, so aim to get close to advisors who can give your company more credibility and help make introductions for you.
  • And of course, you can’t have a VC panel event without the question that everyone is always curious about: “What is more important to investors, the team or the idea (i.e. the jockey or the horse)?” Not surprisingly, all four of the investors on the panel mentioned that for early-stage companies, the team is much more important, but the space/industry trends are still a major component.
  • There was also a great question about how the JOBS Act would affect the investors on the panel. The main answer was more of a warning to entrepreneurs who are considering crowdsourcing. The JOBS act and crowdsourcing actually makes it more difficult to attract institutional investors, since the process becomes much more complicated and messy if you have to deal with 100 other investors who came in before they do
  • Also, some trends to be focused on right now in early-stage healthcare include:
    • Primary care physician shortage
    • With all the data now available to consumers (through devices such as FitBit, Zeo, Withings Scale, etc.), there needs to be a way to process all this info for consumers
    • Consumers need to take more ownership of their data. We need to focus more on consumer-led health and wellness applications as preventative measures, since the rising cost of healthcare is becoming more and more unaffordable in the U.S. 
    • Products should aim to enable consumers to take the behavior they want to take vs. forcing them to change their behavior (which is often too challenging)
    • Investors like to see regulation that quickly forces adoption and has significant long-term benefits such as cost reduction, quality of care, improved staffing on provider side
Lyle Berkowitz (Northwestern Memorial Physicians Group, Director of IT & Innovation):
  • Entrepreneurs should focus on how your product/service affects:
    • Time (physician, staff, patient)
    • Quality of Care
    • Cost of Care
  • Questions investors should ask new healthcare startups include:
    • Does it require behavior change?  (it’s better and easier to require process change instead)
    • How are incentives aligned? (for providers, physicians, payors, patients)
    • What has been your physician involvement with development of your product? (make sure to involve the customer in the development phase)
Amy Schwartz (IDEO Healthcare Lead):
  • Design thinking should consist of all three of these components: technical (feasibility), business (visibility), human (desirability)
  • She also provided great advice on ways to help with the design-thinking process:
    • Learn about real people in their real world for insight and inspiration. In order to figure out how to innovate, you cannot just ask people what they want and need because half the time they won’t know and the other half the time they’ve already created a make-shift way to deal with the issue.
    • Find inspiration from analogous examples
    • Learn from “extreme” users
    • Consider the context at a conceptual level
    • Think across all of these segments: physical, cognitive, psycho-social, cultural
    • Prototyping is the best way to think through things and be sure to pilot test to learn from the launch, develop proof of concept and create a formal assessment
    • “In the end it’s not about what we make, it’s about what we make possible”
At the end of the event, I was very excited to hear that the first annual Chicago Health 2.0/Tech Conference is taking place September 28-30th. I’m sure there will be just as many great speakers, so if you’re interested in attending more healthcare startup events, be sure to get on their mailing list: